
Ask HN: What similarities might the crypto market have with the dot com bubble? - flyGuyOnTheSly
I was too young to remember the dot com bubble when it happened.<p>All I know is that a friend&#x27;s dad almost lost their house when Cisco&#x27;s price collapsed.<p>But I have been following the crypto markets very closely over the past few years.<p>We saw a very strange move about a week ago where almost every single coin across the board increased substantially in it&#x27;s USD valuation.<p>And I have no idea what to make of it. Surely every single coin across the board did not increase in value overnight.<p>Are there any similarities at all between the dot com bubble and the crypto bubble that you can see?
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noncoml
I’ll give you similarities of the Bitcoin with a Ponzi scheme:

From wikipedia: "A Ponzi scheme (/ˈpɒn.zi/; also a Ponzi game)[1] is a
fraudulent investment operation where the operator generates returns for older
investors through revenue paid by new investors, rather than from legitimate
business activities or profit of financial trading."

Bitcoin's only real value is that of the chance of being adopted as currency.
For it to become a currency people have to start buying bitcoins, as it is the
only realistic way to get hold of them. So the only way to make value for the
current holders(older invenstors) is more people buying into it(revenue paid
by new investors).

~~~
colordrops
Someone always makes a statement like this in every thread about bitcoin,
without any evidence or reasoning to back it up. The benefits and unique
aspects of cryptocurrencies have been enumerated ad infinitum, and to continue
to claim that it's all a scam at this point is analogous to claiming the
internet was just a scam in 1999, after it was obvious to many people that it
was not. This labeling is only evidence of abject ignorance.

~~~
noncoml
What do you mean without any reasoning? I gave a very precise argument on why
and how I think they are similar. Why don’t you try to debunk my argument
instead of a generic reply?

~~~
colordrops
Cryptocurrency has many positive values that are not replicated by any other
financial instrument when taken together as a whole:

* No middle man

* Nearly instant transfer at low cost

* Non-geographically bound

* Non-governmentally bound

* Potentially untraceable depending on how you use it

* Incorruptible

* Uncensorable

* No central point of failure

* Transparent and open (as in source and freedom)

* Programmable and automatable

* It is the first system to solve the byzantine generals problem.

My point though is that anyone who has been paying at least even slight
attention would know that there is a purpose and value to the design of and
usage of bitcoin and other cryptocurrencies and to claim otherwise is an
embarrassing display of ignorance.

~~~
Someone1234
Wasn't the whole "no middle man" thing mostly about avoiding the 3% Credit
Card Processing fees found elsewhere? Bitcoin is now more expensive to verify
than most credit card processors[0].

"Nearly instant transfer at low cost" it is no longer instant or low cost.
Confirmation times[1] have now skyrocketed and as I showed above as have
costs. This is why Valve's Steam no longer accepts it.

"No central point of failure" like Mt. Gox[2]? And the recent currency
split[3]?

[0] [https://bitinfocharts.com/comparison/bitcoin-
transactionfees...](https://bitinfocharts.com/comparison/bitcoin-
transactionfees.html)

[1] [https://blockchain.info/charts/avg-confirmation-
time](https://blockchain.info/charts/avg-confirmation-time)

[2]
[https://en.wikipedia.org/wiki/Mt._Gox](https://en.wikipedia.org/wiki/Mt._Gox)

[3]
[https://en.wikipedia.org/wiki/Bitcoin_Cash](https://en.wikipedia.org/wiki/Bitcoin_Cash)

~~~
colordrops
It is nearly instant when compared to most money transfer services or gold,
and low cost is relative, and depends on the coin and time of transfer.
Bitcoin cash, which you link to, is both fast and cheap to transfer.

Mt. Gox is not Bitcoin. It was an exchange. It has nothing to do with whether
Bitcoin has a central point of failure or not.

~~~
laci27
Nearly instant?:) Compared to what? I got money transfer between banks, by
wire, from the US to the end of the world in less than a day. You can't get 3
confirmations on a BTC transaction in 24 hours!

------
abecedarius
The clearest similarity, I'd say, is that so many people don't understand what
they're buying, so they go by a vague story and a price trend and guessing the
mass psychology of other investors. That can't end well.

