In Collaboration with CoinSmart
From overnight millionaires to shocking market meltdowns, the crypto space offers something for everyone. The critics have plenty to scoff at while the evangelists hold on for dear life. Is the crypto market a bottomless money-pit, or a bull in bear’s clothing? Believe it or not, we’ve seen this movie before. There are striking similarities between what’s happening in crypto right now and the dotcom debauchery of the late 90s and early aughts. Here’s what history can teach us about the latest crypto crash.
New tech, who dis?
Think back to the early days of the internet – if you were old enough to be there. Companies were popping up left and right, promising to revolutionize the world with their newfangled dotcom ideas. Real talk, a lot of those businesses were built on wishful thinking and sky-high valuations. The dotcom crash of the late 90s and early 2000s was a result of over-investment and a lot of speculation in internet-based companies.
Fast forward to today, and we're seeing a similar story play out in the world of crypto. Blockchain technology unleashed a flood of crypto projects, each promising to be the next big thing. With speculation running rampant, it's no wonder the market swelled to $2.9T USD in 2021.
But what goes up must come down. And that's exactly what we're seeing in the crypto market right now. Prices have cratered since the 2021 euphoria, and almost $2T USD has been wiped out. With bushwacked investors feeling wrecked, it's understandable that most of you question the legitimacy of crypto as a sound investment.
Wall Street originally scoffed at the internet. But then home computers quietly invaded households across North America. My dad set up our clunky IBM on the dining room table where I eventually cut my teeth on the MS-DOS operating system, saving homework on the now defunct floppy disk. The internet has been a central part of my life ever since.
The dotcom crash annihilated the value of tech stocks and obliterated confidence in the industry. But it was a crucial turning point that brought stability, progress, and innovation to the market. Now, the global economy lives on the world wide web and so do the most intimate details of our lives.
What happened can be more accurately described as a trial by fire. It cremated the weak, leaving fertile ground for the strongest, most reliable companies to survive. The industry was cleansed and nourished in the way a forest fire stimulates new growth. A solid, more reliable market emerged with a focus on practicality and profits over hype and hopium.
But that's not all it did. The dotcom crash also sparked creativity, resourcefulness, and risk-taking. Entrepreneurs and investors were more thoughtful about where they put their money, leading to the birth of groundbreaking innovation. All of this paved the way for eCommerce, financial technology, cloud computing, digital communication and other advancements that shaped the world we live in today.
Crash test dummies
It also brought better transparency. The tech frenzy created an environment that made it easy for unscrupulous companies to exploit investor FOMO (fear of missing out). For example, Nortel cooked its books to appear profitable and inflate its valuation to make it more attractive to investors.
Corporate scandals during the dotcom era prompted regulators to crack down on deceptive accounting practices. The Sarbanes-Oxley Act (SOX) of 2002 introduced stricter oversight of publicly traded companies and increased transparency regarding business operations and accounting practices.
Be kind, rewind
Similarly, the crypto market has seen a large number of weak projects with untested use-cases and companies scaled by reckless founders, leading to a bubble-like increase in prices. The current crash has big voices with bigger platforms Tweeting ‘I told you so!’ at break-knuckle speed. But like every new technology from days gone by, resistance is par for the course – and so are the growing pains.
Did you know the invention of the railroad had detractors too? It faced considerable pushback from people who saw it as a destructive force that would upend their livelihoods. When the potential of the railroad was finally realized, it triggered a bubble which lead to devastating losses for investors when markets crashed.
But that didn’t stop the railroad from revolutionizing transportation and laying the tracks for the Industrial Revolution (pun intended!). It led to significant economic growth once nations could easily tap into natural resources that were previously inaccessible.
Fun fact, the railroad bubble is the reason we have market indexes today. The Dow Jones was the first index ever created. Originally called the Dow Jones Railroad Average, founded in 1884, it tracked the performance of railroad stocks. That information was published in a newsletter called the Customer's Afternoon Letter, which eventually became the Wall Street Journal.
Boom, pop, progress
Like the railroad, the internet has provided unprecedented global access to resources that have accelerated progress in areas like education, finance, communication, and more. Both the railroad and the internet were revolutionary in their respective time periods, completely changing how we live our lives – despite painful losses for early investors.
These great leaps were made possible through tough lessons, resilience, and grit. Everyone is a genius in a bull market, but legends are made when easy money goes into hibernation. Amazon, Google, and Microsoft have become the mainstays of our daily lives because they found creative ways to compete – like scooping up dirt-cheap equipment from bankrupt dotcoms.
And as always, sunlight is the best disinfectant. Bubbles block the sun, but when they burst, daylight drains the swamp. Now it’s crypto’s turn. Just like the dotcom crash fertilized the soil for a more stable and sustainable tech sector, this crypto crash is a good thing for the long-term growth and maturity of the market. By shaking out the speculative, unsustainable, and downright fraudulent players, a crash can and does create a more stable and trustworthy investment environment for everyone.
The case for crypto
Despite scandals like Terra Luna and FTX, and ridiculous multi-million dollar monkey jpegs, the crypto market remains rooted in sound principles of decentralization, transparency, and security. After witnessing firsthand the inefficiencies and repeated failures of the traditional banking system to empower Canadians, I believe crypto and blockchain technology will change lives in a powerful way.
Rejecting crypto because you don’t understand it is akin to rejecting the internet, the railroad, and the printing press. I get it, disruption is scary and uncomfortable, especially if you don’t understand what’s causing it. But history has shown us just how transformative innovation can be when we learn how to use it properly.
Our current financial system is archaic. It has been failing Canadians for too long and is in dire need of a renaissance. Crypto and its underlying blockchain technology are already disrupting the status quo, just like the internet revolutionized the way we communicate, do business, and engage with each other.
Thanks to our financial oligopoly, 1 in 3 Canadians are underbanked. Crypto has made it possible to securely store, transact, and move money outside the traditional banking system. Right now, people can access a regulated and easy-to-use platform like CoinSmart to save, spend, and send payments to each other instantly, globally, and at a fraction of the cost.
For people who send money home to their families, for example, crypto allows them to transfer value almost instantly without having to use complicated and expensive bank wires. Bank wires have to pass through several intermediaries and the smallest mistake can void the transaction. If you want to resend it, you have to pay the fee again, which is already high.
Not only have companies like CoinSmart made crypto safer and more accessible, but they also offer other services like merchant payment solutions. SmartPay is a service that enables businesses to send and accept crypto payments without being impacted by price volatility. Not only can that save them a significant amount of money on credit card processing fees, but it also protects them from chargeback-related losses and allows them to connect with a new market of crypto-holders.
Crypto is the fastest-growing payment method. According to a Deloitte survey, 1 in 3 retailers plan to adopt crypto within 24 months. Goldman Sachs recently reported that “Bitcoin has been the best-performing asset in the world during the first month of 2023.” Despite a looming recession, Bitcoin kicked off the new year with a 45% rally.
The writing is on the wall, crypto is in the process of going mainstream. Businesses and institutional investors need a safe and reliable way to engage with the market. CoinSmart Premium provides a professional Over-the-Counter (OTC) trading desk that saves money and protects everyone from the volatility that can result from high-volume trading behaviour. Regulated companies like CoinSmart are helping to stabilize the market, attracting new investors and entrepreneurs alike.
The historical record
History rarely repeats itself, but it often rhymes. While no one has a crystal ball, there is a case for crypto written in the data – not the headlines. The market is still new and speculative, making it a riskier investment than traditional stocks. If that doesn’t align with your investment strategy, no one will judge you for it. The problem lies in letting misinformation and market sentiment inform your choices instead of research, data, and a willingness to learn.