FTX’s spectacular implosion reminds some analysts of the dot-com bubble bursting in 2000. Tech companies struggled to win back investors’ trust two decades ago. The collapse of FTX could weigh on cryptocurrencies for years, experts told Insider. Loading Something is loading.
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FTX’s collapse this week has left the crypto industry bracing for a bear market echoing the dot-com crash that hammered tech stocks in the early 2000s.
Digital assets will struggle to win back investors’ confidence after the fall of Sam Bankman-Fried’s exchange vaporized at least $1.7 billion in customer funds, experts told Insider.
“This will set our initiatives back several years,” said James Butterfill, head of research for Europe’s largest cryptocurrency investor CoinShares.
FTX’s bankruptcy appears to have accelerated the ongoing “crypto winter”, with bitcoin plunging 23% last week to hit a two-year low of under $16,000.
And the dot-com crash shows that there could be further pain ahead.
Between 1995 and 2000, the tech-heavy Nasdaq jumped 400% as internet usage surged, with investors piling into any stock with “.com” in its name.
But the Federal Reserve started raising interest rates in June 1999, which eroded those companies’ cash flows and burst the tech bubble.
The Nasdaq had tumbled almost 80% from its peak by October 2002, with share prices of tech stocks including Amazon, Cisco, and current bitcoin bull Michael Saylor’s MicroStrategy all plummeting.
Pets.com summed up the bubble’s excesses, liquidating itself in 2000 when its shares were worth just 19 cents only nine months after listing at $11.
Similarly, investors piled into cryptocurrencies last year before aggressive Fed tightening fueled a brutal sell-off.
Bitcoin has plunged by 76% since hitting a record close to $69,000 last November, and smaller tokens solana and polkadot are trading 90% off their highs.
“In a very crude way, this isn’t that different to the dot-com crash,” Morningstar Investment Management CIO Dan Kemp told Insider. “The dramatic change to technology was the internet rather than crypto, but people tried to extract value from that by buying shares in companies like Pets.com.”
It took years for tech stocks to win over investors again.
Just 48% of internet companies even survived the dot-com crash, and it took Amazon a decade to regain its peak share price of $113.
Cryptocurrencies now face a similar battle to regain trust, according to analysts.
“The crypto winter that has lasted much of 2022 shows no signs of a thaw,” Insider Intelligence’s Jenna McNamee said. “The continuous revelations of crypto exchanges’ wrongdoings and sketchy behavior has gutted consumer confidence.”
CoinShares’ Butterfill believes that FTX’s bankruptcy has slashed about $9,000 from bitcoin’s price, which could otherwise benefit from speculation that the Fed will start easing up on tightening from December.
“Bitcoin is a rate-sensitive asset – it might trade at $25,000 without this,” he told Insider. “But crypto people are upset, and clearly naysayers feel emboldened.”
Those naysayers, who include Charlie Munger and Nouriel Roubini, took FTX’s bankruptcy as an opportunity to slam crypto this week.
Software engineer and “Popping the Crypto Bubble” author Stephen Diehl told Insider that comparisons to the dot-com crash actually favor digital assets because they imply the space will one day contain companies like Amazon or Google that deliver value to their shareholders.
“At least Pets.com solved a real problem – people need to buy food for their dogs,” he said. “For crypto, you have this frothy, tilted mania completely detached from anything in the real economy.”
Whether cryptocurrencies can bounce back as some tech stocks did 20 years ago remains to be seen.
But it’s clear the industry will struggle to soon shed its association with FTX and Sam Bankman-Fried and start winning back investors’ trust.
Read more: Nouriel Roubini slams Binance boss CZ as a “walking time bomb” and says crypto is totally corrupt