The blockchain bubble of 2018 is a repeat of the tech crash of 1998

Blockchain,has become the hottest word in nearly two years.The reason is that the digital currency,including bitcoin,derived from blockchain technology has created one myth after another .But that myth is now coming to naught.Countless people and projects are about to be turned off.

“Bitcoin is rising about 15 times after than the nasdaq composite,”Morgon Stanley’s research note said.The price movement of bitcoin in 2017-2018 is similar to that the nasdaq composite during the dot-com bubble before 1998,but rises and crashes are much faster on the timeling,according to Morgan Stanley analysts,”signling a repeat of nasdaq’s history.”After 20 years,is the blockchain ICO bubble going to go the way of nasdaq and explode?

How similar are 2018 and 1998?

When American Business Week commented on the Internet tide, what is the definition of the new economy: the core of this concept is a higher efficiency (or productivity) level that is driven by new digital technologies. This definition also applies to blocks. chain.

As an emerging network technology, the blockchain will bring about subversive changes in the fields of smart contracts, supply chain finance, and information traceability. Bitcoin is an application of blockchain technology. Referring to Bitcoin, ICO (issuing tokens) has developed into a low-threshold crowdfunding and financing method.

However, in the moment, blockchain has become a popular term in the relevant circles of Internet users and Internet practitioners, investors and media people. However, the user of the blockchain has a low penetration rate among the overall Internet users, because the technology of the blockchain is still far from everyone. At this stage, the user penetration rate of the blockchain is basically equivalent to the user penetration rate of the digital currency. According to Cambridge research, “There are about 5-6 million people in the world who are using digital currency wallets. The number of Internet users worldwide is 3.7 billion, and the penetration rate is about 0.12%.In contrast to the user penetration rate at various stages of the development of the Internet, 0.12% corresponds to the level of the Internet in 1992. ”

The Internet has developed rapidly since 1994. In this year, there were 2,738 Internet companies related to the global website. By 2000, this number had grown to 17,087,182, an increase of 624,000%. The entire industry has expanded to the point of madness.

Blockchains and digital currencies are repeating similar fanaticism. According to statistics from the CoinMarketCap. website, as of December 17, 2017, the global market capitalization of digital assets has reached $600 billion. On December 31, 2016, this figure was only $17.7 billion. In less than a year, the scale has expanded by nearly 3,300%.

So far, according to public statistics, there are more than 6,000 ICOs in the world, and there are more than 10,000 digital currency exchanges in the world. When Bitcoin was first launched in 2009, the issue price was about 3 cents, about equal to 2 cents. By the end of 2017, the maximum was close to 140,000 yuan. It has risen by 700,000 times. Ethereum is the first blockchain project issued by the token. In 2015, Wanxiang Group purchased 416,000 Ethereum native currency ETH for US$500,000. The project has increased by more than 3,000 times and the highest point has exceeded 10,000 times.

According to Babbitt data, from May 2017 until November, 584 companies ICO raised a total of 2.52 billion US dollars. But in January 2018 alone, 254 projects ICO raised a total of $1.83 billion. A total of $12.8 billion was raised in the first half of 2018. In 2017, there were 1,069 projects in the world. In the first half of 2018 alone, there were more than 2,131 projects ICO.

Excessive financialization triggers a similar bubble explosion

Regardless of whether it is the Internet or blockchain technology, the real improvement in the production relationship in the early days was not large. On the surface, it was a technological change, and in fact it was more beneficial to the financial industry. The technological changes that should have acted as the protagonist gave way to finance and speculation.

Over-financial bubble

What is a bubble? The value that externally gives to this company has far exceeded the true value of the company and economic fundamentals.

