Are ICOs similar to the dotcom bubble?
Recently, an increasing number of people compare crypto-currencies and ICOs to such a notorious historical phenomenon as the dot-com bubble, which arose at the time of the Internet business boom in the late 1990s. As you know, after the dot-com crash, the word itself has become a synonym to an ill-conceived, immature or inefficient business model. Is this comparison relevant for the ICO market? We try to answer this difficult question in this article.
Any big wave of revolutionary innovations is accompanied by financial agiotage. And here are some interesting examples:
- Tulipomania. A short burst of rush demand for bulbs of tulips in the Netherlands in 1636 – 1637.
- Railway fever in the 1840’s. The higher was the price of railroad stocks, the more they were bought by speculators, down to the inevitable fall. About a third of approved roads have not been built.
- The era of the dotcoms. Shares of companies, whose business model was based on Internet sales, rose sharply in value.
Each new generation considers itself smarter and more educated than the previous one – this is normal. Therefore, we decided to compare in this article two phenomena: ICO vs. Dotcom.
ICO: in 2009, the first application of decentralized blockchain technology appeared in the form of bitcoin. With the development of bitcoin, people were able to transfer money to any person anywhere in the world almost for nothing.
Dotcom: in 1991, the world wide web became publicly available on the Internet, and there was an opportunity to connect via a telephone line. This led to the growth of users in the network and the emergence of new business models.
Pioneers and success
ICO: In 2013, Vitalik Buterin described the concept of Ethereum, a platform for creating decentralized online services based on the blockchain. Already in 2014, a crowdfunding campaign was launched to raise money for the development of a platform that collected 31,591 bitcoins or more than 18 million USD at that time.
Dotcom: In 1994, Netscape was created, and developed the browser Netscape Navigator. But already in 1995, the company launched the IPO – it was an unusual IPO since Netscape did not generate profit at that time. Initial valuation of the shares was $14 per share, then it was doubled. Already on the first trading day, the value of the stock doubled again, and within five months Netscape shares soared to $160 per share – an absolutely unprecedented growth for the company that does not bring profit.
Growth of projects
ICO: In 2016, there were 23 projects launching an ICO, in 2017 their number exceeded 130 in the first seven months. Many entrepreneurs began to launch their projects on the basis of the blockchain. Companies began to reorient their business models for the use of blockchain.
Dotcom: in 1995, only 23 companies issued their shares. But already in 1999, more than 250 companies decided to hold an IPO. Hundreds of entrepreneurs with laptops and hastily written business plans moved to Silicon Valley to launch their projects.
ICO: the ability to purchase cryptocurrency anywhere in the world and invest in any project despite state borders has led to a huge increase in the number of ICO investors. In 2016, around 0.3 billion dollars was raised via ICOs, but in the first seven months of 2017, the total investment in ICO projects exceeded $1.5 billion.
Dotcom: Every day, companies appeared on the stock exchange, where investors bought shares of all companies, which name ended with Dotcom. People that had never participated in the stock market began to buy these shares. It was a gamble, a dynamic time when it was easy to lose common sense.
Community and networking
ICO: In the crypto-currency industry there is a highly developed community that unites around interesting meet-ups, conferences, sites. The number of events on the subject of blockchain is increasing every month, and the demand for tickets is growing even faster.
Dotcom: Then, there was also party time, and the people were extremely generous. There was a feeling that money was everywhere. Companies spent budgets of investors on weekly parties and lavish meetings.
Active PR in the media
ICO: Everyone started talking about the blockchain – everyone from taxi drivers to the leading national TV channels and top officials of the state. The budget for marketing ICO-campaigns reaches up to 80% of the collected funds during pre-ICO.
Dotcom: Analysts were making forecasts about the possible growth of the stock and development of the industry, they were actively reprinted by the media, which led to an increase in demand. For example, analysts predicted a two-fold increase in the shares of Amazon during the year, and after the publication of the forecast, the shares doubled in two weeks.
ICO: After Ethereum’s success, scam projects began to appear; they fell into this category either on purpose or by accident. In the first case, scammers deliberately launch a project to collect money and disappear. In the second case, investors’ losses can be traced to internal disagreements in the project team or lack of experience in launching and scaling companies.
Dotcom: The stories of startups with a successful IPO have spawned many unscrupulous companies. These companies were founded by dubious vendors and were financed by dubious venture investors. Due to the fact that everyone around were expressing rather crazy ideas, it became increasingly difficult to separate normal companies and fraudulent ones.
Instead of conclusion
The dotcom bubble burst in 2000, 5 years after the dotcom company’s first successful IPO, but professional teams and projects survived. Thanks to huge investments into the industry, in just 5 years the infrastructure and the foundation for future successful projects were built.
Does it all mean that ICO frenzy is the same as the dotcom bubble? Not necessarily: precisely because of the dotcom crash experts and professional investors already try to identify, which blockchain projects are the real-deal; various due-diligence processes are being developed; governments actively look into the ways of regulating the sphere. Definitely, many blockchain-based projects will not survive; some individual inexperienced investors will lose money. Hovewer, this is the inevitable stage of development that we need to go through. Amazon, Google, Paypal and many others survived and are now the foundations of the modern tech industry. Blockchain-based companies with real value propostion will be in the same revered position in the next 5-10 years.