The bubble began after computer users gained access to the Worldwide Web in 1993, creating more awareness of the use of the Internet. The internet became so popular that people saw owning a computer system as important and between 1990 and 1997, the percentage of households in the United States that bought computers increased from 15% to 35%.
People started establishing internet and tech-based start-up companies during the 1990s and many investors threw caution into the air and started pouring money into these companies, especially those that had Internet-related prefixes or a “.com” suffix attached to its name, with the hope that they would one day become profitable.
The dotcom boom caused the NASDAQ Composite index to go up by 582%. The number increased from 751.49 to 5,132.52 from January 1995 to March 2000. However, by 2000 the bubble burst, the index fell by 76.81% and the number dropped from 5,048.62 in March 2000, to 1,139.90 in Oct. 2002.
Some of the tech-based startup companies went bankrupt, some faced liquidation while some suffered massive drops in share prices. Companies like Pets.com, Global Crossing, 360Networks, Webvan, Worldcom, eToys, Boo.com, and NorthPoint Communications failed and went bust.
Other companies like Cisco, Microsoft, eBay, Amazon.com, Google and Qualcomm managed to survive but lost millions of dollars.
Why the Crypto Market is Often Compared to the Dot Com Boom
After the online companies were established, investors started pouring in funds at the early stages of these firms. In a similar pattern, the crypto market, which started existing in 2009 after the creation of Bitcoin, the first cryptocurrency, is relatively new.
Secondly, during the period of the dot com bubble, many investors were flooding into the stock market. Likewise, many people have adopted and are adopting crypto, especially after the COVID-19 pandemic-induced lockdown in 2020.
As the crypto frenzy continues, some individuals and institutions are going bullish on crypto, some are cautious and hesitant while others blatantly refuse to tread on that path. One reason why the third group exists is that some believe that the crypto market is an ongoing bubble that will definitely burst at a point, causing investors to lose their money, just like the dot com bubble.
Therefore, the questions “is it wise for an investor to put funds into crypto-like investors put into companies during the dot com boom?” and “If it’s safe, when would be the prime time to do so?” arises.
Should You Invest in Crypto?
The downfall of the dot com boom was not because new companies were established or that investors put funds into those online companies but because they failed to put the important factors into consideration.
Some of the companies were created without a proper business plan or track record of profits, most of the companies were valued and highly speculative and Investors were quick to pour money into startup companies without proper orientation and research.
Although the choice to buy an investment portfolio solely depends on the individual investor, if one chooses to enter the crypto market, there are some boxes to tick first to avoid losing funds like the dot com bubble.
Proper Research: Many people go into crypto without having basic knowledge of what that world is all about, how the market operates or which coin to buy, and which to avoid. You don’t have to be a professional before you start investing, but you need to take the time to educate yourself.
Like those dot com companies that failed, there are some cryptocurrencies that are not worth investing in. A look into the history of the coin, the project proposition, the price history of the coin, and how the coin is faring in the market will help you determine if it is wise to invest.
Ignore the media frenzy: Like the media companies that encouraged people to invest in the dot com companies by flashing overly high expectations on future returns, the crypto industry also has information that is created to cause controversy or FUD. These sets of information should be ignored.
Avoid the “get rich quick” mentality: The crypto industry is not a “get rich quick” scheme where you invest and get high returns within a short limit of time. Patience is key in crypto. How well you succeed in crypto depends on how long you can HODL.
Is Now Prime Time to Invest in Crypto?
Having considered factors that can help to minimize the rate of loss of funds in the crypto market, when is the right time to jump into the wagon?
Compared to when crypto first came into existence, the asset has recorded noteworthy growth. At first, the crypto market was worth very little value, however, the global crypto market cap is currently at $2.09 trillion.
Like the popular Chinese proverb, “The best time to plant a tree was 20 years ago. The second-best time is now,” if you have lost the chance of investing in crypto in the past, now will be the prime time to do so.