In the 1998s, when companies such as Microsoft not only had new technologies, but also earned real money, they spurred investors' enthusiasm for technology stocks. By the end of the 1990s, the .com frenzy on Wall Street broke out, as long as the stocks with .com in the website were blindly chased by investors. Between 1994 and 2001, a large number of Internet companies, the concept of frenzied packaging hype, introduced venture capital and absorbed huge amounts of money.At the time, many Internet companies did not establish a benign business model, but all focused on how to improve market valuation and financing. In many countries around the world, as long as it is technology and Internet-related stocks, it is rising sharply. On March 10, 2000, the Nasdaq index reached the peak of the high of 5132.52.

1998-2018 NASDAQ index curve

That is to say, in these companies, a large number of Internet companies have neither revolutionary technology, mature business models, limited profitability, and endless burning of money. Soon the problem has rapidly expanded, causing various doubts. And the chain reaction, with the release of a large number of stocks, the bubble burst, a large number of company stocks "flying down three thousand feet", and even a group of good companies, NetEase stocks at the lowest point of less than 1 US dollar. By 2017, the highest point is over $270. According to statistics, more than 5 trillion US dollars of investment have been evaporated, countless companies have gone bankrupt, and a large number of IT personnel are unemployed.

Due to the characteristics of decentralization, distributed accounting, unregistered, and non-issuable, Bitcoin has been made a revolutionary weapon by people who believe in it, and used it to subvert traditional finance. As an emerging network technology, the blockchain was originally a major innovation in the financial sector, but today the greatest value is for hype.

However, as of today, the most important module in the blockchain field is not technology, but financialization. The biggest beneficiaries are not technology development companies and programmers. It is the investment or speculator of the speculative coin. ICO issued digital cottages of various cottages, private placements, public exchanges on the exchange, and listings in disguise. Trading leverage, and even comprehensive financialization in terms of mining power.

2014-2018 Bitcoin Price Graph

According to rough statistics, there are more than 6,000 kinds of altcoins. Crazy money. Finally, with the suppression of relevant policies and the maturity of users, the bubble exploded. Bitcoin reached its highest peak in December 2017, about 20,000 US dollars. So far, in less than 10 months, it has fallen to about 6,000 US dollars. The next 30%. The price of hundreds of cottage coins issued by other ICOs is zero overnight, worthless, and investors are crying. Chen Weixing, founder of Pancheng Capital, predicted that “in the next two years, 99% of the project tokens will be zero.” Among them, very few good projects have been implicated and the value has been seriously underestimated.

There is always a striking similarity in history. Bitcoin fell 45% to 50% in each round of bear market, while Nasdaq fell sharply five times after 2000, with an average drop of 44%.

Disordered hype and tout

n the Internet bubble of 1998, Internet companies like Pets.com, Etoys, and Webvan, which had some concept of play, had no revenue model, but their stock prices skyrocketed. These bubbles are largely blown up by Wall Street speculators. According to BusinessWeek, Henry Blodgett of Merrill Lynch, Mary Mick of Morgan Stanley, Abby Cohen of Goldman Sachs, etc. Many analysts. On the one hand, they subscribed a lot of stocks of related companies, and on the other hand, they shouted through various channels and raised their stock prices. The stocks of the entire Internet circle soared like hot air.

The same is true in the blockchain and the currency circle. By creating new novelty and new concepts, we use the white paper to carry out various false propaganda and manufacturing momentum, and at the same time invite various celebrity celebrities to stand on the platform. Coupled with a variety of paid media and self-media manufacturing volume, a variety of leeks and retail buyers to enter the market. According to the titanium media report, a blockchain project called the space chain, quantum + space + satellite and other magical concepts, even within a day to complete 1 billion yuan to raise funds, Xue Manzi, Yan and other Internet celebrities for its platform, But after ICO, it broke within a month and the real value was zero.

There are countless similar things. According to media reports, Li Xiaolai, who is full of controversial Chinese "bitcoin richest man", his PressOne project, even white papers, did not attract 14,000 people in 4 hours, raising 500 million yuan. .

