In the short run, the market is like a voting machine; in the long run, it’s like a weighing machine, according to economist Benjamin Graham, who is sometimes referred to as the “father of value investing.” Graham’s economic theory still holds for some parts of cryptocurrency, even though he was probably at best dubious about it and its inherent volatility.
Since the introduction of altcoins, the blockchain industry has primarily served as a “vote machine.” Most projects have been financially unsuccessful and even harmful to investors and the industry as a whole. Instead, they have made cryptocurrency into a competition for meme lord popularity and have been quite successful at it.
Sometimes, the rivalry is predicated on whose best future use case is promised; however, if that future materializes is a different matter entirely. It often depends on who can best sell themselves through edgy-looking infographics or crazy token names and a slew of related “dank” memes. Whatever it is, most projects rely primarily on speculation for their success. Graham was alluding to this when he said that ” Voting machine.”
What’s wrong with this, then? The industry could be the perfect place for startups and developers since many foresighted players have amassed fortunes that have changed their lives while playing the game. Continual talk of funding and developing possibly game-changing decentralized technology is the norm. Not at all.
These victories frequently came at the expense of novice investors who were severely misinformed and lacked sophistication. The majority of that value also winds up in the hands of the omnipresent “vaporware merchants,” who mostly sold mispriced goods and failed promises. Therefore, where is Graham’s weighing device, and when will it begin to exert its force?
The Dot-Com Bubble Versus The Crypto Crash
For our purposes, the dot-com bubble is the perfect historical example. The investor’s basic misunderstanding of what any of this is even about, the enthusiasm to shoehorn developing innovation into problems that don’t exist, the excessive access to finance, the lofty promises without any concrete evidence to support them, and finally, are all shared by the two markets (see the domain claims for pets.com, radio.com, broadcast.com, etc.)
Let’s consider things in context:
The dot-com market reached its peak in 2000 at $2.95 trillion. When this article was written, that would be $4.95 trillion after accounting for inflation.
Following that, it fell to a low of $1.195 trillion. That would be $3.27 trillion as of the time of writing this, adjusted for inflation.
Cryptocurrency market capitalization now stands at $2.8 trillion. That would be $1.67 trillion in 2000 after taking inflation into account.
The current low is $1.23 trillion. It would be $0.073 trillion in 2000 after taking inflation into account.
The difference between the dot-com bubble’s top and fall is 59.5 percent.
The current crypto bubble’s high and bottom points are 56%.
Volatility Results From Speed
Even while it seems bleak, the downturn is hardly tragic. Imagine knowing, for example, in 2003 that the tech industry had achieved its market bottom. People believed the technology industry was in terminal decline. The data above could (and should) be interpreted with caution, and it’s important to remember that history rhymes rather than necessarily repeating itself. I started working in the blockchain industry in 2016, and since then, I’ve seen it advance more quickly than almost any other area of finance. Much less willpower is needed to wait out a crypto decline than it was to do so between 2003 and 2010.