Is the Cryptocurrency Bubble More Like Housing or Dotcom?

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Is the Cryptocurrency Bubble More Like Housing or Dotcom?

The dotcom boom of the 1990s and the housing bubble of the early 2000s were two of the most important bubbles in modern history. In some respects, these eras featured traits common to all bubbles: investor confidence proved to be too great for the underlying market to maintain it in the end.

Many experts and investors have referred to the digital currency area as the possible location of a new bubble as cryptocurrencies have risen in value over the last year. But, if cryptocurrencies are a bubble phenomena, which of the previous bubbles do they most closely resemble? (See also: Are There Two Crypto-Bubbles? Bitcoin and Altcoins

Debt Bubbles and Tech Bubbles

A new Coin Desk piece highlights several distinctions between the dotcom bubble (as emblematic of tech booms in general) and the housing bubble (as an illustration of a debt bubble).The enduring consequence of the housing bubble crash was $700 billion in bailouts and hundreds of pages of new laws. The bubble’s demise resulted in waves of foreclosures, public outrage, and economic hardship for thousands of families.

In contrast, the dotcom bubble left behind significant new infrastructure. Of course, many investors of all kinds lost a lot of money during the crash. However, the dotcom boom had long-term good consequences, such as fiber-optic cable networks, new technologies for mobile computing, smart gadgets, cloud computing, and much more. Many of the most recent technological innovations, from social media and e-commerce to new companies, may be traced back to developments made during the dotcom bubble.

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Type of Bubble Has Major Impact

While it is conceivable that cryptocurrencies are not representative of a bubble, the sort of bubble that cryptocurrencies may be is of more worry to the financial world. If a cryptocurrency bubble bursts, there might be enormous financial losses, job losses, the demise of numerous firms, and other consequences. However, bailouts are improbable given the current state of the business.

Digital currencies are often insulated from the larger financial system, perhaps acting as a buffer against such interventions. Unlike the property market, which was intertwined with many other areas of the financial system, cryptocurrencies are most important to the people who own them. As a result, the potential harm from the collapse of a cryptocurrency bubble is smaller than that of the 2008 financial crisis.

At the same time, there are a number of possible benefits that will continue to exist even if the bitcoin sector fails. Blockchain technology is arguably the most apparent example: the technology that underpins the cryptocurrency business has already shown to be valuable in other fields. (See also: De Beers Using Blockchain for Diamond Authentication.) While a cryptocurrency may lose value or even disappear, the technology that the sector has brought to the public may have far-reaching implications.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and this article is not a suggestion by Investopedia or the author to do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site. The author owns bitcoin as of the day this post was published. It’s unknown whether he owns any additional bitcoin forks.

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