However, after the carnival, the price of the coin is zero, and the chicken feathers are everywhere. As early as July 1987, Robert Solow, an economist at the Massachusetts Institute of Technology and a Nobel laureate, said in the New York Times Book Review: "The traces of the computer age are everywhere, only Not reflected in productivity statistics." So "we are still careful," after 30 years, this sentence still makes sense.

Lack of supervision and delay

The cause of the Internet bubble is more of a problem of the financial regulatory system at the time. In the 1990s, US regulators continued to relax their policies, and in the end they simply revoked the regulatory mechanism. In this case, scammers and speculation, many investment banks or analysts, although knowing that some Internet companies are worthless, but for their own interests, continue to pack and vigorously tout, the outflow of out-of-control funds, resulting in over-investment The formation of the Internet bubble, the final explosion, the stock price plummeted, triggering a financial crisis.

In China, due to the cycle of research on new things and the improvement of relevant laws and regulations such as finance, a cycle and process are needed. Before September 4, 2017, various disorderly ICOs were everywhere. Amaranth has become an industry practice. The relevant supervision is completely absent. Until September 4, 2017, the policy was issued, which explicitly prohibited domestic ICOs from issuing tokens and financing activities. The ICO flooding of the entire blockchain was alleviated.

The spiral development of the Internet and blockchain

There are two situations in emerging industries, including the Internet, the prosperity of the entire market, or the bull market. One is a technological innovation, Apple is on mobile phones, Google is on search, and Amazon is on e-commerce. Because the changes in new technologies have changed social production relations, people's lifestyles and so on. And this change is exciting because of the extremely imaginative future prospects. Let it be natural will bring new economic and related market prosperity. The market will return to stability as new technologies mature and become universally applied.

One is the speculative illusion. For example, when P2P first began to prosper, the A-share real estate company, which had nothing to do with finance, changed its name to be a bulge and immediately rose. For example, at the beginning of the blockchain, various A-share US stocks and Hong Kong stock companies will throw out various blockchain concepts, so Thunder has soared 10 times. Generally, the prosperity brought by this speculative type is mostly the illusion of a mirage, which is difficult to sustain because the foundation is very fragile.

In this kind of speculation, most of the people involved know that the assets they buy (stock or digital currency) are not worth the money, but investors believe that this false prosperity will continue. The game of drumming will continue, the crash will not happen when you hold it, you will not be a pick-up. These assets (stocks or digital currencies) generate liquidity because of their value, but when all investors do not value their value, but only the concept of speculation, the entire market is likely to collapse due to the loss of normal value.

The previous Internet revolution and the current blockchain technology are both included. There are both real technological innovations and a lot of false speculation. Looking back at the US stock market, from 1987, 1998, 2008, and then to the beginning of 2018, important time points are basically running in the models of rising, plunging, and rebounding. After the Internet bubble in 1998, the United States grew up with global Internet innovation companies such as Google and Amazon, and China also produced hundreds of billions of dollars of Internet companies represented by Tencent and Ali. All of this will be staged in the blockchain technology innovation and development trajectory.

According to a recent report released by data company CB Insights, Google and Goldman Sachs are the two most active institutional investors in the current global investment blockchain company. Domestic Tencent, Ali, Jingdong, Baidu, Netease, etc. are all developing the development of blockchain technology. Chen Weixing judged, "In the future, most of the tokens are not used for speculation, but for value exchange. The encryption algorithm economy will replace all economic genres and become an experimentally validated science."

In the first quarter of 2017, global blockchain startups received a cumulative VC investment of $1.57 billion, and in the past three years (2014-2016), global blockchain startups have received a total investment amount close to 15 billion dollars. After the early rush, the blockchain industry is undergoing the first phase of adjustment and shuffling.

Any emerging industry will be accompanied by such a development cycle: birth, development, madness, underestimation, and redevelopment. In the Internet industry of the 1998s, the blockchain industry in 2018 was not.