Will Bitcoin suffer the same fate as Technology Bubble of 2000?

Digital currencies are facing a tough time in the current year after hitting the lifetime high in the last year. Therefore, there are all talks about the fate of the virtual currencies. This included the cryptocurrencies going in the same way that the technology or internet sectors have witnessed during the period 1998 – 2000. Some of the analysts are expecting the digital currencies to drop significantly in the upcoming months from the current levels as the regulators are tightening their screws. However, no one is ready to ignore the sector totally.

Similarities Seen

A Forbes report narrated how hundreds of technology firms were established during the period 1998 – 2000. At that point, all that mattered for raising money from the venture funds was nothing but the Internet-based one. Aside from that, such firms were eager to show their project and not revenue. As a result, their valuations have gone haywire. Alternatively, there was nothing to support higher valuations.

Enough attention was not paid to either revenue or the prospect of generating it. Also, venture capitalists were not worried about profits since they were confident of getting them down the line. This also allowed public firms to engage in stock splits enabling it to move much faster than expected. However, there was no change in either the valuations or the underlying fundamentals. The same situation seems to be hurting the cryptocurrency market too currently.

Much like the technology sector, digital currency market also hit a high last year. As a result, a number of virtual currencies like Bitcoin could hit their lifetime highs towards Christmas. Currently, the sector is struggling to hold its prices. Sheena Shah, A strategist in Morgan Stanley, thinks similarities existed between NASDAQ and Bitcoin. The analyst pointed out that both have witnessed a big jump in value and prices when it was trading high. On the other hand, it also dropped significantly.

If the chart of the NASDAQ between the periods June 1994 and June 2002 is taken into consideration, then bitcoin will plunge to around $1,500 levels in a few months’ time. The time frame adopted for the digital currency was a one year period only. At the beginning of 2017, the virtual currency was trading around $1,000 level only and hit its high of around $20,000 during the Christmas season. Since then, it has been witnessing a sharp downfall.

Four Key Metrics

To support his view, Shah pointed out that the four troughs to peaks for the technology index averaged 40 percent. In comparison, the three troughs to peaks for bitcoin averaged about 43 percent. Similarly, the five peaks to troughs for the tech index averaged a drop of 44 percent, the three peaks to troughs for the virtual currency averaged a fall of 47 percent. His analysis was also echoed by another analyst from Allianz’s Global Economics & Strategy.

However, there are optimists too. For instance, Fundstrat’s research head, Tom Lee, thinks that the virtual currency has already reached oversold position based on his Bitcoin Misery Index. Therefore, he sees the digital currency hitting a high of $91,000 by early 2020 and does not bother about the current issues haunting the Bitcoin.

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