Tuesday Dec 06, 2022

The dot-com crash has lessons for crypto, if only we can remember them – Protocol


The dot-com crash saw the collapse of high-flying startups that first commercialized the web. It also set the stage for Jesse Powell’s debut as a tech entrepreneur.

“All the companies that blew up were liquidating their laptops and office equipment,” the Kraken co-founder told Protocol, recalling how he built a business by going to startup bankruptcy sales during the crash. “I was buying stuff and selling it on eBay.”

Fast forward two decades: Instead of bankruptcy fire sales, Powell now runs a tech powerhouse of his own, one of the world’s largest crypto exchanges estimated to be worth $11 billion that has raised more than $125 million in funding.

The role has become freshly challenging as Powell finds himself having to navigate a market meltdown with eerie similarities to the turn-of-the-millennium tech-stock crash.

Layoffs, bankruptcies and the rapid evaporation of wealth: the parallels are everywhere. The dot-com crash wiped out about $5 trillion in investments, far more than the $2 trillion lost in the total market value of cryptocurrencies over the past seven months. It marked the end of the go-go ’90s.

The crypto crash is a less isolated phenomenon: It coincides with a global economic slowdown triggered by inflation, rising interest rates, the lingering COVID-19 pandemic, supply chain chaos and the war in Ukraine.

But it’s also in some ways more isolated, with far fewer households holding crypto now than had tech stocks in their portfolios during the dot-com boom. Despite recent warnings about crypto’s potential to create international “financial stability risks,” it’s expected to have limited impact on the global monetary system.

Ripple CEO Brad Garlinghouse, who ran telephony startup Dialpad in 2000 and 2001, said the crypto crash, like what happened two decades ago, is about how “excitement got ahead of reality on some of these things.”

“There was a bunch of leverage built into the system and we had an unwinding of that,” he told Protocol. Citing the UST stablecoin collapse that helped fuel the crypto slump, he added, “Terra-luna was the first shoe to drop. Maybe there’s gonna be more shoes to drop.”

But, said Garlinghouse, “The market isn’t going away. The opportunity isn’t going away.”

The new new thing

Like the crypto craze, the dot-com boom was sparked by excitement about a new technology.

Invented in 1989 by British computer scientist Tim Berners-Lee, the World Wide Web made the internet far more useful, unleashing a wave of venture-backed Silicon Valley startups offering new products and services based on the groundbreaking technology.

The trend triggered a Silicon Valley job boom and a rash of high-valuation IPOs from which emerged a swaggering culture. The era became known for “irrational exuberance,” said Jef Loeb, a longtime advertising executive who worked during the dot-com boom. He recalled how his agency worked on a quirky ad campaign for CyberCash, an online payments startup considered a pioneer of digital wallets. The campaign extolled the get-rich-quick virtues of the internet.

“There’s only one way to end prejudice against the rich — by joining them,” the narrator says in the campaign, called “The Partnership for a Filthy Rich America.” (In a way, it foreshadowed the crypto bros’ enthusiasm for rapid wealth creation, a 2000-era version of the contemporary meme “Have fun staying poor.”)

Rob Siegel, a management lecturer at the Stanford Graduate School of Business, said “there was definitely hubris” when dot-com companies spoke openly of replacing the “old economy.”

Some …….

Source: https://www.protocol.com/fintech/dot-com-bubble-crypto-crash

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