Like most Americans, I was engrossed by yesterday’s Super Bowl. I don’t have a rooting interest in either team[i], and I was glad to see that the game itself was well-played and competitive. As usual, a similar amount of focus was placed upon the commercials and the half-time show. While much of the commentary about the half-time show focused upon its early 2000’s nostalgia, I felt a similarly reminiscent feeling during the seemingly incessant commercials for cryptocurrency companies. They brought back memories of the internet ads of Super Bowl XXXIV.
For those of you who don’t remember the late-‘90s and early-aughts, those years were the height of the internet bubble. We have previously discussed many of the parallels between that era of investment and the current one. Investors began to recognize the promise of the new technology and invested heavily in companies that offered a way to profit from it. The markets were fueled by a democratization of access to investing (fostered by internet-based brokers) and accommodative Federal Reserve policies designed to avert the Y2K crisis that never quite materialized.
The peak excitement was in early 2000, and the Super Bowl ads reflected that enthusiasm. By January of that year, the NASDAQ 100 Index (NDX) had roughly quadrupled from its levels three years earlier and had more than doubled in the prior year alone. Internet companies were flush with investor money – if not actual profits – and many spent those funds on Super Bowl advertising, just as many newly flush crypto companies did yesterday. Here is the roster of companies that bought 30-second ads during the 2000 event:
Of the 14 companies listed above, only 4 are still active. Worse, many of the 10 other companies met their demise shortly after running their ads. Interestingly, according to that same source, one of the companies that bought time in the 2000 pre-game show resuscitated their late-2000’s spokesbaby, while another was Microstrategy (MSTR) which has reinvented itself as a bitcoin proxy.
While I run the risk of sounding like my comedic hero, Larry David, in one of yesterday’s notable crypto ads, I am skeptical that all the companies we saw featured yesterday will avoid the fate of many of the 2000-era Super Bowl advertisers. Bubbles are only truly visible in hindsight, and internet craze was clearly a bubble. During January 2000, NDX would rise another 20% that month, and it rose another 20% over the ensuing two months. It peaked in March 2000 at levels that would not be surpassed for another 14 years. The Federal Reserve began withdrawing its Y2K liquidity early that year, and stock markets eventually succumbed.
Fast forward to the present, when NDX had more than doubled in the 20 months leading up to January 2022 and Bitcoin had risen sixfold in that time frame (after peaking nearly 10x higher). Meanwhile, the Fed is at the precipice of withdrawing its Covid liquidity. Is it any wonder that the brace of crypto ads during yesterday’s Super Bowl had some investors’ seeing the parallels to the events of 22 years ago?
Let me be crystal clear. I am not calling for the imminent demise of cryptocurrencies, but I do believe that a culling of weaker currencies and crypto-linked businesses could fall by the wayside like many of the early internet pioneers. The market was correct in its assessment that the internet would revolutionize business over the coming decades, but it was wrong in assessing which companies would be leaders in that leap forward. With the exception of Amazon (AMZN), the key internet stocks either came of age post-bubble, like Alphabet (GOOG, GOOGL), Meta (FB) and Netflix (NFLX), or prior to the bubble, like Microsoft (MSFT) and Apple (AAPL).
Is it unreasonable, then, to think that the companies that will best monetize the blockchain – the real technological advancement embedded in cryptocurrencies – either don’t exist yet or are embedded in other companies now? To my thinking, Bitcoin was the first expression of blockchain, and the public’s focus on crypto over blockchain is a distraction in much the same way that the early internet gold rush distracted from the ultimate benefits of the internet. Investors should keep their eyes on the real prize, and avoid the rush to capitalize on peripheral benefits via aggressive marketers.
[i] Though I did serve my usual Super Bowl chili over spaghetti, Cincinnati-style
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