Deep Dive: Crypto vs the Dot Com Bubble

The dot-com bubble was a stock market bubble in the late 1990s. The bubble was fueled by a period of massive growth in internet use. Between 1995 and March 2000, the Nasdaq stock index rose 400%. Subsequently, the index fell 78% from its October 2002 peak, negating any gains made since 1995.

In this series “Crypto vs the Dot Com Bubble” we look at the events surrounding the growth of the internet and compare it with current developments in crypto. During the dot-com bubble, a transition took place from web 1.0 to web 2.0. Crypto promises the next revolutionary transition with web 3.0. In doing so, it aims to create a fully decentralized ecosystem where AI, machine learning and blockchain solve the current problems of the internet.

From 1993, web browsers became more and more accessible. In the following years, the number of computer users with access to the World Wide Web grew. Between 1990 and 1997, the percentage of households in the United States that owned computers rose from 15% to 35%. Owning a computer became more and more common. This marked the shift to the information age, an economy based on information technology. As a result, many new companies were established.

With the internet hype mounting, investors were willing to invest in a dot-com company at any cost. Companies with a “.com” suffix in their name were especially popular (such as the infamous Pets.com and Boo.com). A combination of rapidly rising stock prices in the economy and confidence that the companies would make profits in the future created an environment in which many investors were willing to overlook traditional metrics, such as the P/E ratio, and base their confidence on technology. progress. This can be clearly seen in the graph below (Figure 1). We see that huge investments were made prior to the dot-com bubble. These investments led to a bubble in the stock market.

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