At a recent price of $4,100, Bitcoin has more than doubled from its “Bloody Sunday” panic selloff from less than a month ago. It’s no secret that the crypto-bubble has arrived, the question now is: What happens next?

If history is any guide, the crypto-bubble shares many characteristics of its Dotcom mania predecessor, or as Mark Twain may have quipped, "History doesn't repeat itself, but it often rhymes.”

Chart source: TradingView  

Bitcoin’s spectacular ascent mirrors the rise of America Online (AOL), which emerged in the mid-90s with its iconic “You’ve got mail” catchphrase and a plan to allow anyone with a PC and a phone line access to the internet.

AOL stock skyrocketed 70,626% from its initial public offering in 1992 to the end of the millennium, leaving the internet giant with a market cap north of $220 billion in today’s dollars. AOL forced public companies to rethink their internet strategy, just as Bitcoin is causing companies to rethink their blockchain strategy. 

AOL’s rise attracted entrepreneurs with new ideas and better solutions, spawning startups such as Yahoo, Lycos and Infoseek to historic valuations on little or no profits. Some of these companies turned into stinkers such as Pets.com and Webvan, but others became monsters like Amazon.com Inc. (AMZN) and Google (GOOGL).

This dispersion of capital among new cryptocoin​ ventures is just beginning, as newly minted Bitcoin millionaires reinvest their crypto fortunes and a fresh wave of entrepreneurs looks to capitalize on the current rush of capital. Coming into this year, Bitcoin was the only game in town, capturing 87% of total cryptocoin market cap. That dominant market share has been halved to about 45% (even though Bitcoin’s price has quadrupled at the same time).

Mirroring the Dotcom IPO machine of the late 90s, initial coin offerings (ICOs​) have raised $1.2 billion in 2017, quadrupling the total raises of all previous years. Moreover, ICOs just eclipsed early stage Venture Capital (VC) funding for internet startups.

Last week, blockchain data storage network Filecoin raised $200 million in an ICO on the back of a $52 million presale to mega-VCs like Andreessen Horowitz and Union Square Ventures. In July, blockchain startup Tezos sold $230 million of “tezzies” to build a database-like platform for banks and corporations to write “smart contracts.”

One main difference is that the crypto market cap is still roughly 1/25th of that of the Dotcom bubble at its peak, and institutional buyers have yet to dominate the market (like all other asset classes). That makes the crypto-bubble look like a beach ball compared to Dotcom’s hot-air balloon.

Eventually and inevitably, what goes up must come down, and pain always follows euphoria.  Just as AOL engendered the dawn of Dotcom, its January 2000 purchase of traditional media company Time Warner Inc. (TWX) is generally regarded as the peak of the bubble.  Shortly after, the internet-heavy Nasdaq peaked at 5,132.52 then spectacularly fell 78% in the following 30 months. Bitcoin could be headed to a similar peak when it becomes mainstream and ubiquitous, and is no longer viewed as the currency of hackers and speculators.

Chart source: TradingView  

The Bottom Line

The names may have changed, but the investment behavior remains the same. If the crypto-bubble is following Dotcom’s playbook, expect the flow of capital to Initial Coin Offerings to continue accelerating, as Bitcoin investors seek to diversify their holdings. 

For more on how to navigate the cryptocoin markets, please visit our site.

 

 

 

 

 

 

 

 

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