The true innovators thrive when a bubble bursts
Dot-com companies such as Pets.com did falter when the Nasdaq bubble burst in 2000. But other innovative companies like Amazon thrived.
Terabytes of articles have been written comparing the historical rise in the price of bitcoin to the dot-com bubble of the late 1990s.
The speculation in new technology companies, particularly by individuals, drove the U.S. Nasdaq stock market to a record high of 5,132.52 on March 10, 2000. It then lost 78% of its value.
The point of these articles is usually that “history repeats itself" and so anyone buying bitcoin or other cryptocurrencies in general now is more likely to end up losing their money than making a fortune. The suggestion is that the money to be made in cryptocurrencies has already been made by those smart enough to have bought early enough.
This point of view fails to learn the real lesson of the dot-com bubble. That lesson is best illustrated by Amazon.com and Pets.com. The first company is familiar to everyone, but the second died an ugly death when the dot-com bubble collapsed. Both were in the retail sector and sought to replace brick-and-mortar stores with online shopping.
Pets.com failed in spite of having very popular ads that featured a clever sock-puppet spokesman. Amazon has succeeded to the point where they are now considered one of the five companies that "rule the world." These outcomes demonstrate that not everything in a financial bubble becomes worthless when the bubble "pops." This is the real lesson of the current interest in bitcoin and cryptocurrencies.
Bitcoin may or may not be in the grip of a speculative frenzy that is heading for a painful fall off a very tall cliff. The point is that just as Amazon was able to capitalize on the emerging trend of buying items over the internet, new business ideas will capitalize on the emerging trend of buying goods and services with cryptocurrencies.
The speed at which this change will take may be astonishing. There is certainly ample evidence that the rate at which new technologies are replacing old ones is increasing rapidly. This means there may be limited time to apply the lessons of history to the current environment.