Bitcoin Vs. Dot-Com Bubble: You Are Here

There have been no shortage of attempts to compare the meteoric rise of Bitcoin (and cryptocurrencies more generally) to the dot-com boom/bust.

Critics of the crypto craze will tell you that what we’re seeing in the space mirrors the euphoria that ultimately ended in tears in 2000. Proponents will argue that betting against Bitcoin is akin to betting against the internet – i.e. that the potential for widespread adoption is unlimited and no price is too high.

As a quick aside: here are a few bullet points from a Tuesday panel discussion with Glenn Hutchins and Mike Novogratz (whose new “target” is $40,000):

  • Hutchins says bitcoin is not a fraud and he doesn’t think of it as a bubble.
  • Novogratz thinks bitcoin will come away as the winner, but none of them will become currencies.
  • Novogratz adds that he thinks there is fraud in the space, and called this the biggest bubble of our lifetimes.
  • Thomas Lee says that bitcoin is the next big wave of innovation.
  • Murray Stahl says anything can be money.

We have of course spilled gallons upon gallons of digital ink in these pages debating this and you can peruse our entire archive here. But suffice to say that while there are certainly good arguments for how/why the technology will ultimately be a game changer, there is an equally long list of arguments to support the contention that we long-since entered the realm of pure, unadulterated speculation. This chart underscores the latter point:


Below, find a nuanced take on this issue from DK, who pens some pretty interesting missives on the crypto space.

From DK’s Medium (also follow on Twitter)

I recently read this interesting article by Ari Paul on Forbes, which basically argues that in terms of adoption of cryptocurrencies, we are at the same point in time as the internet was in 1994.

I think Ari’s way of comparing the internet and crpytocurrencies is very smart and it would indeed signal that there is enormous potential left for crypto assets to continue the current bull run. However, due to the simple fact that I was hands deep into the .com bubble, every time someone writes about how low adoption still is and (implies) how much higher markets will still go, I get reminded that basically every Uber driver in London tells me about bitcoin or another token these days and how similar that is to how things unfolded in the .com bubble. So I get suspicious – especially if that person presumably has an interest in prices going higher. I wrote an earlier article about the bubble comparison if you care to have a look here. Note that the same suspicion I mention here applies to myself also. I do have an interest in prices going up further – at least subconsciously.

So I decided I wanted to know for myself how likely it really is that 1994 is the correct analogy in regards to the internet comparison or rather I wanted to use a similar method to arrive at my own conclusion as to how long this current bubble will still be getting larger.

I decided to look at the following indicators:

  • Cryptocurrency adoption as compared to the Internet (similar but slightly different methodology to the article on Forbes)
  • Size of the current bubble relative to the .com bubble
  • Further ways to value bitcoin (relative to gold, future introduction timing)

The following addresses each of these points.

Cryptocurrency adoption vs. Internet adoption

As I said above, I think looking at cryptocurrencies this way is very smart and I am not looking to take away any of the credit from Ari here.

However I disagree with using the number of bitcoin users as the best indicator. I think that there is a good case to be made that many people who entered the world of cryptocurrencies after December 2016 may have directly gone into Ethereum and from there onwards into ICOs and utility token. I am not saying they never touched bitcoin, but they might easily be lost in the statistic.

Furthermore, given cryptocurrencies have started to become an expensive hobby and are really much closer to an actual investment decision these days, I do think it is fair to say that a large percentage of households will only have one cryptocurrency user and that their investment will be done in joint accounts (whether this is couples or entire families). This might also happen simply due to the age difference and the likelihood the older generations ask their children to do it for them.

So I tried to focus (1) on households and not users and (2) on cryptocurrency households and not just bitcoin holders. My results are below:

Basically I start with Alistair Milne’s Coinbase user number which he has been tracking nicely (check out his Twitter; thanks Alistair). Then I used’s trading share (volume based) of Coinbase exchanges in total bitcoin trade as an indicator of Coinbase accounts as a % of the total Cryptoaccounts.

Lastly, I assumed that every household has on average 4 accounts (ie some people will have 10 accounts on multiple exchanges on their own and some people will have just 1).

The resulting number brings me slightly ahead of Ari’s estimation in terms of where we are regarding crypto adoption. I believe that 3.5% of households are currently crypto households, which compares to about 1998/1999 in terms of internet adoption.

The reason I believe that is more accurate is actually that it also ties in better with the other indicators I looked at.

