SafeMoon, Shiba Inu, Dogecoin: The 2021 Crypto Bubble is unlike anything we’ve seen
On Wednesday, Ethereum (CCC: ETH-USD) co-founder Vitalik Buterin donated around $ 1 billion to Shiba Inu-Krypto (CCC: SHIB-USD) to help India fund its Covid-19 response . Source: shutterstock.com/JFunk The strange? Buterin never bought the Shiba coin herself. Instead, the Shiba community had given him the crypto as a joke. By sending 50% of the outstanding coins, the currency became immune to a “carpet pull” in which controlling stakeholders hijack the coin for personal gain. Other joke cryptos – from Akita Inu (CCC: AKITA-USD) to Dogelon Mars (CCC: ELON-USD) – have since done the same. InvestorPlace – Stock News, Stock Advice, and Trading Tips At the time, the 505 trillion Shiba coins were worth exactly $ 0, according to CoinMarketCap. Their first recorded price five months later – a princely sum of $ 0.0000000013 – would have valued Buterin’s coins at just $ 560,000. Fast forward to today and its SHIB coins alone are worth well over $ 9 billion. His other holdings add billions more. 10 Dividend Aristocrat Stocks For Your Reliability Shortlist As early as 2021, cryptocurrencies have become one of the strangest financial manias in human history. Since January, digital currencies have increased market capitalization by more than $ 1.3 trillion, growing far faster than the Nasdaq bubble of 1999. Traders bought and sold trillions of dollars in cryptocurrencies in the first five months of this year, even more than Americans spend on housing annually. When financial institutions are brought to their knees, things only get stranger. Much like the media giants of 1999, by 2021 the U.S. banking sector started invading an industry for fear of missing out. Whenever banks have come across an industry they don’t fully understand, the results have always been the same: Historians look back and ask, “What on earth were those idiots thinking?” The 2021 Crypto Bubble: Echoes of 1999 So far, the rise in cryptocurrencies has followed the same pattern of most asset bubbles: it creates a grain of truth (the idea that cryptocurrencies can help lubricate the financial wheels). When the dominant players win (i.e. Bitcoin (CCC: BTC-USD) and Ethereum rise), the initial grain of truth is stretched to the limit (the idea that all cryptocurrencies must win). The bubble bursts and speculators suffer heavy losses. The tech bubble of 1999 followed that arc to the tee. For example, a 1999 University of Pennsylvania study counted no fewer than 1,500 online marketplaces when companies joined the Internet revolution. Legacy firms like Mattel (NASDAQ: MAT) and Time Warner (now owned by AT&T (NYSE: T)) injected billions into buying these unprofitable tech moon shots. But the bonanza didn’t last. By 2004 only 31 had survived. Of these, only one public company – 1-800Contacts – ended up at a price that was above its IPO. The rest would spend years making up for lost stock prices. (Amazon (NASDAQ: AMZN) would take nearly a decade to break out of its $ 90 range.) As for the old companies that shopped out of fear? Time Warner would eventually write off 97% of AOL’s value, while Mattel would sell The Learning Company for a “catastrophic $ 27 million”. Fools Rush Legacy banks are already feeling the echo of 1999. Much like the rise of digital media companies, digital currencies pose an existential threat to existing players today. Every dollar of deposits lost to Bitcoin or central bank digital currencies means that less are available for lending. Many refer to Facebook’s scales (NASDAQ: FB) as the “Sputnik moment” for banks. If a tech company could issue a currency, why would customers need commercial banks? In response, bulge bracket banks have rushed to develop in-house crypto platforms. Those without the funds have instead started making acquisitions. According to PwC, a global consulting firm, the crypto business had already doubled to $ 1.1 billion in 2020 – a small but rapidly growing number. Now 2021 has gotten even stranger. This week, the Andreessen Horowitz-sponsored Internet Computer Award (CCC: ICP-USD) quickly reached a valuation of $ 45 billion. Today it is the ninth largest cryptocurrency in the world by market capitalization. Few developers support the new currency, but the star-studded team was enough for investors to buy in. It’s Worse This Time: The Rise of ScamCoin It’s no surprise that the 2021 crypto bubble inflated much faster than the 1999 tech bubble. Unlike dotcom companies, a skilled programmer can create a new cryptocurrency in minutes. Many tokens in the Ethereum or Binance (CCC: BNB-USD) blockchain don’t even care about innovations – coins like SafeMoon (CCC: SAFEMOON-USD) copy their code directly from existing tokens. CoinMarketCap now counts over 5,000 different digital currencies. If you add in the token contracts from Ethereum and Binance, that number is well over 700,000. In April, a TikTok developer made a coin called “SCAM” to highlight the absurdities of these copycats. “I just made the coin as a joke,” said Andre Lewis. The internet had its last laugh and sent the coin valued at $ 70 million within an hour. Within four days, the token would peak near $ 12 billion before Lewis completed the entire project. How did it happen? In their rush to adopt digital currencies, institutional investors have created an aura of legitimacy when it comes to cryptocurrencies. Today, companies from JPMorgan to Citibank are posting glowing reports on six-digit price targets for Bitcoin. That means legitimate cryptocurrencies like Ethereum are now trading alongside jokes like Shiba Inu. The more cryptocurrencies are added, the more difficult it becomes to distinguish them from one another. Will a crypto win? To some extent, all cryptocurrencies serve essentially the same purpose – to help investors record money and real transactions. Ethereum and its “Ethereum Killer” competitors – like Cardano (CCC: ADA-USD) and Polkadot (CCC: DOT-USD) – track non-fungible items in the real world. Meanwhile, Bitcoin and competitors like Dogecoin (CCC: DOGE-USD) and Litecoin (CCC: LTC-USD) act as storage for digital value. This means that the survival rate for cryptos is likely to be lower than that of e-commerce companies from 1999. If coins like Litecoin and Dogecoin have virtually no technological differentiation, there is no practical reason for both to exist. As in the past, retail investors will be the first to lose. Currencies like Dogecoin, SafeMoon and Shiba Inu have already lost billions of traders from top to bottom. Copycats like Dogelon Mars, SafeMars (CCC: SAFEMARS-USD), and Akita Inu are likely to keep these miniature boom-bust cycles going. But institutional investors will at some point inflate the broader bubble to a breaking point. From the savings and credit crunch (S&L) of the 1980s to the mortgage-backed bonanza of the mid-2000s, financial institutions have a long history of taking good ideas to terrifying extremes. Just as a Citigroup (NYSE: C) executive said in 2007, “As long as the music is playing, you have to get up and dance.” In the near future, this means that Bitcoin and its blue-chip altcoin counterparts will continue to see their values surge. Financial institutions seem keen to keep up with central banks and technology firms as they adopt digital currencies. In the long run, however, most cryptocurrencies will implode. Like Amazon’s competitors who went bankrupt, most of today’s 700,000 tokens will go away. Just like the 1999 bubble, we’ll look back to 2021 – a year when billions in Dogecoin were based on a single SNL accomplishment – and wonder, “What were those idiots thinking?” At the time of this writing, Tom Yeung held positions (neither directly nor indirectly) in the securities identified in this article. Tom Yeung, CFA, is a Registered Investment Advisor committed to making the world of investing easier. More from InvestorPlace Why Everyone Is Investing In 5G WRONG It doesn’t matter if you get $ 500 million or $ 5 million in savings. Do this now. Top Stock Picker Reveals Its Next Potential 500% Winning Prodigy Who Found NIO At $ 2 … Says You Buy THIS Now The SafeMoon, Shiba Inu, Dogecoin: The 2021 Crypto Bubble Is Different From Anything We First on InvestorPlace.