Bitcoin fell to a six-month low earlier this year and tech stocks struggled, making some wonder if we are seeing some kind of dotcom-esq bubble in the crypto markets. So why not take stock and see what we can learn from previous experience. 

When dealing with new and volatile assets, we should remember the late 1990s, which was a time when “irrational exuberance” overtook the minds of investors and led to horribly overvalued internet companies losing 75% of their value  — a total of US$1.755 trillion dollars — between March and September 2000.


It serves as a warning of what can happen when investors throw away good sense and jump into a project without due diligence. Or what happens when investors let FOMO (fear of missing out) get the better of them.

As a tech writer at a major cryptocurrency exchange, over the past year, I saw a similar amount of exuberance among crypto investors. On a daily basis, I read reports of venture capitalists handing over hundreds of millions of dollars to recent graduates with bad hair and a handful of graphs.

Irrationality happens all the time in the crypto market. Last year, when Facebook rebranded itself as a metaverse company and changed its name to “Meta,” major projects working in the space such as Decentraland and The Sandbox saw their token prices rise by over 500% and 800% respectively in one month. They have both retraced over 60% from those highs.

Every emerging industry goes through bubble phases. It’s par for the course. Take Bitcoin, the largest cryptocurrency by market cap, which had its largest bubble in December 2017 when it peaked at US$20,000 per coin before crashing. Some 12 months later it was trading at US$3,200, an 84% decrease. 

The cause of this crash was a mania for initial coin offerings (ICOs), when hundreds of projects launched, promising to be the next Bitcoin — and half failed within a year, creating what MarketWatch called “a digital graveyard of broken promises.” That was crypto’s chance to emulate the dot-com bubble and, in 2018, skeptics were sounding the death knell for cryptocurrencies. But they were wrong, and Bitcoin’s price has increased over 1,200% since those lows.   

It is unlikely that we will see a repeat of 2018 when crypto’s market cap was about US$340 billion, because now it’s over US$1.5 trillion with over 5% of the total supply held by institutional investors who don’t tend to fall prey to the kind of FOMO and panic selling that drive price bubbles. Indeed, a recent report by Fidelity found that 52% of total institutional investors hold digital assets, and that in Europe, 84% of high-net-worth individuals surveyed are similarly invested.

It’s getting harder every day to argue that Bitcoin is a bubble waiting to pop. For one, the crypto markets it dominates have become an entire financial ecosystem called DeFi (decentralized finance), a collection of protocols that currently hold tens of billions in deposits, loans, and yield-creating programs that give cryptocurrencies a function beyond speculation.

And let’s not forget that many of the dot-com casualties raised massive valuations before they produced any revenue. Compare that to crypto projects that are already drowning in profit despite the recent downturn. 

The second-largest cryptocurrency, Ether, generated US$9.9 billion in revenue in 2021. Opensea, a platform for trading non-fungible tokens (NFTs), saw nearly US$5 billion traded on its platform this January this year, of which it earns 2.5% in fees, while play-to-earn game, Axie Infinity, has generated over US$4 billion in sales since launching in 2018.

With all this innovation, Bitcoin’s dominance is waning in the cryptocurrency market. Sure, the market still generally follows Bitcoin’s price action (when the big boy goes up, everything follows, and vice versa), but because there are so many new projects that are independently generating revenue, that correlation is getting weaker and this trend is expected to continue. 

This means that the crypto market is no longer a monolith that rises and falls with Bitcoin. Early data on the NFT market from DappRadar shows that they behave “independently from cryptocurrencies and are affected by their [own] macro trends (utility, maturity, use cases, etc.). The same happens with blockchain games.”

The crypto markets are maturing and diversifying. NFT and “GameFi” are already setting themselves apart from the rest of crypto — and what happens when real estate starts to be traded on-chain? Or tokens that rise and fall with supply chains? Clearly, it’s misleading to talk of a “crypto bubble” as if this asset class is of one type. 

You may have heard people referring to Bitcoin as “digital gold” due to its use as an inflation hedge. But for crypto “coinoissuers,” it’s also a store of value, a place where they can store profits gained from investing in the NFT and GameFi markets. 

I don’t know about you, but this doesn’t look or sound like a bubble to me. Cryptocurrencies are more similar to a maturing asset class that goes through periods of volatility as part of its growing pains. Will there be casualties along the way? Certainly. Most of the projects in the top 100 cryptocurrencies today will go the way of Netscape Navigator, but it’s hard to make that case for Bitcoin and Ethereum, especially as exchange-traded funds (ETFs) that track both assets are becoming available to investors in Australia and other countries, bringing even more money into projects. 

It’s not as easy to say the same for the rest of the top 100 crypto projects, some of which will fail. So, when considering an investment in the crypto space, it’s important to remember the lessons of the late 90s, but top crypto protocols are already generating billions in revenue, which points to a much more sustainable proposition than those touted during the dot-com mania.