What is the Dot-com Bubble—Historical Patterns and Lessons Repeated in the Cryptocurrency Market

Bubbles resulting from technological advancements have repeatedly occurred throughout history. The pattern of rapid rises and falls seen in the late 1990s dot-com bubble and the current cryptocurrency market share remarkable similarities. However, understanding the differences provides investors with clues to assess future risks. This article systematically compares what the dot-com bubble was and how the current cryptocurrency market differs and overlaps, drawing practical lessons.

The Common Psychology of FOMO Driven by Expectations for Technology: Dot-com and Cryptocurrency

The essence of the dot-com bubble was an infinite expectation for internet technology and a psychology of “not missing out.” In the early 1990s, the internet was recognized as a revolutionary technology, and stock prices of companies with “.com” in their names continued to rise even without concrete profit models.

Similarly, the cryptocurrency market operates on the same mechanism. Expectations for new technologies like blockchain, DeFi, and NFTs lead the way, with future potential, rather than project performance or profitability, determining prices. From Bitcoin’s surge in 2017, the DeFi/NFT boom from 2020 to 2021, to the anticipation of ETF approvals from 2024 to 2025, all have been driven by the same FOMO (Fear of Missing Out) psychology.

This psychological pattern remains unchanged in any era of tech bubbles. When investor sentiment dominates the market, fundamentals (basic economic indicators) become secondary.

From 1995 to 2025: Lessons from the Collapse of the Dot-com Bubble and Risks in the Cryptocurrency Market

Historical Background of the Dot-com Bubble

In 1995, the listing of Netscape marked the dawn of the internet era. Within just five years, the NASDAQ index nearly quintupled from 1995 to 2000, flooding investment money into all kinds of internet-related companies. Company performance and profit models were not questioned; only the belief that “the internet age has arrived” drove the market.

Around 2000, rising interest rates and a shift in investor sentiment caused this illusion to collapse. The NASDAQ fell over 70% from 2000 to 2002, and many internet companies went bankrupt. However, some companies like Amazon and Google’s predecessors survived and later led the tech industry.

Similar Cycles in the Cryptocurrency Market

The crypto market has experienced similar cycles. Rapid surges and crashes occurred in 2013 and 2017, and from 2020 to 2021, institutional investors’ entry caused another sharp rise. In 2022, exchange failures and project collapses caused significant shocks to the market.

Currently, from 2024 to 2025, expectations around Bitcoin halving and ETFs are heating the market again. This pattern is identical to the dot-com era. However, new vulnerabilities have emerged in the crypto market that did not exist during the dot-com bubble.

Evolution of Investors and Fundamental Market Structure Changes

During the dot-com bubble, the main investors were individual investors and institutional investors (investment funds, banks, securities firms). They operated within the existing stock market system.

In contrast, the early crypto market was dominated by individual investors, but since the 2020s, the emergence of ETFs and the entry of large institutional investors have significantly changed the market structure. This has fundamentally altered liquidity characteristics, price formation mechanisms, and risk transmission pathways.

Particularly important is that crypto trading occurs 24/7, and on-chain data allows complete visibility of some transactions. This is a feature not present in stock markets, opening new possibilities for market analysis but also creating new risks.

On-Chain Indicators and PER: Evolving Valuation Metrics and New Bubble Detection Methods

In stock markets, traditional valuation metrics like PER (Price-to-Earnings Ratio), ROE (Return on Equity), and cash flow are used. These are established methods with over 100 years of history, based on company profits and cash flows.

In the crypto market, new evaluation axes exist that cannot be measured by these traditional indicators. On-chain activity (transaction count, active addresses), staking ratios, supply scarcity, futures market funding rates, and liquidation amounts serve as important signals of project health and market overheating.

For example, if Bitcoin or altcoin prices are rising but on-chain active addresses are not increasing, the rise may be driven by speculation. This means that the “bubble degree” that was undetectable during the dot-com era can now be quantitatively measured in the crypto market.

While this provides investors with powerful tools, it also highlights the danger of relying too heavily on technical analysis.

Regulation and Market Maturity: Different Fates for Crypto Compared to Dot-com

During the dot-com era, regulations on internet transactions were insufficient. Company formation standards, disclosure rules, and investor protection systems were underdeveloped, allowing the market to expand wildly. As a result, many investors suffered losses during the bubble burst.

