by Jeff Brown, International Man:
On March 10, 2000, the Nasdaq Composite Index closed at what was then an all-time high of 5,048. It was the height of the dot-com bubble.
Bolstered by the potential applications of the internet, technology companies were seeing unprecedented returns. On December 16, 1998, Henry Blodget, head of the global internet research team at Merrill Lynch, predicted that Amazon, which was trading below $250, would hit $400 within a year. The company shot past $400 within two weeks.
A young tech company called VA Linux Systems went public on December 9, 1999. The stock climbed 698% in one day.
I could go on and on. But we all know how it ended. In late March 2000, the Nasdaq began a momentous crash. The index fell 78% in the next 30 months. Roughly $5 trillion in market capitalization was lost. It was, and remains, one of the worst market crashes in history.
Learning From History
I don’t bring this up to worry you or to open old wounds. I simply want to provide some context for another situation that we are presented with today.
There are certainly some stark parallels between the internet boom and what is happening right now in another asset class.
Much of the speculation during the internet bubble was caused by runaway optimism for how the internet would transform business and the world.
Combine this with speculators who wanted to “get in on the action” and you had the makings of an asset bubble of epic proportions.
Today, we face a similar situation. An industry-altering technology with nearly limitless applications has burst onto the scene. And just like the dot-com bubble, assets associated with this technology are soaring.
The technology I’m referring to is the blockchain, the decentralized ledger technology underpinning most cryptocurrencies. The assets that are soaring are digital tokens, digital coins, cryptocurrencies, and the companies behind them.
A Remarkable Run
I’ll be the first to say it, the run-up in many cryptocurrencies this year has been nothing short of spectacular. Bitcoin, at the time of writing, is up more than 1,669% since January 1 of this year, and Ethereum is up about 9,803% during that same window.
It leads to natural questions like, “Are we in a bubble?” and “What is driving such an extraordinary increase in these cryptocurrency prices?”
Well, aside from the value and utility that well-designed blockchain technology provides, there is one other reason…
Money… and a lot of it.
More specifically, as industry, enterprise, financial institutions, and even governments began to discover the immense potential of distributed-ledger technology and the kinds of applications that can be deployed on blockchains, the financial world took notice.
And that has driven billions of dollars of private capital into the new asset class of cryptocurrencies. And yes, cryptocurrencies and digital tokens are quickly becoming their own asset class. That will lead to even more money flowing into this investment class.
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