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DotCom Bubble

Last Edit: 28/07/17

The DotCom Bubble, also referred to as the "high-tech bubble", was a speculative bubble, lasting from 1997-2000, that fueled a rapid expansion of the Internet. Speculative bubbles are a common feature of open financial markets, where stocks or other economic assets are traded in high volume, and at a value that is considerably higher than their innate value. The DotCom Bubble was fueled by investment in technology companies who operated at a loss, but with the assumption, with time, that their market share would equate to long-term profitability.

Nasdaq Composite, showing the dotcom bubble of 1997-2001, when the index rose to 5000+ points and then crashed to below 2000 points.
Nasdaq Composite Index: Highlighting the Dotcom Bubble 1997-2001

In the early 1990's, the Internet was transitioned from a U.S. federally funded network (backbone) to a commercial one, and the World Wide Web was launched as a service on the Internet in 1991. By 1994, it was clear that revenue could be generated by commercial websites, and investment into 'pumped into' start-up technology firms from that date. Some of the technology companies that received investment during this period, included: eBay, Amazon, Pets.com, Yahoo!, Excite, Lycos, Inktomi, and Paypal.

The majority of technology stocks that were traded during the DotCom Bubble were listed on the NASDAQ stock market: based in New York, the NASDAQ focuses upon technology companies. Due to the DotCom Bubble, the NASDAQ Composite index climbed from 1000 points in 1995, to over 5000 points by the year 2001. When the DotCom Bubble burst in 2001-2002, the NASDAQ index crashed from it's peak of 5000 points to nearly 1000 points.

While the most successful tech companies managed to survive the DotCom Bubble - most notable: Amazon, eBay and Paypal - many others failed, or never recovered their value. For example, during the DotCom Bubble, Lycos was purchased for over $12 billion, but were eventually sold for $95 million in 2004: losing over $11 billion in valuation. Some of the notable failures of the DotCom bubble include: Boo.com, Broadcast.com, Den.com, eToys.com, Flooz.com, Kozmo, Pets.com, Razorfish, theGlobe.com and Webvan.

While tech stocks have stabilised since the DotCom bubble, there has been warnings of a new modern tech bubble: centered around Bitcoin and digital currencies. Howard Marks, whose asset management firm Oaktree Capital oversees up to $99 billion of assets, has been warning "digital currencies are nothing but an unfounded fad, or perhaps even a pyramid scheme." With the Ethereum cryptocurrency having risen by 2000% in 2017, and Bitcoin rising 160% during the same period, Howard Marks is not the only notable voice in the financial industry warning of a bubble akin to the dotcom bubble: Warren Buffet, the 'Oracle of Omah', has previously warned investors that Bitcoin was a "a mirage".