More than 800 cryptocurrencies have gone from boom to bust as their value has fallen below even one cent, drawing comparisons with the dotcom bubble of 2000.
The “Digital Wild West”
Vast numbers of new digital coins have been created via initial coin offerings (ICOs), in which a startup issues digital “tokens” that investors can buy instead of an equity stake in the business. Nearly $12bn has been raised via ICOs this year, with investors attracted by cheap coins that could mint hefty future returns. Prominent celebrities including award-winning actor Jamie Foxx have backed ICOs, leading to concerns over scams in the “digital wild west”.
Hundreds of ICO projects are now dead in the water due to being fraudulent, jokes or flops, according to figures compiled by the Dead Coins website. These coins are now technically worthless, trading at fewer than one cent.
Bitcoin’s “Blood Bath”
Meanwhile, bitcoin’s “blood bath” has continued in recent weeks as the price of the best-known cryptocurrency has plunged by roughly 70% since its record high near $20,000 last year, according to CoinDesk data. The tanking of bitcoin’s price has drawn comparisons with some of the companies that crashed during the dotcom era, when simply adding “dotcom” to the name of a company could drive a buying frenzy.
Morgan Stanley analysts say that bitcoin’s price plunge was 15 times faster than the dotcom crash. The behaviour of myriad cryptocurrencies is considered by some to cause a ripple effect across the entire market, similar to the one that savaged the Nasdaq 100 Index in 2000 and led to heavy losses and the closure of prominent tech stocks that rose to prominence on the back of excitement around the potential of the Internet.
Investors’ Nerves Rattled by Hacking
Investors’ nerves have been rattled following the hacking of two prominent South Korean cryptocurrency exchanges — highlighting the security concerns around digital money.
ICOs are speculative and risky endeavours that have been plagued by scams in recent months, not least the fake startup called Giza that cashed out with $2m of investors’ cash.
To evangelists, ICOs are a potential future alternative to initial public offerings, which have dwindled in recent years among tech companies, and venture capital funding.
Cryptocurrencies have also come under pressure from regulators, who have warned on their risks and as fears that celebrity endorsements could lead to law suits from regulators and investors who believe they have been swindled.
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