Similarly, the crypto market faces regulatory issues, but the situation is rapidly changing from 2024 to 2025. Authorities worldwide are strengthening oversight of exchanges, implementing customer asset protection rules, and opening the market through ETF approvals.

Particularly, at the end of 2025, announcements from the WEF (World Economic Forum) and regulators warn more strongly about asset bubbles including cryptocurrencies. While regulation can lead to long-term market maturity, it may also amplify short-term price volatility.

Failures and Hacks: Unique Vulnerabilities in the Crypto Market

In the dot-com bubble, corporate insolvencies were the main crises. Companies that were unprofitable were abandoned by investors, their stock prices declined, and many went bankrupt.

In the crypto market, besides project failures, hacking and exchange insolvencies have introduced new risks. When exchanges are hacked, assets are fully visible on the blockchain. However, the anonymity and decentralization make it difficult for victims to trace and recover assets. This mechanism is unique to crypto and represents a specific vulnerability.

Five Key Lessons in Risk Management for Investors

From comparing the dot-com bubble and the crypto market, investors can derive the following practical lessons:

1. Practice Diversification

Concentrating funds in a single asset leads to maximum losses during a bubble burst. Many investors who invested fully in “.com” stocks during the dot-com era or in a single altcoin during the crypto boom suffered severe losses. Clearly defining asset allocation and avoiding excessive concentration is fundamental.

2. Manage Leverage Carefully

Leverage trading is easily accessible in crypto. High volatility markets mean leverage amplifies gains but also exponentially increases losses. Managing position sizes is crucial during bubble conditions.

3. Conduct Thorough Due Diligence

In crypto investing, always verify project teams, whitepapers, tokenomics, and on-chain data (activity of project addresses, smart contract audits). These clues help determine whether a project is real or just speculative.

4. Security Measures and Asset Diversification

To guard against hacks and exchange failures, some assets should be stored in hardware wallets or trusted wallets (e.g., Bitget Wallet), with two-factor authentication and fund splitting. These are crypto-specific defenses that were unnecessary during the dot-com era.

5. Confirm Sufficient Liquidity

Tokens with low trading volume are more susceptible to price manipulation and unexpected losses due to thin order books. Checking liquidity before investing is especially important in bubble markets.

Repetitive or Mature Scenario: Two Possible Futures for the Crypto Market

The future of the crypto market may split into two scenarios:

Repetitive Scenario: Recurrence of the Dot-com Nightmare

Large institutional and ETF-driven capital concentrates in specific assets, with expectations driven by hype rather than real demand. In this case, many latecomers will suffer huge losses when the bubble bursts. However, as some companies like Amazon and Google survived the dot-com crash, certain quality projects in crypto may also endure and lead new industries.

Mature Scenario: Transition to a Stable Market

Regulatory improvements, mature custody infrastructure, and corporate adoption reduce volatility, establishing some use cases. In this scenario, price mechanisms become more fundamentals-based, leading to a more stable market structure than during the dot-com era.

Which scenario unfolds depends on regulators’ responses, technological progress, and macroeconomic factors.

How to Read the Current Market in Light of 2025 Outlook

According to reports from Reuters and others at the end of 2025, the crypto market is at a crossroads between repeating the dot-com bubble and maturing. Bitcoin ETF approvals, staking adoption, and on-chain indicators have improved analysis capabilities to unprecedented levels.

At the same time, exchange failures, hacking incidents, and increased regulatory warnings have accumulated risks.

Investors should balance technological optimism with realistic risk assessment. Twenty-five years after the dot-com bubble, we can leverage past lessons to make more rational investment decisions.

Conclusion: Lessons Repeated from the Dot-com Bubble in the Crypto Market

The dot-com bubble was an era dominated by infinite expectations for technology and FOMO-driven investment distortions. The crypto market operates on similar mechanisms. However, with advances in regulation, on-chain metrics, and institutional participation, conditions are increasingly surpassing those of the dot-com era.

The key lesson from the dot-com bubble is that while tech bubbles cannot be entirely avoided, their impact can be minimized. Diversification, risk management, thorough project evaluation, and emotional control remain timeless principles.

The ultimate fate of the crypto market depends on which scenario unfolds, but by applying lessons from the dot-com era and maintaining a cautious, rational approach, investors can at least protect themselves from avoidable losses.