Bitcoin Forum

What do you guys think separates the crypto situation now from bubbles like the dotcom bubble back in 2000? I find there are a lot of similarities, and it worries me. The expansion of the crypto markets with new altcoins and ICO's coming every day, it seems as if sooner or later it's going to have to stop. What gives all these coins their value? What kind of methods do people here use to evaluate future cashflows or earnings? Almost every time I ask someone that on this forum they don't have any answer what so ever. Maybe just a "well it's going to go up because more people want in so that they can earn money too". That's 100% the definition of a ponzi scheme, which causes me to think we are operating in a ponzi financed economy (ref. Hymin Minsky's crisis model).

The dotcom bubble burst because people were expecting enormous future profits, which wasn't backed up at all by the organic growth in the industry. How should we determine what is organic growth in the crypto economy? It's really hard to say, as the technology is so young that companies aren't really making money yet. So what kind of earnings are you guys investing in? Is it simply that you expect the asset to increase in price due to higher demand, or are you betting on cashflows from the use of it? In bitcoin's case I guess there won't be too much cashflow from use, but there are many altcoins that try to do this. I'm just thinking loud here, so I'd very much like to hear your thoughts as well.

What makes dotcom and altcoins different is that altcoins and ico's are direct derivatives of Bitcoin, and they are mostly traded against it or Ethereum. This means that if they are in a bubble and this bubble will burst, people will just sell them for BTC and ETH without any direct influence on Bitcoin's price. Bitcoin is still volatile and can be sensible to some events, so it might dip for a short term, but there's no fundamental reason why failure of altcoins would damage Bitcoin in long term.

Now, about the roots of dotcom and altcoins. Dotcom bursted because the technology wasn't there yet, so most dotcom companies were not able to deliver their promises - and this can easily repeat with altcoins, since the blockchain technology is also very young still and might not be ready to implement visions of developers. The other problem is scams - many projects are simply luring investors and not doing any development. Both of these factors combined with overoptimistic investors can cause a bubble, so it's quite likely that altcoins and ICO's will burst. Maybe some coordinated crackdown from regulators would be the trigger for it.

But Bitcoin will survive because it has delivered all its promises from the start, so when you are investing in Bitcoin you are getting exactly what you've paid for and not some promise of a future value - this is one of the main difference between Bitcoin and most altcoins.

Altcoins and ICOs serve one purpose: the creator wants to get your Bitcoins! Once you realize that, it's easy to see through most of them.

The fact that everybody wants them, is what gives them value.

How is this different from dollars, or gold?

You could still argue the same for many tech companies.

I expect Bitcoin to keep growing, as long as more people join. Since only a tiny fraction of the population uses it, there's a huge growth potential. All you need is adoption, value will follow. That's also why I worry less about temporary price drops now.

I fully agree. Whatever happened to the many altcoins already in the market will not affect Bitcoin in general. The success or failures of any altcoin won't have any direct bearing on the value of Bitcoin. Now, if all altcoins would suffer some form of a bubble and the market for them will die due to many reasons, there is no reason why Bitcoin can be part of that as each coin is independent of each other.

It like saying that whatever happens to the many imitation goods around will not have any negative effect on the original brand and would in fact be a positive one since there can be more market share for the original ones. The same thing with Bitcoin though am not saying that altcoins are actually fake as many of them certainly have their own intrinsic value. We live in an open marketplace and what is happening right now is giving all the coins the opportunity to show what they can do and then we let the market decide.

both of these markets definitely share some common characteristics. The dotcom bubble was a huge hype about the internet, which was well justified if you ask me (remember that it didn't die out, internet is still proliferating and has made a great contribution to our everday lives). I think it's quite similar with the blockchain, people are hyped a lot and it might crash, but the long term implications of the blockchain as so big, that they will eventually live on and we'll experience them first hand :)

One thing to note about the bubble is amazon.  Ya sure it fell huge but if you never sold you'd be widely rich.  Bubble != end.

you can not compare bitcoin to dotcom bubble, because they both are different things, maybe you are right in some sentences of your thread, but you are exagerating it a lot, i dont think that this might be a bubble, because it is too early to say that, maybe we are going to be able to say that we are on a bubble if the price suddenly goes to $10k at least, but for now, we are only in a pump time, not more.
But who knows, maybe tomorrow the price is 1000$, nobody can expect anything from cryptos

Right now bitcoin has all the signs of a bubble but what does it change? You refuse from using it? Lol. All users of bitcoin see any real profit from it. You propose to abandon it? Even if the bubble bursts we already earned real money. Can fear and then not have anything.