Cryptobubble vs. .com bubble

I can draw on two earlier posts to properly do this comparison. One is linked at the start, the other can be found here.

In order to understand the numbers I am using, you will need to know that I disagree with the general view of “Total Market Capitalization” in the cryptosphere. The article I mentioned just above goes into detail as to what is wrong with it, but in summary the problem is that the current way to measure market cap in crypto disregards the supply of token/coins still held by the companies or users that gave birth to these coins.

Arriving at the right number is a difficult exercise as it is clear (at least to me) that the total supply of all coins need to be taken into account for ICO token (ie the founder holdings are part of supply), while for most utility token and for bitcoin considering the supply not yet mined would not be appropriate. However, cases like Ripple make it difficult as I think every bit of the pre-mined supply here should count towards market capitalization as it can be sold any time. Any ways, when you see my numbers below, just note that I am counting total supply for token and a mix of total and circulating supply for utility token and currencies like bitcoin.

Again, several assumptions are necessary. I start with saying that the proportion of value attributable to the .com bubble is 50%, which I derive from the level that the Nasdaq Composite traded at for the next few years after the bubble burst. That yields a size of 4 trillion US Dollar for the total bubble. However, to make it comparable, I believe we need to deduct the amount due to Institutional holders, as these have not yet been a major factor in crypto due to unclear regulations (even just asset custody is a night mare; good article on this by TwoBitIdiot here). So that brings it down to 10% of the total value, yielding $400bn.

If we assume the same proportion of value attributable to the bubble in Crypto (ie 50%) and allow for 10% of Institutionals in the space, the current bubble in Crypto is c. $180bn, which is about 45% of the .com bubble.

This would suggest there is quite some room left, though for reasons outlined in my earlier article I would probably say this is slightly overoptimistic.

Further valuation methods

Next to looking at bitcoin transactions as a % of fiat transactions which I find a bit too much too assume (given this basically presumes any scaling issues or electricity issues are solved and governments let it happen), there are two things that come to mind that could be important:

  • bitcoin market cap as a % of global Gold value

Bitcoin has undoubtedly shown a capability to store (and grow) value, so this is an interesting comparison. I find it hard to assume bitcoin will ever replace Gold given the latter’s much much longer track record, but it is absolutely not out of the question that bitcoin value could approach 10% of global Gold reserves.

1% of Gold value translates to approximately $3,500 per ultimately mined bitcoin. So we currently stand at about 2.5% of total Gold value. This suggests bitcoin could be worth $35,000 one day.

  • Institutional mass market adoption (CME Futures)

There was recently an article by the FT that claimed the introduction of Futures would hail the end of the bitcoin run. I thought the idea to look at previous instances such as opening of the Japanese markets and mortgage bond indexation is a smart one. However I disagree with the author’s conclusion.

As a matter of fact, as I argue here, these instances seemed to mark the start of the accelerated part of all these bubbles and while that used to be the last stretch of the bubble it typically took values a good deal higher yet for quite some time.

How does it all tie together

If you look at what I stipulate here, it is interesting to see that all three parts fit together relatively nicely.

All of my indicators would say that in terms of value creation we are about at the start of 1999. The .com bubble had ways to go from that point (about 130% upside was left to the March 2000 high) and internet adoption more than doubled in about two years. This does not yet say anything about the maturity of the underlying technology of course, but that taken together with the timing of CME future launching still this year leads me to believe that we are in the last leg of the current bubble in crypto.

This last leg is typically the strongest one and surpasses everyone’s expectations on price, leading to a fully fledged euphoria. I have no idea where this leg will take current crypto prices, but I continue to think that the introduction of ICO regulations along with lawsuits brought against some of them by the SEC and founders potentially ending up in jail could be the catalyst for the bursting of the bubble. From there on out, Crypto/Blockchain 2.0 (or rather ICO 2.0) may very well replace current market places over the long run, but it could take a longer “digestion” period for this to emerge, just like it took years for Facebook, Netflix and Amazon to start dominating their fields.

Speak your mind

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7 thoughts on “Bitcoin Vs. Dot-Com Bubble: You Are Here

  1. Don’t look at the price of bitcoin, look at the market cap. In 1999 the stock market was 6 trillion market cap and the crypto market is at 300 billion right now. 50% of that is in bitcoin. 150 billion in bitcoin. That’s a tiny fraction. In 1999, the bubble wasn’t global, it was in the US. Crypto market is global so 300 billion is nothing compare to where it could go. Not saying that we aren’t in a bubble, but you can’t compare 1999 until we see more money poured into it. Not everyone knows how to even buy bitcoin or altcoins. Once the public or non-tech people are able to buy easily, then we could hit bubble territory. If the crypto market is in a bubble, then I don’t know what the stock market is in, probably ultra super duper bubble. At least the crypto market pulls back more than 20%. We haven’t seen the stock market pull back more than 2% this year.

