Tim Mullaney: A tale of two bubbles — the dot-coms and bitcoin

Since I covered the internet’s Wild West days, I’ve fancied myself the Crocodile Dundee of bubbles. Complain about the price of Apple AAPL, -0.37%   or Tesla TSLA, +3.15%  shares, and I make like Paul Hogan when the kid tries to mug him with a switchblade: I evoke Webmania as Croc pulled out his machete, snickering. “You call that a knife? Here’s a knife.”

And then bitcoin came along, and it’s the machine gun of bubbles. Even for a survivor of the dot-com bust, bitcoin is breathtaking, as the price of a made-up “currency” whose backers posit its primary value as a way to avoid the rule of law gains nearly $1,000 a day.

Suuuure.

Polybius is no Amazon. None of them are.

The internet, after all, promised a fundamentally more-efficient way of selling everything from books to, alas, advertising, which eventually scrambled my own professional eggs. It raised productivity and living standards before our eyes, even after the stock bubble burst.

It was plainly real. Anyone could see it, as plainly as you could spot the ridiculousness of many companies in the markets then.

Sure, I had a guy in my office at BusinessWeek 18 days after he incorporated, vowing that his still-nonexistent online store would take out Home Depot. I have his T-shirt somewhere, but don’t remember his name. It was like that.

I also started work three weeks before Priceline PCLN, -0.34%   went public, and got pulled into a meeting in my first few days with a guy whose weird, honking laugh was all we could talk about — Amazon.com’s AMZN, +0.94%   Jeff Bezos. It was like that, too.

The trick was telling them apart. Which required thinking about what problem a company could solve, how it planned to get paid for that service, and how it would outdo the competition.

For Amazon, it was easy. Elite e-tailers could eliminate costs of running stores and supply chains that ate up 30 cents of every dollar of rivals’ sales. It was elementary to see that Bezos could profitably underprice Barnes & Noble BKS, +1.54%  . The question was whether financial markets would cut him off before he got big enough to make it work.

How does bitcoin stack up?

The problem it purportedly exists to solve — irrational “fiat” currencies managed by central banks whose post-financial crisis monetary expansion would cause hyperinflation — doesn’t exist. If it did, the hundreds of “companies” launching “initial coin offerings” would hardly be in a better position than the Federal Reserve to defend their currency. The value of bitcoin and other cryptocurrencies has hardly been stable, and there’s no one in sight likely to stem the tide when bitcoin begins its inevitable slide.

Janet Yellen or the Winklevoss twins, newly minted billionaire kings of the bitcoin market? Tough one.

Also read: Here’s what bitcoin’s monster 2017 gain looks like in one humongous chart

More charitably, you could zero in on the claim that blockchain technology used to track cryptocurrency trades is a more secure way to process transactions than the measures most banks use now. Assuming that’s true, name a bank that loses 30 cents on the dollar to the cyberfraud that blockchain can fix.

Some blockchain companies may become vendors to real banks, but opportunities for tech vendors to banks are medium-sized. If you can even pick the winners.

Or you could read a prospectus for a random ICO, if you enjoy cow manure. I looked at Polybius, whose 25-page offering document made clear, in one of its few lucid passages, that its offering didn’t meet U.S. securities law and its tokens couldn’t be sold directly in the U.S.

“While starting off as primarily a financial institution, the Polybius project is meant to grow into your daily servicer and companion ecosystem,” its pseudo-prospectus says. “It will aim to enable secure and seamless connections between life and the things we love and use every day. “

Tell me what that means — dare ya. Or find a financial statement in the document or the names of companies where the CEO used to work. The company’s assurance that its hazily described Digital Pass product will rely on “the trusted and tested Estonian e-residency principles” ain’t reassuring.

Polybius, bless its heart, would like to be a bank specializing in peer-to-peer lending denominated in cryptocurrency. At least, that’s what I got from its buzzword-checking babble. See how well P2P lending worked for investors in the far more reputable Lending Club LC, +0.00%  , which sold the P2P lending idea in the States without the gloss of Fake Money; it’s down 75% since an initial public offering that fooled nearly everyone — for a minute.

Nothing like Polybius reached IPO markets in the dot-com boom. And lots of dubious companies did.

What dot-coms promised was simple — if you held on until they got big, they’d make profits. Which was true. If you put an equal amount of money into all U.S. e-commerce and online content IPOs of the 1990s, you were back in the black by 2002 as long-term winners outstripped the detritus. (If you bought them near the top, as with bitcoin now, oops). And it got much bigger from there.

Playing that resurgence was easy: In a model portfolio I began publishing in 2002, I told readers to buy Netflix NFLX, +0.59%  at less than a split-adjusted buck, Priceline at around $20, Google GOOG, +1.32%   around $43, and Amazon around $16. Winners more than covered my scattered misfires. The promise of the dot-com movement was true — just not easy enough for every company to make work.

Polybius is no Amazon. None of them are.

Do you really need to be told that?

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