The word “bubble” is thrown around a lot these days. Is Tesla a bubble? Is residential real estate a bubble? Are cryptocurrencies a bubble?

Let’s travel back in time over 20 years and examine the dot-com bubble and investigate the parallel to today’s cryptocurrency market.

The Nasdaq composite index rose by more than 570 percent from January 1995 to March 2000, before falling over 75 percent from that peak level by October 2002. During this meteoric rise, over 2,000 IPOs were floated. The euphoria surrounding tech stocks drove the index to trade above 90 times earnings, as the growth expectations were as spectacular as the stock prices. The expectations at that time were that the new Internet stocks would disrupt and replace many industries, most notably brick-and-mortar retailers. We know now, over 20 years and a global pandemic later, that ecommerce has reached the lofty market share of 15 percent of retail sales. They were priced for perfection, at over 40 times trailing revenues, and operating losses meant that cash burn needed to be contained. Disruption takes time, and many of the tech stocks didn’t have the capital necessary to invest for the long run. More than $1.7 trillion of the value of tech stocks was lost from March to November of 2000. It took until April 2015 for the Nasdaq index to eclipse its high from March 2000.

What is this business model called? Winner take all? Venture capital? Many of us vividly remember the $1.7 trillion losses incurred by investors in ill-fated dot-coms with negative cash flows as the dot-coms crashed in 2000. But that is how venture capital works. The majority of venture capital investments lose most or all of their value, as it takes time and money to prove that some business models work while others don’t. The reason we invest in venture capital is for the winners — the really, really, really big winners. While the $1.7 trillion in dot-com bubble losses still worry some investors, notice that Amazon alone is worth $1.7 trillion today, while Priceline, Ebay, Netflix, Broadcom and Google add another $2.6 trillion in 2021 market cap. These companies truly did change the way the world does business, even though many of these stocks declined in value by 50 percent to 75 percent during the popping of the dot-com bubble, or even in later years. Notice that each of these companies is very different. They each picked a business model and disrupted traditional industries, such as buying retail goods, booking travel or watching movies. Each of these companies dominates an industry with relatively few competitors. Many tried to compete with them, but most of them failed. That is, winner take all. Massive industries are dominated by just one to five companies. Oligopolies reign.

But this article is actually about cryptocurrency and digital assets. Just like dot-coms, there will be hundreds or even thousands of cryptocurrencies and digital assets that will have no value in the long run. While dot-coms struggled to disrupt the retail industry before running out of cash, many cryptocurrencies will cease trading and lose most or all of their value when the community realizes that they have no business model, no developer community, and little to no use case to disrupt a traditional industry.

What do we see in the cryptocurrency market today? Coinmarketcap.com tracks over 13,000 cryptocurrencies and digital assets with a market value exceeding $3 trillion, up from less than $1 trillion in market value at the beginning of 2020. Similar to the dot-coms of the late 1990s, companies involved in cryptocurrency businesses are seeing soaring valuations and random dog coins have reached billions in market cap. Is the $34 billion Dogecoin just another pets.com? The story today is eerily similar to what we heard more than 20 years ago. Just like the dot-coms were going to disrupt and bankrupt brick-and-mortar retailers, we hear predictions today that cryptocurrencies, digital assets and decentralized finance projects are going to disrupt traditional financial infrastructure firms such as payments processors, banks, brokerage firms and securities exchanges. A basket of DeFi tokens has a market capitalization similar to large banks such as J.P. Morgan or Wells Fargo. At a market cap of $1.2 trillion, Bitcoin loyalists seek to promote Bitcoin as a store of value, taking aim at the $9 trillion value of gold. Will cryptocurrencies, smart contracts and digital tokens disrupt the financial incumbents of today? Yes. Will they replace the entire global financial system by 2025? No. Remember it took dot-coms 20 years to get to a 15 percent market share of retail sales. Disruption takes time. Bitcoin was born out of the global financial crisis, with the Satoshi Nakamoto white paper A Peer-to-Peer Electronic Cash System published just six weeks after the collapse of Lehman Bros. That is, it took 12 years for the cryptocurrency and digital asset industry to reach its first trillion of market value.

In the long run, the value of the digital assets market may be far beyond today’s $3 trillion market capitalization. In the short run, thousands of digital assets will trade at prices far below today’s level. How can investors today analyze the cryptocurrency market? Focus on the oligopolies and the sectors in traditional industries most likely to experience substantial disruption from the burgeoning digital asset community. By analyzing white papers, developer communities, number of active addresses, and partnerships with real world companies, investors may be able to predict the top one to five companies in each industry. Will Bitcoin take a role as a key store of value, perhaps digital gold? Will the Ethereum, Cardano or Solana blockchains dominate the market for smart contract platforms? Will Binance or Synthetix move beyond their role as exchanges trading cryptocurrencies and threaten stock and futures exchanges? Will Aave or Compound replace a substantial portion of the borrowing and lending businesses of money center banks?

If we think about cryptocurrencies and digital assets as publicly traded venture capital investments, we can build a model for valuation. While thousands of coins and tokens will be worth far less in the future than they are today, some of the biggest companies in the world 20 years from now may have already been started in the crypto sector. If investors are seeking winners, it may be a good place to start to define the various industries crypto is creating or disrupting and project the long-term winners. But remember, the dot-coms have oligopolistic tendencies. Maybe crypto is no different. Winner take all. Really, really, really big winners.

Keith Black is managing director at FDP Institute.