Comparisons between the recent cryptocurrency crash and the Great Dot.com bust of 2000 are everywhere these days. These comparisons are useful because there is a lot that cryptocurrency speculators and entrepreneurs can learn from the Dot.com Bubble at the turn of the century.
For those too young to remember it, the dot.com Bubble was the overselling of stocks in online enterprises. Almost all of those enterprises were speculative, and many of them were theoretical.
However, promoters convinced vast numbers of investors that ecommerce was the future. In particular, they sank a lot of money into questionable ecommerce startups like Pets.com (known for its sock puppet TV ads), and lost it.
On the other hand, history has taught us that the speculators were right. Ecommerce companies are making a lot of money – 18 years later. The dot.com bubble investors had the right idea at the wrong time.
Lessons for Cryptocurrency Speculators from the Dot.com Bust
Obviously, there is a lot that today’s cryptocurrency speculators can learn from the dot.com bust. Lessons cryptocurrency speculators can learn from the dot.com bust include:
- Never write off a technology because of one crash. Amazon (NASDAQ: AMZN); a stock written off during the bust, had a $932.7 billion market capitalization on 21 September 2018.
- Adoption of new technologies a long, long, time. Amazon started in 1995 but ecommerce did not affect mainstream business for 20 years. Moreover, streaming video began in the late 1990s, but most people did not watch it until the last five years.
- There will be a lot of false starts. Back in the late 1990s Yahoo and AOL (Google them if you are under 30) were the main search engines. Today, both are tiny pieces of large media corporations.
- Newer and better platforms are likely to appear later on and dominate the industry. For example, most people were not aware of Google until four or five years after the dot.com bust.
- The media narrative about the cryptocurrency crash will be wrong. Obviously, the media wrote ecommerce off as dead in 2000. Jeff Bezos’s $162 billion fortune ultimately proves that obituary was premature.
- Popular opinion about the crash will be even less accurate than the media narrative. Generally, the media version will contain a little truth, but the mob will base the popular conception on prejudice and hearsay.
- Mr. Market will reward long-term investors. Mr. Market has rewarded dot.com believers that kept the faith with a rate of incredible growth in stock value. (See Amazon, Facebook (NASDAQ: FB) and Alphabet (NASDAQ: GOOG) for examples).
- Crashes, bubbles, and busts have little impact on technology’s long-term development. Looking back from 2018, the dot.com bust did not slow ecommerce’s development.
- Crashes and busts will make cryptocurrency stronger. For example, the dot.com bust killed off most of the weak, fraudulent, and unrealistic internet stocks. For instance, garbage like Pets.com, Boo.com and Webvan went down the drain. On other hand, good companies like Amazon got stronger.
- The good will survive. The strong internet companies with good leadership, such as Amazon and Google, survived and made money. The weak went broke and died.
- Many business plans are premature. For example; one notorious dot.com bust company, Webvan, had a business plan almost identical to that of Ocado Group Group PLC (LON: OCDO) and Instacart. The problem was that the technology and infrastructure to support same-day online grocery did not exist 18 years ago.
- Real world success trumps the best plans. Amazon succeeded because Jeff Bezos he could deliver on his promises. Most dot.com died off because they could not execute their plans. Therefore, look at the company or the product before the business plan.
- Ben Graham was right. Tellingly, the grandfather of value investing’s first rule for investors was to ask “does it make money?” Revealingly, Graham’s second commandment was to see number one. Ask Graham’s question whenever you see a new cryptocurrency or blockchain application and keep asking it.
- Therefore, always ask yourself does it make money and how will it make money for you when you see a proposal for a cryptocurrency or a blockchain platform. If you cannot answer those questions don’t waste your money.
- The stubborn survive. For example, Jeff Bezos is the world’s richest man and the king of ecommerce because he was too stubborn to quit. Bezos is no smarter than his competitors, he’s just more stubborn. Therefore, cryptocurrencies promoted by people with strong wills will succeed.
- Success requires a lot of blood, sweat, and tears. The history of ecommerce proves there is no such thing as a quick success or instant money. Instead, the successful blockchain entrepreneur will have to sacrifice, fail, work hard, and probably go through hell before he or she makes money.
- Always ask yourself “will the founder go through hell for his or her dream” when investing in a startup. If the answer is no stay far away.
- Good technologies succeed. If cryptocurrency and blockchain are good technologies, as I believe. They will succeed despite the crashes and busts. Search engines thrived after the dot.com bust because they are a good technology with a large potential market.
- The success of Amazon, Alphabet, E Bay, PayPal, Netflix, YouTube, Etsy etc., proves ecommerce makes money.
- Pay attention to the big picture not the headlines. The big picture is that cryptocurrency is a disruptive product with a vast market potential. The crash has not changed that.
- Read the financial reports not the headlines. Warren Buffett became the world’s richest investor by studying companies’ financial reports and ignoring the investment media. Therefore study market information, white papers, and data about cryptocurrencies, and ignore most “news” articles. A good place to begin is stop reading cryptocurrency news sources and turn off networks like CNBC.
- Read some history. Read history books, blogs, memoirs etc. and try to figure out what really happened back in 2000. Do not rely on the sensational accounts in the press or your dad’s recollections. Such anecdotal reminiscences are always incomplete and usually dead wrong.
The Most Important Lesson for Cryptocurrency Speculators
Obviously, the most important lesson speculators can learn from the dot.com crash is to study financial and monetary history. It is not a perfect guide to the future, but the history will help you understand cryptocurrency and where it is going.
Finally, think for yourself and make up your own mind. The most successful speculators are always those who think for themselves. The speculators that follow the herd, will get trampled by both the Bulls and Bears and lose money.
If you want to make money in the cryptocurrency; study it, amass as much information as you can and think about it all the time. The more you learn and think about cryptocurrency the easier it will be to make money.
The ultimate lesson for cryptocurrency speculators from the dot.com crash is to learn to learn from history and everything else. The more you learn, the more money you can make.