Irrational Exuberance Revisited: Is Crypto The New Dot-Com Bubble?

Bubble has indeed become a shibboleth for crypto sceptics, especially after the market soared at the end of 2017, and the widening gap between valuation and intrinsic value of digital currencies and tokens became ostensible to many.

There is almost irresistible temptation to draw parallels between the burst of the booming market that emerged around early applications of a disruptive communication technology, and the highly volatile market that emerged around the blockchain ecosystem.

Ethereum co-founder Joseph Lubin famously characterized these events as 'creative destruction' and, along with many others, pointed out that the crypto market might be following the same trajectory.

The dot-com bubble and the hypothetical crypto bubble share many striking commonalities, from powerful waves of irrational exuberance fueling their explosive growth to grandiose disruptive promise of their underlying technologies to trend lines describing the dynamics of their capitalization.

The most obvious one to look at is the size of the market, even though the relevance of this metric is debatable: whereas the Nasdaq Composite index amounted to six trillion dollars on its brightest day, the crypto market's high-water mark is around half a trillion.

Another point is that, unlike dot-com startups that were mainly supported by venture capital flowing from institutional actors, crypto markets rely on millions of retail investors globally a good deal.

The dot-com-like crash might not even take place at all, and instead crypto markets would just bounce between bear and bull cycles until widespread adoption helps them entrench in a less volatile territory.

The point is, we might well be past the crash, or simply in another loop of bear market on our way to the new heights.

According to a radical viewpoint, nearly every market is a bubble, and a market's progression is just a sequence of inflations and pops.

Further still, even the stock market frenzy around potentially disruptive technologies might be viewed as an unlikely means of accomplishing a greater good, opening up the floodgates of capital for industries would otherwise seem too novel and risky: "Nothing important has ever been built without irrational exuberance."