    1. I think you stop too early on your analysis. You do not consider: 1) Total coins lost; 2) Derivative, or proxy methods folks use to invest in alts (hint: look at [OSTK]); 3) Threat of government intervention.

      It’s also funny to think about how US-based institutions, like CoinBase, are giving people access. Since they are regulated in the US, and abide by know-your-customer and anti-fraud laws, those who buy via CoinBase must submit all their personal information to set up an account. I say this is funny because the initial allure of alt coins are the Libertarian underpinnings to the ecosystem – it was designed for anonymous transactions! That is a HUGE feature actual users/miners of alt coins will have to sacrifice if the craze actually has traction!

  2. I closed the last of my BitCoin out today. Vertical chart line rises in essentially dysfunctional exchange mediums make me think that all of their value is 99% speculation and crashes are at hand.

    I’ve made several BitCoin merchandise transactions. My first a year ago – took nearly two weeks to complete, was very expensive compared to PayPal, or credit card. I have no idea whether my transaction went off-chain like 50+% of current BitCoin transactions. This meaning it had zero blockchain security. I lucked out my BitCoin purchase of products in China eventually were confirmed – all be it at extraordinary costs, zero anonymity, and with unknown security.

    My last attempted transaction with Newegg yesterday and today. Neither of which was ever completed and has so far involved about five hours of effort. The lengthy time was a primarily Newegg problem – failing to have staff familiarity with BitCoin transactions. First of all the staff member that I worked with on the order had never made a BitCoin transaction, only knew one person who had ever made a BitCoin transaction at Newegg, and had to spend about 10 minutes locating someone at Newegg that could her – help me – to select items from the Newegg online catalog for which Newegg accepted BitCoins. While Newegg claims to accept BitCoin, it only accepts BitCoin for Newegg inventoried items and not for items being sold by their associate vendors in their catalog. There are no refunds for BitCoin purchases. In some cases you can get a Newegg gift card in an equivalent value to your Newegg returned order. A very ambiguous refund policy – if you can call it that. Essentially, I have had to start my order over repeatedly and continue again until I had to accept that FireFox and Bitpay were simply not going to talk to each other. The problem was apparently between BitPay and FireFox – which could not communicate the respective exchange addresses between Newegg and my LocalBit wallet.

    After nearly 7 hours invested in the order for an iPhone and accessories, I have given up. I traded/sold the Bitcoins necessary for my purchase through LocalBit and had the cash paid into my PayPal account – where I can eventually make a competent purchase in a reasonable amount of time.

    The bottom line as so many BitCoin analyses point out is that BitCoin is not a currency – because it has very little merchant transaction. This is primarily because it’s expensive in both time and money – multiples of a credit card transaction. Almost no one is using BitCoin for regular transactions – in spite of what BitCoin trolls may claim to up the value of their speculative BitCoin holdings.

    BitCoin is 99% speculative trade/gamble at best. There is a big gap between its use as a speculative trade and becoming a competitive currency or exchange medium. Due this lack of competitive exchange functionality – BitCoin is a speculative bubble, and eventually that bubble will pop and BitCoin valuations will reflect the reality of its actual functional value – which is not very much. The real down side of BitCoin is that many people responding to the BitCoin mania – are now purchasing BitCoin on credit – particularly expensive credit card debt – the easiest way to buy BitCoin. If BitCoin valuations collapse – much of the associated BitCoin purchase debt will hit the banks and the economy between the eyes.

    Mean while the blockchain technology (which is used on less than half of current BitCoin transactions because of blockchain throughput time constraints) will continue to be developed not only for currency, but for many other kinds of inventory type source tracing and accounting (i.e. WalMart and others are developing blockchain for product tracking). Soon blockchain will be adopted for national cryptocurrency technology development. When this happens private cryptocurrencies will be superfluous – and will still be non-competitive.

    That’s why BitCoin is by definition a speculative bubble – because there is simply no scenario where private cryptocurrencies become competitive with and or are allowed to displace national currencies. As of now – I no longer own any BitCoin, or have any position in cryptocurrencies – long or short.

NEWSROOM crewneck & prints