Thoughts on Bubbles

Living in Silicon Valley, the concept of bubbles is a common conversation and warning. It reminds us of the risks of exponential technology growth and the irrational exuberance that it breeds. With the recent Bitcoin and cryptocurrency bull run, the talk of "bubbles" has happened quite a bit.

I have no clue whether or not we are in a "bubble" and don't pretend to be able to time the market. However, I don't think of bubbles as necessarily a bad thing. When there is a new technology that shows value and promise, the excitement about this brings a rush of capital that allows people to build on top of it to create significant value. Many times, this excitement happens before the technology is mature enough to deliver on the promise. This can lead to overvaluation of companies or projects working on it. When the bubble pops, the companies and projects that truly create value come out while the ones that didn't are destroyed.

The interesting thing to me is that it's not that these "speculators" creating "bubbles" are wrong about the potential of the technology. For example, Pets.com is a poster child for the Dot-Com bubble and at its peak it was worth $300 million. If you believed in the potential of the internet and disruptive power of e-commerce, Pets.com as a concept made sense, albeit revenues of only $300k was a red flag. However, fast forward 18 years to 2017 and Chewy.com (an online pet store) gets acquired for $3.4 billion in the largest e-commerce acquisition in history.

Dot-com speculators weren't always wrong, they were just early!

Recently, I've been thinking about what it would be like to have lived and worked in Silicon Valley in 1997. What would I do if I saw the internet coming and its potential to disrupt and change every major industry? I would build a diversified portfolio betting on the future of the internet.

I would want to invest in the core protocol layers of the internet TCP/IP, SMTP, HTTP. Then I would want to invest in internet browsers and domain names on top of these. Then lastly I would want to invest in a dozen or so of the most promising websites on top of them. At that time, this would probably mean companies like Yahoo, AOL, Google, Amazon, Pets.com, Drugstore.com, Rentpath.com, and Apple.

If you would have made a $100k investment in this diversified "internet is the future" portfolio in 1997 and held it for 10 years to 2007, your money would have gone to $0 on a handful of these companies like Pets.com. But you would have returned more than 100x with Amazon, Google, Apple and domain names.

There are many parallels to the development and adoption of the internet and that of the blockchain. Are we in "1995" or "1999" of the blockchain? It's hard to tell. But if you have believe in blockchains as a technological innovation on par with the internet with the potential to disrupt and change every major industry, then the same logic of a diversified blockchain portfolio makes sense.

Diversifying across blockchains with Bitcoin, Ethereum, Expanse, Waves, Antshares. Then diversifying across promising use cases and applications on top of blockchains such as Golem, Siacoin, Tenx, Civic, Numerai, and OmiseGo.

With this approach, you don't have to be a trader with a deep expertise in technical analysis competing with seasoned experts on short term trades. Tokens give everyone the opportunity to be their own micro-Venture Capitalist by researching use cases and talented teams working on emerging technology and making small long term investments in them.

Let me know what you think. What differences do you see between the Dot-Com bubble and the cryptocurrency economy today? What are the best strategies to create a properly diversified blockchain portfolio?

Disclaimer: I own a number of blockchain based tokens and these are just a few that I'm excited about.