The dotcom crash of the early 2000’s provides us with a unique benchmark upon which we can measure the future of digital currencies. The macro picture of today has some certain similarities to the early 2000s.
Rising interest rates, a stuttering regulatory framework, and risk-taking early investors who failed to appreciate the chasm between optimism for the potential of the industry and the reality of actual take-up all resulted in the demolition of the bubble. Although, unlike the early 2000s, where the meltdown was more localized, the crypto sphere finds itself caught in a waning global economy.
Caught out in the dotcom blast
Unfortunately, the real losers of the dotcom crash were later investors saving for the future. One lesson from this for the current digital currencies landscape is to employ the power and inherent knowledge of institutional investing.
Institutional investors invest long term, diversify, use external fund managers, pick long-term winners - strategies to help navigate current market conditions. In the dotcom crash, many institutions checked out as the individuals were taking off their coats at the entrance. When the music stopped, the individuals were the ones left without a chair.
What followed the dotcom crash was the reincarnation of one of the most profitable industries to have ever existed. A handful of firms with the fortitude, flexibility and financial resources to weather the storm now dominate the space.
Regulations can set it right
Regulation is always the after-thought to economic crashes, the firms that were proactive about their incorporation of regulatory frameworks outlasted the rest. Especially in the case of digital currencies, where market trust is one of the biggest threats to its existence, regulation will be essential in winning investor confidence but needs to be done in a way that doesn’t suffocate innovation.
One effect of the dotcom crash that is often overlooked was its ability to sharpen the survival skills of the remaining firms. Only those with sensible business models and genuine value adding products lived to tend the tills.
In the digital currency space, many firms have yet to find the most efficient pricing model, for themselves and the consumer. Perhaps this crypto winter is more of a hibernation. Where the bear is getting its house in order, energizing, and preparing to rise again.