Why Crypto Crashes and Then Bounces Back

The crypto market can feel like a rollercoaster. One minute, Bitcoin’s skyrocketing, and the next, your portfolio is bleeding. As of today, crypto has lost more than half its total value, and smaller projects are collapsing left and right. But despite this chaos, people remain divided on what it all means.

At its core, crypto is going through an identity crisis. Is it the future of money? A revolutionary technology like the early internet? Or is it, as skeptics claim, just another speculative bubble on the verge of bursting?

Let’s explore—and figure out what year it really is for crypto.

Is Crypto Just Another Tulip Mania?

Suddenly, everyone’s talking about tulips. Crypto critics often throw around one particular historical reference: the Tulip Mania of 1637. Back then, tulips in the Netherlands became a must-have luxury item. Prices soared, with people paying absurd amounts for certain rare bulbs. Some say a single tulip could sell for as much as a house.

At some point, people started taking out loans to buy tulip bulbs, betting that they’d make a fortune flipping them later. The problem was pretty obvious—it’s a flower. Pretty? Yes. Valuable? Not really. Eventually, the bubble burst, creditors lost their shirts, and the Tulip Mania collapsed.

Skeptics argue this is exactly what's happening in the crypto space today. We’ve seen people pay millions for NFTs. Sound familiar? We’ve watched crypto prices surge and drop like a hot potato. But there’s one big difference—the tulip bubble lasted only seven months. Crypto, on the other hand, has been bouncing around for over a decade.

And here’s the kicker: Some historians are now debating whether the so-called Tulip Mania was as big as it sounds. Does this undermine the comparison to crypto? Maybe not entirely—but it does suggest there’s more to the story of Bitcoin and Ethereum than “just another bubble.”

Is Crypto the Early Internet?

The overly dramatic tulip comparisons aside, supporters believe more in the “1995 Internet” analogy.

Let’s rewind to ’95. Barely 15 million people used the internet then, and folks weren’t exactly betting on it to change their lives. Skepticism ran high. There’s an old clip floating around of David Letterman laughing at Bill Gates for suggesting that you’d someday listen to a baseball game on your computer instead of the radio. What a joke...right?

We all know how that story ended. Fast-forward a few years, and things like YouTube, Netflix, and even podcasts completely reshaped how entertainment works. First-generation internet businesses were trying to recreate traditional brick-and-mortar services. Now? The internet has completely redefined them.

Crypto supporters believe we’re in that same "early stage" with blockchain. Ethereum, for instance, has around 15 million users today, roughly the same number of people who were using the internet back in 1995. If the comparison holds, we could be on the verge of a crypto explosion over the next few decades.

Could crypto one day dominate life the way the internet does? Maybe. But let’s not get too carried away with optimistic forecasts.

The Numbers Still Aren’t Adding Up

Even if crypto could follow the same trajectory as the internet, that doesn’t guarantee those returns tomorrow. The numbers just don’t completely match up. Consider this: If you count all potential crypto users (not just Ethereum), it’s more likely around 2015 that we first hit the 15 million user mark. By that logic, we should already have a billion active users today—but we’re far from that.

And then there’s the valuation issue. Right now, about 5 billion people use the internet, and the value of all internet companies? About $10 trillion. That’s roughly $2,000 per user.

Compare that to crypto. At its peak, the crypto market was valued at $3 trillion, with only 15 million users. That’s a staggering $200,000 per user. When you think about it, that’s 100 times more than what each internet user is "worth." The reality is hard to ignore: Could crypto be overvalued?

This is where the critics have a point—many of today’s crypto users aren’t using it to order coffee or change the world. They’re either speculating or hoping to get rich quick. Meanwhile, back in 1995, people logged onto the internet because it already gave them tangible value. Finding niche information, connecting to message boards, and sending emails—these weren’t about making money. The financial aspect wasn’t even a thing yet.

Sure, some part of crypto might change how we interact someday. But right now, that future transformation seems to be priced into its current value. That’s a dangerous bet.

Bitcoin’s Role: Inflation Hedge or Risky Gamble?

Bitcoin’s the weird child in the crypto family. Unlike Ethereum, Bitcoin isn’t aiming to revolutionize the internet; it’s claiming its role as digital gold.

Many Bitcoin believers draw an analogy to Germany in the 1920s. During this period, hyperinflation turned Germany’s currency into worthless paper, driving demand for alternative stores of value. World War I debts left the country in financial chaos, and its desperate money printing made it worse.

Fast forward to today. Bitcoin proponents think we’re looking down the barrel of similar insane inflation in places like the U.S., especially with rising interest rates and massive stimulus packages. If the dollar tanks like the German mark did, Bitcoin—with its fixed supply—could emerge as the ultimate shelter.

But here’s the catch. Bitcoin was built in the aftermath of the 2008 financial crisis for this exact scenario. Yet now that inflation has finally spiked, Bitcoin’s not exactly booming. In fact, while gold—the classic inflation hedge—has held its value, Bitcoin is currently in freefall.

It raises a tricky question: If Bitcoin isn’t functioning as an inflation hedge now, will it ever?

Bitcoin certainly has the potential to replace gold one day. If it does, the price could 10x. But patience is key here. If it takes 30 years for Bitcoin to stabilize like gold, that’s a long wait, and the 10x return wouldn’t outperform traditional stock market growth. Time matters.

Tech Isn’t Always a Good Investment

Remember cleantech? Back in 2006, this was the hot market everyone thought would reshape the world. The future was clear—clean energy like wind and solar was bound to take over. But for investors, it was a dud. Those who poured money into cleantech back then lost over half of it, watching as the sector stagnated for nearly a decade.

It’s a good lesson for crypto. Technological innovation doesn’t always translate into immediate financial success. Yes, crypto might change how we handle money and transactions. But that doesn’t mean making the right call on its future will automatically lead to a fortune.

Just like with cleantech, the best investments might be in the practical applications of crypto technology rather than the tokens themselves. We’ll have to wait and see.

Conclusion

Crypto’s current crash isn’t just about inflation, interest rates, or an overhyped speculative bubble—there’s much more at play. Whether it’s a legitimate technological breakthrough like the internet or more akin to tulip mania, only time will tell.

But what’s clear is that while the herd rushes to predict the future of crypto, the smartest investors know one thing: Tech and timing don’t always go hand in hand. Betting on how quickly change comes could make or break fortunes.

It’s not just about what will happen next in crypto. It’s about when.