Fred Wilson is a man who knows the peaks and valleys of finance, having been an investor during the boom and bust of the dotcom era in the late ’90s and early 2000s.
Wilson, co-founder of the New York City-based Union Square Ventures, was also an early investor in Bitcoin. In a blog post published this week, Wilson drew parallels between cryptocurrency’s plunge and the dotcom crash that began in 2000.
Wilson points to the internet’s eventual recovery, giving hope to the possibility that the crypto market will see a similar bounce-back. However, Wilson concedes that any recovery for Bitcoin and other digital coins will only come after investors suffer more pain.
“So while crypto asset prices are down 80-95% in USD terms over the last year, they could and probably will go lower,” Wilson writes. “Amazon was down 80% a year into the post-bubble bear market and it got cut in half again before it made a bottom almost two years after it peaked.”
Wilson uses Amazon as the best-case scenario for the cryptocurrency sector. He notes how Amazon peaked at $90/share at the height of the internet bubble in 1999, but then about “two years later, at the trough, you could briefly buy Amazon at $6/share.”
Amazon, of course, has now proven to be one of the most successful stocks in the world, returning more than 100,000% from its $18 initial public offering price.
“But for those of us who were investing in tech and tech startups back in 1999-2002, that time will forever be etched in our minds,” Wilson writes. “It was a brutal period during which our belief in the Internet and its potential was sorely tested. Many friends and colleagues left the sector and never returned.”
Just as many “talented people” left the tech sector after the dotcom crash, Wilson expects there will be similar contraction in the crypto space.
But those who stayed were rewarded, although it took a long time for that to happen. We didn’t see meaningful paydays in the Internet sector until the 2007-2008 period and the big paydays didn’t start coming until 2010 and beyond.
The thing to look for in the downturn is signs of life. There were little projects that turned into big ones. Blogger was started in late 1999, almost shut down many times in the next few years, and was picked up by Google in 2003. Myspace, LinkedIn, and Facebook all emerged in the 2002-2004 period, as the Internet was finally coming to life again.
While Wilson maintains his optimism in the long-term prospects of cryptocurrencies – he thinks “some” or “possibly a number” of crypto assets will flourish after the downturn the way Amazon grew exponentially after the dotcom crash – he believes “things will get worse before they get better.” He also expects regulators to begin ramping up its scrutiny of the crypto space the way cracked down on internet companies after the crash.
Photo: Getty iStock