The Bitcoin Rollercoaster continues, You May Be About To Experience An Emotional Ride

With the recent rise in bitcoin price, the online media is buzzing with strong and emotional comments from those who support bitcoin price and those who argue against it. In this article, we are not taking sides and instead we share views that are similar to those that happened in the past several decades.

There is an old saying that history repeats itself and if we fail to learn from history, we are likely to repeat it. There are many examples of business cycles that resemble what is happening with bitcoin today. One of the most remembered is the dot-com cycle which ended up becoming a bubble.

Examining the Nasdaq exchange index which represented the high-tech industry during the 2000 dot-com cycle, we find a striking similarities between the Nasdaq valuations and current bitcoin valuations, illustrated in the two charts below.

What is even more striking is the investor’s behavior. Having experienced the dot-com cycle and bubble first hand we see almost identical arguments used to argue pro and against bitcoin. Arguments that were made about technology companies and investment opportunities during the dot-com cycle that lead to the bubble are the same as those presented today about bitocin.

The chart below shows today’s arguments that are expressed by pro and against positions on bitcoin and other cryptocurrency. This chart clearly illustrates the emotional ride that is always present when business fundamentals are not being discussed.

Many posts in social media like Twitter are personal attacks on those who argue their position. History again teaches us a valuable lesson that highly emotional decisions have a tendency to be 100% wrong.

The fact is that today’s investment justifications investing in bitcoin and other crypotocurrencies are almost identical to what took place during the dot-com cycle. During that period, individuals invested in high tech companies that had no revenue, no plan how to earn revenue and had no customers but the hype about their high technology was sufficient enough to convince investors to invest.

High tech company startups valuations were rising through the roof. Companies with no revenue, had market valuations in 100’s of millions sending their shares to euphoric heights. The investor’s behavior became almost irrational. No one could convince them that business fundamental did matter and sooner or later the rubber must meet the road. And it did. Companies with no revenue or customers quickly ran out of hype and cash and crumbled into bankruptcy leaving investors with great losses.

Today we see very similar behavior amongst bitcoin and crypotocurrency investors.  Arguments like; today is different, we need to get rid of central banks, need to get rid of the middleman, bitcoin is the best investment in history, are all made without core business fundamentals to support them. The evidence is already here that this line of rationale is risky. Just look at the graveyard (dead coins) of 1,699 blockchain startups which issued their own cryptocurreny coins and failed to build a sustainable business in just 12 months.

Today is not different. We are repeating the same mistakes. Business fundamentals need to be present to support business growth regardless if the business is represented by a company stock or digital coin. Price valuations cannot be sustained on vapor alone. There has to be some tangible value that represents the price.

No one knows where bitcoin or any cryptocurrency price will end up in the future. And that’s a fact. Many can predict but they will simply be guessing. Just look at the bitcoin price chart above. Can anyone present facts that explain why bitcoin price has fluctuated so wildly in the past 18 months? Not likely. No one can predict how people will act emotionally and people are investors who are emotionally driven. What we can predict is that if investor’s behavior remains the same as it did during the dot-com cycle, history will likely be repeated. Investors will lose money.

If you are an investor in bitcoin or other cryptocurrency, don’t get caught up in the hype. Look for evidence that business fundamental support your investment decision. If you ignore the fundamentals, you may enjoy a brief ride but you remain at high risk of repeating history. And you are at risk of potential financial losses.

Author Bio

As a co-founder of Blockhelp.pro and 180FIND, I leverage more than four decades of entrepreneurial experience in helping companies put the value of their solutions to work on behalf of their balance sheet.

jerry@blockhelp.pro

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