Whoever claims there isn't a bubble with all the dumb ICOs and shitcoins is simply lying to you or trying to sell you their own shitcoin. You just have to go around all these conventions and ask around, they just sound likes sales pitch for scams.

Now if once this bursts (which may take a long time, which means there is still time to get rich by alt speculation) will have a negative or positive impact on BTC is yet to be seen.

I think it will make BTC correct for a while if there are tons of billions lost in altcoins, but it will quickly go to BTC which will make BTC stronger since all that dumb money will finally be sitting on BTC.

dot com bubble was from the companies that was established and they sold stocks on the market promising that it will grow because of the demand for their products or services but because it didn't happened prices fell.

Bitcoin's price is increasing because of the demand for its purpose. No company to consider but just people who will use it. So bitcoin is way different from dotcom bubble.

I could see how many people would make this comparison, however bitcoin is vastly different. I do not like the near parabolic rise tho, for the long term health of bitcoin. I hope we are not going to burn a massive portion of community, forever turning them off.

In many ways history is repeating itself but at the same time there is a crucial difference, all the alts depend on bitcoin and that never happened in the dot com bubble, there was not a stock  that dominated the other stocks, since bitcoin is a currency all the other coins have a one way relationship with bitcoin, if bitcoin fails almost every other coin will fail, but if all the altcoins fail the effect on bitcoin is not going to be that big.

BTC cannot be compared to the dotcom bubble, the tulip mania or any bubble that ever happened in history. BTC is a special case from my perspective because it really can change and disrupt modern finance. One good comparison for BTC is the P2P music sharing app Napster (https://en.wikipedia.org/wiki/Napster). It started to revolutionize file sharing in the same way BTC will revolutionize trade.

It doesn't need to offer or promise any services for it's value to boost. It is the demand of the coin itself that changes its value.

I think with Bitcoin there are two types of price moves - short term speculative ones, like the one we witnessed when China closed exchanges - this is caused by speculators overreacting to some events, while the whales and average hodlers mostly ignore them; and then there are some long term forces that influence the price for a long period - like the crash of Mt. Gox or current bullishness of mainstream attention. On practice it can be extremely hard to predict how exactly the market would react to some events in the long run, so it's hard to say what exactly will happen with Bitcoin in the if altcoins will fail. But it's almost certain that there will be some wild speculation for a few days when the alts will start crashing.

What do you mean? Are you saying that BTC is indeed a bubble? If all it has is the demand and depends on it to make it more valuable then its nothing but a bubble.

But you forgot BTC's utility as a store of value and as a currency.

We are not even close to where the dotcom bubble was. The dotcom bubble still had established/legitimate companies, it is just that most of them failed when the market crashed, but they were still legit. In today's crypto market most companies are startups and have not proven themselves. We are still in the beginning - 1995 and most people cannot even buy or sell crypto because the "Windows 95" of crypto has yet to be invented.

Great replies, guys. I really enjoyed getting feedback on this.

I am still not entirely sure we're not in a bubble, tho. Some of you relate bitcoin to Napster or say that the tech is revolutionary, which I agree with. That is also the problem. The internet was revolutionary as well, and is still thriving. Without the internet there would be no dotcom bubble. Many businesses that tried to capitalize from using the internet failed miserably, which caused the crisis. How do we know we're investing in the internet and not in a startup? If you catch my drift.

