People love to compare the bitcoin crash to the dot-com bubble.
I get it. It makes a good headline. At the end of 2018, Bloomberg, CNBC, and Fortune were quick to print stories like this:
If you look at bitcoin’s run-up in 2017, it does look worse than the dot-com bubble.
But these charts ignore one crucial thing:
The dot-com bubble was EIGHT times bigger than crypto
We’ll start with market capitalization.
The market cap of the NASDAQ Composite Index (which tracks tech stocks) during the peak of the dot-com boom was $6.7 trillion.
The crypto market cap at its peak was $828 billion.
In other words, the dot-com bubble was eight times bigger than crypto.
The absence of Wall Street
The second big difference between the dot-com bubble and the crypto bubble is a complete absence of institutional traders.
Almost no-one on Wall Street was trading bitcoin in 2017. Most family investment offices and hedge funds didn’t hold crypto either.
Whether it’s a good thing or a bad thing, the “big money” hasn’t come to crypto yet. The two bubbles are completely incomparable when the investor base is so widely different.
Bitcoin was a bubble…
Don’t get me wrong. The bitcoin spike in 2017 was a bubble. A big one.
It had all the hallmarks of a big financial bubble: mania, greed, delusion, and capitulation. And the 80% drop is painful.
But if we’re going to put this in context with historic bubbles, let’s use a relative scale, not percentage drops.
Bitcoin’s “dot-com moment” may yet be still to come
Bitcoin’s “dot-com moment” won’t happen until we see much bigger volumes of money flowing into it.
This infrastructure is building… Nasdaq and NYSE are launching on-ramps for crypto. A bitcoin ETF may be on the horizon. Institutional-grade custody is coming.
Only when these things are in place will we see the kind of money required for a “dot-com” level run-up.
And if that happens, the fall will be truly enormous when it bursts.