Why the Crypto Currency Market is like Witnessing the Birth of the Stock Market

There are many people like myself who are crazy over the crypto currency market and people who are equally against it. This battle has been going on for a few years now and is unlikely to end soon. However, as the brief history of crypto currency has shown us, it is an incredible time to be in it and still an incredible opportunity to get in to today. 

If we look at the growth of the last 12 months alone in crypto currency it shows how crazy it has been. If you look at January 2017 the market cap was at 15 billion dollars. Since then we are now comfortably sat at 110 billion… That growth has happened in 6 months alone and it shows no signs of being at its peak. 

Some say that the crypto market is in a bubble from all the new investors coming in to try and make a profit, others say that we are not in a bubble at all and this is just the start of the crypto market. What do I say? I say it is exactly both reasons mentioned and I will tell you why. 

We have been through it before – The Birth of the Stock Market

A small disclaimer here, I am in no way a stock market analyst nor financial advisor and I am certainly not old enough to have seen the events I am about to go through. When I say “we have seen it before”. I am talking about us as a society living on this planet. 

Despite people going crazy over crypto and investing like crazy in it, we have seen it before and I will dare say that the crypto currency market is almost like similar events surrounding the birth of the stock market. 

Lets have a look to compare (I will keep it fairly brief) 

The Beginning

Back in the 1600s, there was a huge surge in business in bringing goods back from East India to the UK and other countries. These logistics companies who took the major risks of travelling over there to collect good and bring them back often raised investment from wealthy British investors. These investments helped to secure a team as well as fit their ships so that they could maximise the chances of being successful. In an age where pirates were common and ships didn’t have the best navigation, doing these kinds of journeys would be tricky. Whoever invested in these companies doing the journeys would get a percentage of all profits made from the goods brought back. 

Because of the high risk, investors would end up spreading their money across several companies to minimise their risk in case one ship did not actually return. This was the birth of diversifying your stock portfolio. 

Shares were Invented

This method was excellent however these companies were almost always short lived and only lasted one journey at a time. They would raise investment, complete the journey, take the profits and dissolve the company. This worked well in the initial stages however some of the people doing these voyages made enough money to start building fleets to bring more and more goods back and raise more profit. What happened at this point was East Indian companies were formed and they would issue individual paper shares of their company and then paid out dividends whenever one of their ships returned with the goods. This allowed investors to put their money into a company and consistently invest. Because shares were not actively on paper, this allowed people to resell these shares to other people. This indirectly formed another business where people sold these shares on for you, they were the first stock brokers.  

Most of the business in selling shares was done in coffee houses in London at the time. There was one coffee shop that got so busy that the brokers bought out the entire place and renamed it “The London Stock Exchange”. This was the birth of the stock market in the UK. 

The London Stock Exchange and One of the first crashes

The London Stock market thrived for decades and people started to receive huge dividends from them and could sell their shares for fortunes. Because there were no rules or regulations around this new market, it climbed to astronomical levels because of new investors coming on board and the fear of missing out. 

Shortly after this, there were several new companies coming on board to offer their own shares on the market. A new company called South Seas Company came on board and is famously known for selling all their shares before even one ship had sailed. Other companies came on board and pushed the market even higher. When the South Seas Company started brings goods back in, the shares were that high the dividends were a minuscule amount of the actual share price and people saw how overvalued they were. This resulted in an absolute freak out where the early birds sold their shares and this snowballed and crashed the market completely. 

OK so I said I was going to be brief and it wasn’t that brief. At least you have an overview of the first stock market bubble. The reason I have gone through this is because there are so many similarities to this and the crypto currency market it is exciting and scary at the same time. 

Is Crypto Currency Following to same path?

To apply history to today’s names, Bitcoin is the East Indian companies. It has proven the concept, excelled greatly and to a degree stood the test of time. Since then we have a multitude of alt coins that have seen the potential of Bitcoin and wanted in on the action too. There is one alt coin that follows a similar path to the “South Seas Company” in the 1600s and that is Etherium. Etherium is the new currency that everybody has seen come on board, love the idea and has invested like crazy in it. Like in the 1600s, the South Seas Company was the new kid on the block. Everybody thought that it would be another East India company and they could get rich quick and invested in it like crazy. Some of the early birds in the market did well but ultimately it was overvalued and crashed. 

If we apply this to today, Etherium is to a degree at risk of being this company. 

Am I saying Etherium is bad?

No, definitely not. I love the concept behind Etherium and I think eventually it be world leading. But I do think we have all gone a little bit crazy over it and inflated its price. We are in a position where Etherium is actively trading in the market now but it still doesn’t really have much that proves that it is here to stay. 90% of Etherium’s transactions are people investing in ICOs and there are very few using it as an actual functional business. I think we all just need to calm down a bit and see what happens with Etherium before too many people get hurt. 

I think we have learnt our lessons to a degree. We have had several corrections along the way which certainly did not happen when the original stock market was formed. There are some advanced traders now that buy and sell quickly and that keeps people emotions and rookie bullishness in check. But I think we all need to do our research on what happened at the start of the stock market and see the dangers it posed. 

Don’t take this article as fully negative though. If you compare the London Stock Exchange in the 1600s to what it looks like today. You are looking at an investment that is thousands of times larger over the years. That is the kind of thing we are investing in right now. In crypto currency, we are investing in the stock market of the 1600s and who knows how big it could get or how much you investments could be worth in ten years. Imagine if we diversified correctly and grew with the market for the next 20 years. It is possible to make a huge wealth from the crypto currency market but we all just need to keep our sensible hats on.  

If you enjoy this post please upvote or follow me for more like it. I am starting an initiative very soon where I will be putting a portion of my profits from Steemit to help the @promo-uk initiative to launch Steemit here in the UK. More to come very soon.

Thankyou!!