Crypto dynamics during market downturns: Another dotcom boom-bust cycle? Contrasting investor behavior during downturns A rush for the exits or a buying opportunity?

The cryptocurrency ecosystem has experienced astounding growth in the last two years, with 400% price increases within a year, as well as the launch of thousands of new coins and tokens. These factors have led the public to compare the crypto phenomenon to the dotcom boom of the late 1990s, in which we saw some 2000 internet IPOs, and their representative index (the Nasdaq) also saw extraordinary gains over a short period. The Nasdaq’s meteoric rise was followed by a dramatic crash in the early 2000s, leading to a loss of nearly 80% from peak to trough. If the dotcom boom-bust cycle is indeed a precedent for crypto, the inevitable forecast would be an impending collapse in the value of cryptocurrencies. In this article, we drill below the surface similarities of the dotcom and crypto markets and examine the behavior of market participants during selloffs in both scenarios. We find that investor responses are markedly different, suggesting that forecasts of an impending sustained loss of value in the crypto space may be exaggerated. We conclude by providing tentative justification for the hypothesis that cryptocurrencies may in fact represent an entirely new asset class.