It's not so much that we're investing in "the internet" as opposed to a startup. It's are we investing in a Google or Amazon as opposed to the many that didn't make it. I'm sure in 15 years time there will be many names from now that are forgotten. Those that survive will be highly valuable. The most important thing to remember is that this has only just started, it's more like 1995 than 1999. This bubble has a long way to go yet. In market cap terms the internet bubble was in the trillions of dollars, we're still in the billions. Only 1.5 million people own a crypto wallet, just think what happens when the masses start adopting.

In 15 years there will be many names that are forgotten?! Try 5 years! I can name you many companies right now off of the top of my head that achieved the highest level in the crypto world in their respective fields and are no longer here today. The first one that comes to my mind is Cryptsy. That exchange was the most popular in the world, and also Mt. Gox. Both are gone now and facing lawsuits over stealing their users coins due to getting "hacked". Yeah, right. ::)

When we talk about bubbles, I think we have to distinguish between two kinds:

1)   The pure bubble: like tulip bulbs bubble. Tulips became the most expensive asset and when the bubble exploded, their price went to virtually zero.
2)   Regular bubbles: these are bubbles that we see quite often because assets that have intrinsic value get too overpriced. When the bubble explodes, their price falls a lot but it is far from zero. I would place here the real state bubble and dotcom bubble. When those bubbles exploded some specific assets went to zero, like some buildings in located places (like bad neighborhoods of Detroit) buts most assets retained value.

I think if bitcoin explodes, it is going to be of this second kind. It won’t go to zero and if it does that will be because another crypto will have taken its place.

I was a customer of both Cryptsy and Mt. Gox so I'm well aware what happened there. I was using the looking back in 15 years timeframe as it's now 17 years since the dotcom bubble burst. The wounds of Cryptsy and Mt. Gox are still fresh in memory now, I hope to have forgotten by 2032!

There are many aspects that are very similar however the tittle of the thread seems mistaken it says Bitcoin = dot com bubble, if instead it said, cryptocurrencies = dot com bubble I will agree with the title, the dot com bubble had many ideas that were never going to materialize and create a successful business and the same is happening now, but at the same time some of the most dominant companies of today emerged from that bubble and I think the same is going to happen now, so we need to make sure we select the right coins to invest.

Nice thread. It has been quite a while to see a good thread in Economics section.
In my views, it is wrong to compare Crypto market with the Ponzi structure. Though in both Cryptos and Ponzi ladder, new buyers enter with a prospect of earning future profits but still Cryptos have utility which is entirely absent in latter case.
On the other hand, if you consider speculation part of Crypto market, so this occur in each and every asset. Now come to Real Estate, not everyone buy to build mansion. Some do trading, buy low and sell high. Similarly in case of cryptocurrencies, speculation do happens but it is integral part of asset trading and shouldn't be consider big threat if an asset is backed by some utility.

Yes, solid topic.  

You guys should watch the documentaries "E-Dreams" and "Startup dot com".  They're both really good glimpses into the world of the late nineties and how euphoric it was if you were a startup internet company.

Bitcoin does feel like the dotcom days, and I remember them well, even though I participated more in the biotech bubble that sort of ran concurrently.   But the feeling has more to do with the soaring price rather than the exchange and business failures.

And we all know how the dotcom bubble went.  That's the part that makes me nervous.

My opinion is that there are already many shitcoins dying every now and then. You just have to go to less popular exchanges and see so many coins which are virtually unknown and many of them will be dead months from now. However, if there is good thing here is that I still have to see a shitcoin or even a popular that died and then it swayed Bitcoin down. It is as if Bitcoin does not really care about these so many unknown copy-cats. And it is just rational...will the original manufacturer be affected negatively if many of its me-too competitors would start dying? The answer is no...in fact it can boost the the genuine manufacturer because he would have less competitor for the same market they are fighting for. The same thing can be said about Bitcoin.

