Will Bitcoin have the fate as the Dot Com Bust?

19 Sep Will Bitcoin have the fate as the Dot Com Bust?

I’ve gotten many emails and questions from you asking my opinion on bitcoin and cryptocurrencies in the past year. Therefore, I thought I would write an article about it and share my thoughts. If you haven’t heard about Bitcoin in the past year or two then either you have been hiding in a cave or just having been reading or watching the media cover the astronomical rise in the price of bitcoin and other cryptocurrencies. Just only a little over 7 years ago, the price of bitcoin was less than $0.10 and it has risen to a high of $5,000 just earlier this month in Sept 2017. That’s an incredible 50,000% increase in just 7 years. It also means that if you bought $1,000 worth of bitcoin, at its peak it was worth $50,000,000. Yes that’s right. It’s 7 ZERO’s! Don’t we all like to dream that we have stashed a few thousand dollars worth of bitcoin in our computer in 2010 and forgotten about it.

Now the price has fallen a bit lately and as I write this post, the price of bitcoin is trading at $3,800. But either way, it has risen dramatically especially in the past few years. Now for those who don’t know what bitcoin is, it’s a form of a digital currency or simply it’s a form of payment system that you can use to pay for anything. In fact, there are an increasing number of online sites and retailers that accept bitcoin as payment such as Overstock.com, Expedia, Subway, Gap to name a few. This gives a lot of legitimacy to bitcoin as it is another alternative to paper currency which we call dollar bills. I won’t get into detail in this post on how bitcoin was created and how do you get access to the digital currency because there are other sources that will give you a better explanation. You can read Wikipedia’s explanation of bitcoin here. What I want to focus is how the rapid rise of Bitcoin is quite similar to the Internet boom in the late 90’s that I had the experience of participating in. Unfortunately, we know what happened as the Dot Com Boom became the Dot Com Bust. Here are some similarities that I see:

  1. Eye popping price increases in a short period of time

During the Dot Com Boom in the late 90’s, we saw stock prices of many Internet companies that operated their entire business online skyrocket in price. Companies like Yahoo, Amazon saw their stock price increase from $10 to $475 (Yahoo) and from $18 to over $400 in a matter of 3 years from 1997-1999. The reason for the rapid price appreciation was investor’s belief that these companies would change and dominate the online world. This is similar to bitcoin who investors believe will replace money and be the new form of payment in the future.

2. Big Media Exposure to the Mainstream Public

In the late 90’s, you couldn’t go anywhere without reading, watching or hearing people talk about the next dot com idea or how an Internet company was going to change the world. Companies like Pets.com, eToys.com were going to change how people shop. You could hear people pitching dot com ideas at coffee shops or amateur investors talking about which stock was going to go up in value. I don’t know about you but I’ve increasingly been approached or met people who have bitcoin related businesses just in the past 2 years. When I first heard of bitcoin in 2011 by a friend, very few people knew what it was.

3. Outrageous price targets by analysts

Back in 2000, I bought into the dot com hype that the Internet Boom was going to last forever. I watched on the news where analysts gave strong buy recommendations on publicly traded companies like Pets.com which ultimately at the end of 2000, went bankrupt. I just recently watched on tv where some influential people thought Bitcoin price would go up to $500,000 by 2030. Sounds familiar?

In summary, I am an avid supporter of Bitcoin and think that it is here to stay. Will it go to $10,000 and beyond? My guess is it will head back down in price and perhaps stabilize between $1,000-2000 before heading higher.

 

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