I think in both cases there was tremendous real potential, but it's hard to
pick out in the moment, even with a technical background -- there's more to
winning than technology.

~~~
eeho
I know a few people who signed up for coinbase and bought Litecoin because it
was the cheapest per arbitrary unit, without doing any reading on what
differentiates it from Bitcoin or Ethereum. I've also seen similar attitudes
towards more fringe coins.

I'm not old enough to remember the dotcom bubble but I wonder if things like
pets.com benefitted from people conflating its potential to that of ebay or
amazon.

------
deepGem
IMHO, most of the recent purchases of Bitcoin are mostly because of FOMO.
That's the only explanation I can gather for something that increases in value
so rapidly without any underlying change in the fundamentals. Quite a similar
phenomenon happened during the dot com bubble too. Because of FOMO, people
blindly invested in stocks that proved to be worthless later.

So the only similarity I see is irrational investment fueled by FOMO.

------
seibelj
This is the worst forum of all to ask a question like this. HN is full of
people who think they are smarter than everyone else, and a vocal group here
has been saying “bitcoin is a scam” since bitcoin was $1 and missed out on the
rise. So now they are actively rooting for it and all cryptos to fail, and
ignore the benefits of the blockchain. Additionally a lot of YC-type people
benefit by the current VC system and funding via ICO’s or similar mechanisms
is anethema to what they have constructed.

I know many wealthy cryptos and they don’t have time for the noise here.
Bitcoin could fall to $1000 and they are still rich, they don’t care about
bubble talk.

~~~
tptacek
This is an exceptionally facile analysis.

YC-type people don't benefit from the VC system; YC is a subversion of the VC
system, an effort to organize promise founders against the interests of VCs.
_Ceteris paribus_ , every YC founder would rather raise 5MM in an ICO than to
raise them in capped notes or (even worse) directly from a VC.

If ICOs actually mainstream, YC itself gets _more_ valuable, not less, as they
control essentially the only noteworthy credentialing system for startups. Not
to mention, they'll be the locus of all the selling-picks-to-prospectors
activity that will follow.

Meanwhile: "congratulations" if you made money by buying and "hodling" back
when 1 BTC was $1. People made money on Pets.com, too. So did the banksters
who made money reselling bogus AAA MBS's. Nobody doubts that you can win large
sums of money gambling on the actions of the greater fool.

But: it looks to me like most of the concerns raised by Bitcoin critics have
played out as expected. Decentralized? No. Bitcoin is controlled by a small,
self-interested group of big-time players. Currency? No. Bitcoin is a
speculative asset. Seamless way to transfer funds? What are transaction fees
for Bitcoin now? Here's approximately the trajectory of Bitcoin: in 2012, you
could buy a pizza with it in 1-2 cities. In 2017, you can't.

