Patterns, known as bubbles or market bubbles, occur when the value of a particular asset or industry experiences a sudden and significant increase, often due to excessive speculation and unrealistic expectations. This can lead to a period of unsustainable growth, followed by a sharp decline in value when the bubble bursts.
In order to understand where we are in the development cycle of blockchain and to inspire some context in emerging technologies its useful to look at some of the patterns from the past that could be relevant.
Starting with the famous one that should resonate with many people, the dot com bubble.
What was the dot com bubble?
The dot com bubble was a period of rapid growth and speculation in the technology sector, particularly in the field of internet-based companies, during the late 1990s. During this time, many investors poured money into technology companies that were developing new internet-based products and services, leading to a sharp increase in the value of tech stocks. However, this growth was not sustainable, and many of these companies failed to live up to the high expectations of investors. As a result, the dot com bubble burst, leading to a significant decline in the value of tech stocks and a widespread economic downturn.
After the dot com bubble burst, the internet continued to evolve and develop, but at a slower pace than during the height of the bubble. Many of the companies that were founded during the dot com era either went bankrupt or were forced to scale back their operations. However, some of the most successful dot com companies, such as Amazon and Google, continued to grow and expand, becoming the tech giants that they are today.
Overall, the dot com bubble had a major impact on the development of the internet, but it did not halt its progress entirely. While the bubble’s burst led to a period of economic downturn and uncertainty, it also paved the way for more sustainable growth and innovation in the tech sector.
History repeats itself
While the dot com bubble is famous, this is not the first time this has happened, we’ve seen similar patterns in other industries in the past.
Similar patterns of rapid growth followed by a period of decline have happened in many other industries throughout history.
Examples of market bubbles can be found in many different industries, including real estate, stocks, commodities, and even art and collectibles. Some of the most well-known examples of market bubbles in history include the Dutch tulip mania of the 17th century, the South Sea Bubble of the early 18th century, and the housing market bubble of the late 2000s. These bubbles all followed similar patterns of rapid growth followed by a sudden and dramatic decline in value.
Could this pattern be applied to the world of crypto and blockchain?
Yes, the pattern of rapid growth followed by a decline in value could potentially be applied to the world of crypto and blockchain. The market for cryptocurrencies, in particular, has experienced significant growth in recent years, with many investors pouring money into various types of digital assets. This growth has been driven in part by speculation and the potential for high returns, but it has also been fuelled by the increasing adoption of blockchain technology and the potential for its use in a variety of industries.
However, like any market, the crypto and blockchain space is subject to changes in investor sentiment and market conditions. If the market becomes oversaturated with new crypto projects or if there is a significant decline in the demand for cryptocurrencies, it is possible that the value of these assets could decrease, leading to a decline in the overall market. This could potentially result in a pattern of growth followed by a decline, similar to what has been seen in other industries.
From our perspective, some of these traits have already materialized and are in the process of materializing. W’ve seen the boom of the first round of crypto currencies like Bitcoin and the ecosystems that facilitate many other web3 activities, such as, Ethereum, Avalanche, Polygon, and many others. This resulted in a very rapid growth within the NFT space, but we feel the space is ripe for consolidation in some respects, moving from novelty products toward functionality and value creation.
Climate markets crash
The carbon market crash around 2010 refers to a steep decline in the price of carbon credits and the overall value of carbon offset projects. Carbon credits are tradable certificates that represent the right to emit a certain amount of carbon dioxide or other greenhouse gases. They can be bought and sold on carbon markets, such as the European Union Emissions Trading System (EU ETS), which is the world’s largest carbon market.
The crash was caused by a combination of factors, including a surplus of carbon credits, weak economic conditions, and a lack of political will to address climate change.
In the European Union Emissions Trading System (EU ETS), which was established in 2005 as the world’s first carbon market, by 2007 the prices of carbon permits soared to €30/tonne, but then the financial crisis hit and the economic downturn caused a decrease in industrial activities, which led to the decrease of emissions and a oversupply of carbon allowances. This resulted in a price collapse, with prices falling to as low as €2/tonne by 2012.
Additionally, there was a lack of political will to introduce more ambitious emissions reduction targets. This led to a surplus of carbon credits, as many companies held more credits than they needed to cover their emissions. This further contributed to the fall in prices.
The carbon market crash of 2010 caused significant financial losses for investors in carbon offset projects and had a detrimental effect on the development of the carbon market. It also raised questions about the effectiveness of carbon trading as a tool for addressing climate change and led to calls for more direct and effective policy measures to reduce emissions.
We feel the blockchain and web3 applications currently in development are probably some of the leading initiatives in a second more mature market, much like the emergence of Amazon or Google in the next phase of internet developments.
We refer to the maturing of the tools and methodology of working with innovative tools that we can improve, transparency, efficiency, and performance. This matured market is where the AAVA Climate Performance Token is positioning. We aim to become a reference point for the successful deployment of a web3 business model.
Life after a market bubble bursts, the consolidation phase
When a market bubble bursts, it means that the prices of assets in that market have significantly fallen from their peak levels. This can happen when investors become overly optimistic about the future prospects of a particular sector or asset class and drive prices to unsustainable levels. When the bubble bursts, it can result in significant financial losses for investors who bought at the peak of the market.
It is common for prices to fall further as investors rush to sell their assets. This can lead to a decline in market activity and a decrease in the overall value of the sector. It is also possible for the market to crash and for the sector to eventually recover, but this process can take time and is not always guaranteed.
We are confident however, that while there may be some level of readjustment within the web3 space after the first round of high-flying operations, the innovations that power web3 are most likely to consolidate and develop into the new mainstream applications and business-as-usual in a web3 world. We saw a similar behaviour during the internet boom.
The dot-com bubble was a period of excess speculation and rapid growth in the technology and internet sectors that took place in the late 1990s and early 2000s. Many well-known companies, such as Amazon, Google, and Facebook (Meta), Paypal, Netflix emerged from this period and became hugely successful. However, the bubble also saw the rise and fall of many other companies that did not fare as well.
Some examples of well-known companies that failed during the dot-com bubble include:
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- Pets.com: An online pet supply company that was known for its distinctive sock puppet mascot. The company went public in 2000 and quickly gained a valuation of over $1 billion. However, it was unable to turn a profit and went bankrupt in November 2000, less than a year after going public.
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- Webvan: An online grocery delivery service that received significant venture capital funding and went public in 1999. The company’s business model proved unsustainable and it filed for bankruptcy in 2001.
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- eToys: An online retailer of toys and other children’s products that went public in 1999 and reached a valuation of over $7 billion. The company was unable to compete with larger e-commerce companies such as Amazon and filed for bankruptcy in 2001.
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- Kozmo.com: A same-day delivery service that offered free delivery of a wide range of products, including groceries and DVDs. The company received significant venture capital funding and went public in 2000, but it was unable to turn a profit and went bankrupt in April 2001.
If you are considering investing in a particular sector or asset class, it is important to do your due diligence and be aware of the risks involved. This can help you make informed investment decisions and avoid potential financial losses.
