Will CryptoCurrencies Survive The Current Market Crash?
“The sky is falling” cry the masses who quickly adopt the actions of the herd mentality which is a natural human behaviour.
The Big Market Crashes:
Anyone who knows a little bit of financial history will understand with what happened in the following market crashes:
- The Great 1929 Stock Market Crash – which led into the great depression
- 1987 Stock Market Crash
- The DOTCOM Bubble of 2001
- US Housing Market Crash – which led many governments into bailing out financial institutions who were carrying losses of hundreds of billions of dollars and facing oblivion.
In each of these circumstances the markets rose almost uncontrollably in the famous exponential curve. Ultimately the growth in each of the circumstances was unsustainable and was made worse by the availability of “free” or cheap money for investors.
The Fall Of Bitcoin And The Market Capitalization:
The current correction or carnage in the Cryptocurrency market has seen the pioneer of Cryptocurrencies (BITCOIN) fall from a high of nearly $20,000 just prior to Christmas 2017 back to to around $6,500 (February 6, 2018). The capitalization of the Cryptocurrency Market has fallen from $830 billion (January 7, 2018) back to $300 billion (February 6, 2018). Overall that’s close to a 64% fall in 1 month.
Panicked by the “bad news” the herd mentality kicked into gear and dumped their crypto investments which in turn caused further selling by those basing their investments on margin lending.
Similarities Between Dotcom Bubble And Cryptocurrency Crash
The current state of the Crypto Currency Market has so many similarities to the DOTCOM Bubble that can be outlined in the following points:
- When the internet was embraced by companies in the early to mid 1990s with a view to offering their products and services online. The market initially was slow to adopt this new way of doing business but it did not stop the believers or early adopters from investing.
- The NASDAQ was where the tech companies like APPLE, DELL, CISCO, IBM etc were listed. The DOTCOMS also began listing on the NASDAQ to raise funds for their “business models” with ISO (Initial Share Offering) – (sound like ICO?)
- The DOTCOMs were a mix of companies rapidly thrown together with a ‘business model’ and not a functioning business generating income to sustain it. They are dependent on the investors buying their shares which they did in droves which rapidly drove the share prices up exponentially. (I can even remember a mining company transforming almost overnight into a Dotcom). There were plenty of ‘shonky’ operators cashing in on this investment windfall. (starting to sound familiar yet?)
- By the mid to late 1990s with cheap money, easy capital and over speculation & way too much confidence venture capitalists not wanting to miss out on a ‘big score’ invested billions of dollars recklessly into many of these Dotcom shams.
- With the investments of the venture capitalists driving prices ‘to the moon’ money from the general public began to pour into the share market in the belief and hope of a big score in this exploding market.
- Between 1995 and 2000 the NASDAQ increased five-fold from 1000 to over 5000 points. In the 12 months prior to March 2000 the NASDAQ valuations nearly doubled. (Again does this have a familiar ring except the growth in the Cryptocurrency Market capitalization went from approximately $19 billion dollars (February 2017) to over $825 billion dollars (January 7, 2018) – this was a growth of around 43X.
- So the DOTCOM Bubble occurred when some of the major tech companies issued massive sell orders on their stock at the top of the market in March. This in turn fuelled further selling which had a snowballing effect in driving the market rapidly down. With this change of market sentiment the capital investment for the DOTCOMs dried up which set off a chain reaction collapse of these ‘business models’. With no further investment and no actual functioning business to generate income their cash streams rapidly dried up causing their ultimate demise. Trillions of dollars of investor’s money was lost in this collapse.
From my own perspective the parallels between the DOTCOM Bubble and the Cryptocurrency Crash are uncanny.
Which Cryptocurrencies Will Survive:
Currently there are some 1541 Crypto Currencies listed in this market area. (Check Coinmarket Cap here https://coinmarketcap.com/all/views/all/ for an update on the number of currencies listed and the live individual prices for each coin.
Among the 1541 listings are literally hundreds of crypto currencies that will probably not bring their business idea to an actual working model – let alone begin to turn a profit.
However I wouldn’t be too despondent as out of the ashes of the Dotcom Bubble rose some truly remarkable business giants that now dominate the online world – here a few examples:
- Face Book
So my advice is to do some serious research and identify those Cryptocurrencies that have a sound business model and sufficient financial means to bring their model to market successfully. It is my firm belief that there are opportunities to invest in some future financial giants that will net you an enormous financial windfall – if you choose carefully!
You may like this post on the top 10 current cryptocurrencies.