Anything can become a high value item, as long as enough people want it. That failed with tulips when people realized they can easily be reproduced.
It's nice to say a tulip was worth more than a house, and call it a bubble. But what about paintings? This (https://en.wikipedia.org/wiki/Interchange_(de_Kooning)) one was sold to a hedge fund billionaire for $300 million 2 years ago. I bet he didn't buy it because he likes it, he only bought it because he assumes it's value will go up.
Since he bought this painting, Bitcoin went up more than 20x. I know I wouldn't invest in paintings.
Does this look like something that's worth 1000 houses in most countries?
https://upload.wikimedia.org/wikipedia/en/5/5f/Photo_of_Interchanged_by_Willem_de_Kooning.jpg

I don't think Bitcoin has any intrinsic value, just like dollars or any other coin (except from the paper or metal value). Intrinsic value (finance) (https://en.wikipedia.org/wiki/Intrinsic_value_(finance)):
If Bitcoin would have any intrinsic value, it would be based on the technology, and basically be the same as the intrinsic value when it was first created.

It happened before and will most probably happen again.

Bitcoin should be fairly safe from this, it's the trashy altcoins that need to worry about their future. Bitcoin is already proven and is basically the "you must be this tall to ride" in crypto.

Maybe, optimism of their owners?

I guess you say it correctly further in your post that in the majority of cases where "new altcoins and ICO's are coming every [other] day", we have what you call "a ponzi financed economy" (though I don't know anything about Minsky's crisis model). That said, I think we should still distinguish between Bitcoin as well as a few other altcoins which seriously aim at being used as a means of payment (i.e. as money) and altcoins which are created for the single purpose of stealing money. In other words, even if it is really a sort of ponzi financed economy, this doesn't mean there are no worthy assets which might have a future like it happened with the dotcom bubble. The majority of scams died out eventually back then but legitimate companies with real stuff behind them survived

ICO is actually a positive activity for those who are conducting quality ICOs such as raising capital for technological development for the future, so I can conclude that I think from bitcoin or ethereium have to select really qualified ICO for future technology development.

Keep in mind though that a bubble might not be the worst thing ever. It's better than crypto's not getting any attention at all for starters. Bitcoin in my opinion does not resemble the dotcom bubble because that was still kind of a regulated market. The internet was a brand new investment opportunity, but you can not just fork the internet^^. I think this makes the crypto development something that is hard for established companies to controle and therefore it has more resilience against bad decisions as an entire market. Individual programmers with smart code can singlehandedly alter the course of the cryptodebate. Also as was mentioned before by another user, a bubble is not the end. A lot of the companies that came up in the dotcom bubble did not die but rather they grew to some of the companies we still see around today. In addition to this, remember that investing in a bubble might not necessarily be an irrational investment, as long as you spread your odds, are confident in the technologie and hodl, the probability of this bubble benefiting you are much larger than it ruining you.

TL;DR: No, it is not the same and even if it was a pure bubble it still might be rational to invest in it

I think we cannot compare Bitcoin to the dotcom bubble, simply because Bitcoin is not a bubble and the cryptocurrencies are not the same with the websites before, since those sites are being managed by people who kept on saying to buy their stocks, even though the product of their websites are certain to become obsolete, as for Bitcoin, it is not managed by a company, and no one is saying to buy bitcoins, because it will give you a lot of money, instead, real investors came in to play, and Bitcoin is showing very promising movements. I think people compare it to the dotcom boom, because both are technology, both are using the internet and bothhave high earnings, but what they failed to understand is the technology behind Bitcoin, which is block chain, that gives it the edge against the dotcom bubble. Bitcoin cannot be compared to the dotcom bubble, since most of the dotcoms back then we're created just to gain profits, and Bitcoin is not like that, Bitcoin is created to become a currency, that can replace Fiat.

Bitcoin itself, no. Crypto as a whole, definitely yes.

There are a lot of bullshit projects filled with empty promises and fancy buzzwords that will crash and crumble along with the foolish gamblers who choose to partake in the nonsense.

However, even during the 'dot com bubble' a few savvy investors (who did a lot of proper research and resisted buying things they don't understand) made a huge fortune.

This will happen with crypto again - most people will end up burning themselves, while the select few who don't follow pointless trends will come out on top.

Just like the stock market, cryptos are a tool for transfering money from the ignorant, lazy and impatient to the diligent and patient.