The jump in the value of Bitcoin to over US$6,000 has excited cryptocurrency bulls, but that hasn’t stopped experts from noticing that the crypto craze shares are in an eerily similar trend to the Dot Com boom and bust.
Bitcoin, which has come to epitomise cryptocurrencies (or cryptos), surged around 8% over the weekend to fetch US$6,369 but has shed two-thirds of its value since hitting its last December record high of US$19,343.
This has led some to compare the plunge in Bitcoin to the Nasdaq Composite’s big fall from grace during the tech bubble at the turn of the century, according to Bloomberg.
Bitcoin On The Dot Com Dive
The Nasdaq crashed 78% from peak-to-trough as the tech bubble popped as a whole host of tech shooting stars went from hero-to-zero (remember WebVan and Pets.com?). If Bitcoin represents the index, then crypto investors will be alarmed to see the large number of wannabe digital currencies collapsing.
Bloomberg quoted sources stating that more than 1,000 cryptos are now worth nothing and that fewer than 4% of digital coins with a market capitalisation of between $50 million and $100 million can be deemed successful.
The value of other popular cryptos such as Ethereum and Litecoin has fallen even harder than Bitcoin. According to CoinMarketCap.com, the value of the top 100 cryptos has crashed to a little over US$200 billion from a peak of $830 billion.
The future of Bitcoin itself is under a dark cloud as the world’s original and leading crypto is struggling to win the backing of institutional investors and government regulators.
News of cyberattacks at two South Korean exchanges and a clampdown by Japanese authorities isn’t helping sentiment either as it reminds investors of the two most challenging issues facing the future of cryptos – security and regulations.
Die-hard Bitcoin bulls won’t be giving up the fight this easy though. They may think that it’s encouraging that the Nasdaq did eventually recapture its record high. Bitcoin itself may never go to zero.
But that doesn’t mean it’s a worthy investment class for investors. The article quoted Noble laureate Robert Shiller, the guy who predicted the tech bust, declaring that Bitcoin is very much a bubble and that its surge in 2017 was “not a rational response”.
It’s times like this that the teaching of investment guru Warren Buffett comes back to mind about only investing in what you know.
Based on the evidence so far, investors are much better off sticking with equities, particularly in the 2019 financial year.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.