Echoes of the dot-com era

During the dot-com boom in the late 1990s, the stock market resembled a free-for-all where investors — both retail and institutional — were scrambling to buy up shares of just about any internet startup they could get their hands on. The general consensus was that the internet was “the future” and these new online startups were just months away from trampling over traditional industries and putting them all out of business. 

The hype was real, and the dreaded “fear of missing out” took hold as investors eyed enormous 100x-200x gains, losing all sense of logic in the process. Very few looked at the fundamentals — as long as a company had “dot-com” somewhere in its name, it was destined for greatness. Or so they thought. 

But once they had millions of dollars in funding locked down, companies like Pets.com, Webvan, Kozmo.com, and eToys.com had to try to build a business. Customers were signing up, and the profits began to trickle in, and that’s when things began to get messy. The problem was, although they had some revenue, it wasn’t nearly as much as what had been promised, and it quickly became apparent to investors they’d paid as much as 100x or 200x earnings for their shares. It was bad news.

Historically, the average price-to-earnings ratio of companies in the S&P 500 Index hovers at around 15-25 times earnings, which is considered healthy. So when an investor is paying 100x or 200x, it means the shares they’re holding are massively overvalued. When the realization set in, investors tried to sell, crashing the market and transforming the dot-com boom into a bust. 

It took years for the stock market to recover, but it wasn’t a total disaster. The dot-com era companies that survived didn’t just pull through – they ultimately grew into monsters, and the likes of Amazon.com and Google are now among the most valuable companies on Earth with multitrillion-dollar market caps.

Is crypto in a bubble too?

Today, many investors and analysts liken what happened in the dot-com era to today’s artificial intelligence market, which is currently at the crest of a similar wave of enthusiasm. But few have noticed that the dot-com bubble more accurately reflects today’s crypto market. 

At the beginning of the year, as Donald Trump entered the White House for his second term on the back of promises to make the U.S. the world’s “crypto capital”, crypto enjoyed unprecedented gains. The bull market was in full swing, and the price of Bitcoin (BTC) skyrocketed, reaching multiple new all-time highs, while assets such as Ethereum (ETH) and Solana (SOL) enjoyed similar gains. Altcoins went into overdrive as that familiar sense of “FOMO” took hold again. 

That was until a couple of months ago, when crypto suddenly hit a wall. Bitcoin struggled to grow beyond its new ATH of around $126,000 in October, and the mood began to sour. Prices started to decline, slowly at first, before dropping much more quickly, and just two months later, Bitcoin lost almost a third of its value. Its decline had a cascading effect on altcoins, and many were hit even harder, with some low-cap coins losing more than 50% of their value in the last two months. 

There’s a lot of debate about what has caused this dip, with many experts pointing to uncertainty over the economy and AI bubble fears, but the maturity of the crypto market has also had an effect. 

During the early days of the dot-com bubble, it was hard to assess the value of the most prominent startups of the day, and the same was true of cryptocurrencies. However, as the market has matured, many tokens have begun to establish viable use cases and revenue streams. ETH, for instance, generates revenue for holders through staking rewards and DeFi activities like restaking and lending. These revenues have become predictable, thanks to the transparent nature of blockchain fees and daily user activity.

Just like we saw in the dot-com era, once a project starts to generate a stable revenue stream, anyone can perform a crude analysis to work out a rough price-to-earnings ratio for that token. Early investors in startups like Pets.com were horrified to discover they had massively overpaid for the shares they held, and many crypto investors have made the same shocking discovery. 

Although it is tricky to establish an exact P/E ratio for any cryptocurrency due to the non-traditional nature of their earnings, many tokens look overvalued due to their promises of high future utility and rewards, which contrast with their current earnings potential. When we look at the staking revenue of some tokens, there’s a strong argument to be made that many investors easily paid over 100x their earnings potential, just like the eager investors caught up in the madness of the dot-com bubble in early 2000. 

The dawn of the web3 era

It’s difficult to know the exact dynamics driving the crypto market’s ups and downs, but the current downturn bears more than a few similarities to what happened during the dot-com era. However, if this analogy is true, it means we can make some predictions about what happens next. 

When the dot-com bubble burst, the most unprofitable startups quickly folded, leading to massive losses for unlucky investors. But not all of the dot-com companies disappeared. In fact, those with sound business models didn’t just survive; they took control of the market and soon began to thrive. The likes of Amazon and Google laid the groundwork for web2 and, ultimately, the rise of social media, cloud computing, smartphone applications, streaming, and online business. 

The crypto industry now stands at a similar crossroads. The prospect of a real bear market is growing by the day, and further declines will likely kill off any token that lacks real utility or purpose. As we head into 2026, it’s looking like we’ll see a year of consolidation for crypto. There’s going to be a lot of pain as the most questionable projects fold, but the strong will not only survive, but perhaps even build the foundations of the long-awaited web3 era, where individuals take back control and opportunities abound for us all.