Hey everyone, it’s Whatever Wednesdays again. As you might expect, this is going to be another crypto post… and it will probably be very late. Like I said on Monday, I’m working day hours so I didn’t have any time to write my usual posts. Anyways, today we’re going to talk about “Searching for Amazon”.
Searching for Amazon
So, as I’ve kind of talked about before. Many parallels between the dot com boom and the current crypto boom can be drawn. Back then, just be adding “dot com” to your name, your stock would rise. Today, if you add “blockchain” to your company name, your stock price goes up:
Here are some examples:
Want to Boost Your Stock Price? Add ‘Blockchain’ to Your Company’s Name
Blockchain It! Companies Rename Themselves To Bump Up Share Price
Then, if you include the somewhat rampant speculation that is going on and you can see what people think this is all a bubble…
Well… what do you think?
Will the current crypto boom see a bust just like the dotcom boom did?
I think so… in fact I wrote about it here. Is Bitcoin a Bubble?
Could I be wrong?
Sure. I’m wrong all the time. However, let’s just assume I’m right.
- How can we prepare if the bubble does burst?
- What safety measures can be taken?
- Are there some fundamental differences between the dot com bubble and the potential crypto bubble?
- What can we take way from those differences?
Well, I think we can also look to the dot com bubble for the cases of success as well as the failures from that time period.
The massive success from the dot com era is almost certainly Amazon. However, if you may recall, during that period of time, it saw some of the highest highs and lowest lows when speculation and the bubble were at its height juxtapositioned sharply against the downward spiral at the end of the dot com bubble.
I’m going to cut and paste a piece here from Investopedia:
Founded by Jeff Bezos in 1994, Amazon is the largest online retailer in the world. In 1995, Amazon made its online debut as a bookstore, eventually adding movies, music, electronics, computer software and many other consumer goods to its diversified offerings. Amazon’s initial public offering took place on May 15, 1997 at a price of $18 per share, rising to more than $100 and subsequently dropping to less than $10 after the bubble burst. Like other dotcoms, Amazon’s business plan focused more on brand recognition and less on income, and it did not turn a profit until the fourth quarter of 2001. Today, Amazon trades at over $200 per share, and employs more than 37,000 people with reported net sales of $9.86 billion. (The initial valuation of an IPO can determine the success or failure of a specific stock, but how is that price determined? For more, see How An IPO Is Valued.)
Yes, you read that correctly, it’s IPO was $18… catapulting to $100 before crashing down to earth to $10. That’s quite a rollercoaster… but that will just be a kiddy ride compared to the rise (and potential fall) of cryptos in my opinion.
If a crypto crash does happen, I think it will be near catastrophic.
I imagine that Bitcoin, “the king” could plummet to pre 2017 values. That’s right, I’m talking about a $1000 bitcoin, which is nearly a 90% loss in price. I would expect the rest of the cryptos to follow suit in much the same way.
Many cryptos will simply fold, very similar to what happened during the dotcom bubble. However, because there is no “bankruptcy” in crypto, these cryptos won’t be delisted, they simply won’t be traded. They will fall below the $0.001 (1/10 of a penny) mark or lower. Once your token drops to those levels, basically you just have to hold on in hopes that it will recover someday.
Only the strong will survive. Only the coins with real world value, excellent teams, and strong backing will make it past this stage of the game.
Which ones will those be?
I don’t know. I don’t think anyone can tell you. Perhaps a reasonable bet are the “top ten coins” in terms of market cap, but there is no safe bet in my opinion.
That’s why I think the smart investor now will be searching for Amazon. They will find a coin that they plan to hold long term that can weather the storm of a bubble crash and come out ok on the other side. The coins that make it through the bubble will be the “Amazon” or “EBay” or whatever of the post-crypto crash era.
“Only when the tide goes out do you discover who’s been swimming naked.” – Warren Buffet
Wait… how is the dot com bubble different from this (potential) crypto bubble?
While there are many parallels, there are also some differences.
A lot of the dotcom bubble had companies simply acquiring other companies. Company A buys Company B just to acquire its technology. It continues work on their project for a little longer, just to sell to bigger Company X. Company A and Company B both see reasonable exits because of the ridiculous speculation that was taking place.
So here’s the thing. There is no real acquisition in the world of crypto. There is a graveyard of coins that “exist “on coinmarketcap that are moving nearly zero volume, which may technically have some non-zero dollar amount, but are simply dead coins. No one exchanges them, the “team” has stopped working on it, and there likely hasn’t been any updates in months/years.
If your technology is open source in crypto, which is common, then people can simply adopt it (steal it), without any consequence.
What does this mean?
I think that the ability to implement code from other open source projects will be very important in the post-crash crypto era. I think that that there doesn’t need to be “one coin to rule them all”, but there does need to be communication amongst the survivors.
So, what will “Amazon” look like?
I don’t know. I really don’t.
However, if I had to guess, I think it will be a coin that demonstrates real world value and long term vision. It needs strong backing and an excellent team. There are a lot of coins like that out there right now. Unfortunately, some of these teams may simply not have enough time, depending on when the crash happens.
The “Amazon” if crypto crashes tomorrow is very different from the “Amazon” that emerges after a crash in 2020. The “Amazon” that emerges from a 2020 crash may not even exist yet. I think that scenario is unlikely, but not impossible.
Hey, did you see the Weiss Ratings? What did you think?
The ratings are interesting. The were originally leaked as a pdf, but have now been placed behind a pay wall.
However, it’s still all over Twitter:
Weiss Ratings, "the US leading independent rating agency of financial institutions" just released their first #cryptocurrency ratings and it's an absolute joke.
They rate STEEM, NEO, EOS, ADA, & ETH above Bitcoin. ?@WeissRatingshttps://t.co/u8WDUTZUCP pic.twitter.com/yQGLIKGBcl
— Matt Odell (@matt_odell) January 24, 2018
They’ve received a lot of heat for them because of how low they rated Bitcoin (C+) and Ripple (C), which are considered very strong by the crypto community. However, I do see what their metrics value. Their metrics place high value in real world use case (currently low for Bitcoin) and potential increase in future value (perceived low for Ripple because of large supply).
Additionally, it’s pretty easy to see that they place high value on platform coins. Of course, the progenitor of “platform” coins is Ethereum, which receives the highest grade of B. The other platform coins received these ratings: EOS (B), Cardano (B-), NEO (B-), and Steem (B-).
I am assuming that EOS received the only other B grade alongside Ethereum since it was the farthest along compared to Cardano and NEO, with a larger scope than Steem.
I think these ratings are in line with what someone expecting a crash would rate for safety.
Ethereum, being the current go-to platform with the most dApps built on it and Smart Contracts occurring on it has the highest chance of surviving. These ratings assume that other “platforms” of similar scope and scale will also survive.
Who knows if that will be true or not.
The Search for Amazon continues…
Is crypto a bubble that will pop?
If it does, who will survive?
Do Weiss Ratings mean anything?
“Only when the tide goes out do you discover who’s been swimming naked.” – Warren Buffet
As I’ve stated before I own a tiny amount of Ripple (XRP), Cardano (ADA), Steem (STEEM), and Funfair (FUN).
I am not a financial advisor and this is not financial advice. These are simply my opinions with regards to cryptocurrency. Please do your own research. Cryptocurrency is extremely volatile.
Only invest what you can afford to lose.
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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