And, as predicted, tens of other organizations have come up with their own
competing cryptocurrencies. Many of them are objectively more sound than
Bitcoin. But we're all meant to pretend that somehow, 1 BTC is worth $15,000
because it really is worth that, and not because Bitcoin is a distributed
pump-and-dump scam.

~~~
tmh88j
>And, as predicted, tens of other organizations have come up with their own
competing cryptocurrencies. Many of them are objectively more sound than
Bitcoin. But we're all meant to pretend that somehow, 1 BTC is worth $15,000
because it really is worth that, and not because Bitcoin is a distributed
pump-and-dump scam.

I am by no means an economics or marketing expert, but I think it's worth
considering Bitcoin's "brand" impact and its history. Humans are irrational
and do a lot of questionable things even with ample evidence of better
alternatives to our choices.

Tuur Demeester makes a comparison in this podcast
([https://www.theinvestorspodcast.com/episodes/bitcoin-
masterm...](https://www.theinvestorspodcast.com/episodes/bitcoin-mastermind-
charlie-lee-tuur-demeester/)) to Bitcoin/altcoins vs Coca-Cola and its
competitors, starting around 1:05:20. He says that Coke had countless
competitors trying to overthrow it as the #1 cola brand, but it stuck around
as a result of familiarity and being of quality (my takeaway, not his exact
words). He goes on to say that if Bitcoin survives with the same core
developers trying to make it better and better, the brand attacks become less
and less of a threat.

------
tjtang
The similarity is GREED.

People invest in a bubble, despite knowing it is a bubble, because they want
to make money. And they are willing to take the risk to do so. Why not, when
you can invest a small amount of your net worth and make 2-10x returns in a
matter of months? The only problem is nobody knows when the bubble will burst.

Bitcoin like Boo.com, Pets.com, WebVan, etc. were first movers, had good
branding and promised disruptive models. These all have value, but were
overvalued because the main motivation was to make money. Just like how the
main reason to buy Bitcoin now is to make money.

------
nextweek2
I have lived through the dotcom and there are massive parallels. Throughout
the 90s everybody was talking about why they would need the Internet when they
have tv and newspapers. Then from '98 to 2000 hyper and hysteria kicked in.
Ridiculous funding happened and businesses really started doing irrational
things because they thought they'd have their lunch eaten. Everybody new the
dotcom bubble was going to pop and it did over the course of 6-12 months.

Calling bitcoin a scam or ponzi scheme is really not fair, it dismisses the
underlying utility of blockchain. Look at the tech of Ripple, their
performance characteristics are aiming at the VISA and AMEX of this world.
Bitcoin is turning into the reserve currency of crypto-coins, there are lots
of alternatives which better serve day to day transactions.

The real point I am trying to make is that right now it feels like we're in
HTML 2.0 days and bitcoin is Netscape Navigator. New finance companies are
going to spring up over the next few years, in about 5 years they'll start
eating into traditional banks. Those banks and institutions will start panic
buying. Nobody will know who the next Google/Facebook of the finance industry
will be and thats the risk right now.

Regarding the price change, you have to be careful. It's not a fiat coin
backed by a government, so it's value is purely based on what the guy next to
you will pay for one coin. On that basis bitcoin is very risky because it's
value to you is $16,000 but your car mechanic thinks it's worth $0.

------
sudoLFMB
Full disclosure I work for a firm that's helping launch the next generation of
crypto/fiat brokers that will be popping up through out the world the next
couple months. My dad is a chip engineer and has personally worked with
kurzweil on some of his early ventures. One of his xmas bonus was a kurzweil
keyboard that I was forced to learn how to play when I was a child. I remember
hearing first hand from my dad and his friends about what was happening. Later
on in my undergrad biz school I still had some text books that was written
around the boom. Everything was about the new "information highway" and how
the "long-tail" will finally be serviced. People were giddy and it being the
end of 2017, it is safe to say they were all right to be giddy. I buy a
majority of my stuff through apps, able to maintain friendships across the
globe and taught myself everything my dad tried to teach me about linux, when
I was a child, now online while at work.

Being able to freely create a currency that has the necessary legitimacy to
actually work while still being able to cleaning integrate with a larger
organization is a powerful weapon against getting screwed by globalism and
these massive multi-national corporations. Where I call home is a former mill
town that got fucked. Having a solid local currency that all the local
businesses will recognize will make home much stronger. For this to reach it's
potential though, there needs to be massive investment and social change -
just like tinder needed fb, websites, emails and fast internet connections to
reach a point of maturity, these new digital currencies need a full ecosystem.

I don't buy or sell any of these currencies even though it would be
ridiculously easy for me to do stuff that would be terribly illegal with
stocks. It's because I think there will be a spectacular crash in the short
run but in the long run the next FANGS will related to the blockchain and
crypto technologies.

So hate at your expense.

------
amluto
In the dot-com bubble, people invested in companies that had websites, but for
some reason, they thought they were investing in domain names ending in
".com".

In the crypto bubble, people are investing in Bitcoin, Ether, etc., but they
think they're investing in cryptography.

</sarcasm>

------
thisisit
I think stories like the one about Long Island Tea adding blockchain to the
name and seeing their stocks soaring. More examples here:

[https://www.nytimes.com/2017/12/21/technology/bitcoin-
blockc...](https://www.nytimes.com/2017/12/21/technology/bitcoin-blockchain-
stock-market.html)

During the dot com bubble everyone was doing something similar.

------
kakaorka
I know for now that crypto currencies are really only worth something as long
as they are used as “currencies”. I don’t believe bitcoin is currently being
used as currency to buy/sell stuff, rather it’s used increasingly as an
investment, which I don’t believe any currency should be especially when it’s
this unstable.

~~~
lallysingh
I think there's some belief that the current issues Bitcoin has in transaction
rate/cost can be addressed in a software update.

~~~
yeahsure
These issues have already been fixed by other crypto currencies like Bitcoin
Cash.

The core development team behind Bitcoin doesn't seem to be interested in
fixing these problems for the time being.

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parmgrewal
* The people don't understand it. Check

* Everybody just wants a piece of it no matter what. Check

* Companies that have nothing to do with cryptocurrencies are trying to associate themselves with it. Check

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brokensegue
both involve irrational exuberance?

