How Do Bitcoin and Ethereum Compare to Big Tech's FANG Companies?
Cryptocurrency has come a long way since Bitcoin was created in 2009. What was once an online niche novelty had become a major part of both retail and institutional investors' portfolios, making many people incredibly rich along the way. The wild volatility of cryptocurrency's boom and bust market cycles has also destroyed just as many fortunes as it has created.
Skeptics have warned since the beginning that cryptocurrency prices are purely speculative. These negative voices have often been drowned out amid the euphoria surrounding each new surge to all-time highs.
Cryptocurrency and blockchain technology are now being fully embraced by many of the most prominent players in the world of finance. Leading investment firms such as Goldman Sachs have gone from warning against cryptocurrency to taking it seriously as a major new asset class. Tesla made major headlines in 2021 with a billion-dollar Bitcoin purchase. VISA also announced in 2021 that it would begin trailing the settlement of payment using the Ethereum network. Many believe that the decentralized finance (DeFi) solutions made possible by Ethereum and other cryptocurrencies represent the future of finance and investment.
It is now common to hear analysts comparing the position of cryptocurrencies today to those of the major tech firms in 2014. At that time, the FANG companies (Facebook, Amazon, Netflix, and Google/Alphabet) each completely dominated their markets. They have gone from strength to strength since then and have far surpassed their 2014 valuations.
Is it right to compare cryptocurrency today to the Big Tech FANG companies of a decade ago? Here's everything you need to know about the parallels between cryptocurrency and the Internet tech giants.
Cryptocurrency Bull Runs and the Dotcom Bubble
When the last cryptocurrency bull run ended between December 2017 and January 2018, many skeptics thought a ridiculous speculative bubble had permanently popped. These predictions were proven wrong as Bitcoin, Ethereum, and other major cryptocurrencies soared past their previous highs to hit new record prices in 2021.
In 2018, many of cryptocurrency's biggest believers were comparing cryptocurrency and the blockchain technology underpinning it to the Internet of the mid-1990s. The theory believed by many was that a similar speculative optimism fueled cryptocurrency's last bull run like that, which led to the dot-com bubble bursting in the early 2000s.
The dot-com bubble saw the Nasdaq index rose by 400% between 1995 and 2000. Investors could see that the Internet was a radical new technology with immense possibilities. However, many Internet-based stocks that exploded in value during the 1990s never returned to their previous highs after the bubble burst.
Similarly, many cryptocurrencies have never returned to their highs of late 2017 and early 2018. Bitcoin, Ethereum, and Dogecoin are just a few of the other major cryptocurrencies which have exploded to many multiples of their previous all-time highs during the 2021 bull run. Many other cryptocurrencies which were majorly hyped in the last bull run have disappeared into obscurity.
Amazon: The Good, the Bad, and the Ugly of Speculative Investment
Amazon provides a great example of everything investors got right and wrong during the speculative frenzy of the dot-com bubble. Amazon went public in May 1997 with an initial stock price of $18. Adjusted to allow comparison after last stock splits and additional share offerings, the value of one share in Amazon was $1.50 at the time of its Initial Public Offering. By the peak of dot-com mania in 1999, this reached $119.
Like most other Internet-related tech stocks, Amazon's price plummeted after the dot-com bubble burst. By April 2001, Amazon shares had shed 96% of their value to hit a low of $5.97.
Amazon's share price rose from these lows over the next decade and was coming close to matching the 1999 peak when the economic crisis hit in 2008. Amazon shares then fell again from $101 before the crisis to a low of $34.68 in the resulting stock market contraction.
Amazon recovered swiftly from this second setback as the company established itself as the dominant global online retail platform. In 2010, Amazon shares hit $200. Exponential growth followed over the next decade, with Amazon shares reaching $500 in 2015, $1000 in 2017, and $3000 in 2020. Since then, the continuing rise in Amazon shares means that diamond-handed investors who bought at the 1999 top would've seen a 30x return on their investment by the summer of 2021.
The same can be said of every Bitcoin peak before 2021. In December 2013, Bitcoin hit highs above $1,150. By April 2014, Bitcoin had tumbled to $315. Bitcoin next surpassed $1000 in January 2017 then powered on to a dramatic new all-time high of almost $20,000 by December 2017. One year later, Bitcoin hit a low of $3,236. Explosive growth throughout late 2020 and early 2021 saw Bitcoin reach a new all-time high above $63,500.
But Amazon was something of an outlier among Internet stocks after the dot-com bubble burst. Many companies had issued shares before generating any profit or even revenue. Some companies launch Initial Public Offerings before they had even created a product. Others had great ideas that were too far ahead of their time, such as the online grocery delivery business Webvan.
These conditions will all be familiar to anybody involved in cryptocurrency during the 2017 to 2018 bull run. Many cryptocurrencies soared in value amid speculation around their potential for technological innovation. While Bitcoin and Ethereum surpassed their previous highs in 2021, numerous other cryptocurrencies have never come close to matching their 2017 or 2018 peak.
Google and Facebook: Modern Solutions Make for Massive Profitability
Google went public in 2004, several years after the mass sell-off of tech stocks which followed the dot-com bubble bursting. Google shares traded for $85 at launch and have been well above this ever since. Google's lowest intraday trading price was $95.56, and shares have never closed below $100.
Facebook's initial public offering in May 2012 was one of the most anticipated in history. Shares launched at $38 but quickly fell off, reaching a low of $17.73 by September.
Both companies would have been great buys at any point during their early trading period. Google was valued at just $23 billion at its initial public offering, well below the concurrent $38 billion value of Yahoo! and eBay's $49 billion value. Facebook founder Mark Zuckerberg had turned down a $1 billion buyout offer from Yahoo! several years before Facebook's initial public offering. The initial public offering frenzy pushed Facebook to a market capitalization of $104 billion. Google's self-created parent company Alphabet has reached a market cap above $1.67 trillion. Facebook's market cap has seen similar exponential growth, reaching more than $942.19 billion.
Google and Facebook both reached profitability before launching their initial public offerings. This was achieved through an innovative method of flipping the traditional dynamic between advertisers and the public. Instead of serving mass-market adverts to an audience, Google and Facebook gain the public's attention with free content created by other entities. They then serve highly personalized and targeted advertisements to users based on data collected while using their platforms.
This model has been normalized in the years since Google went public. It is now common to see Silicon Valley tech start-ups value the growth of their userbase much more than profitability. The logic of many tech start-ups is to grow as much possible, quickly as possible, and then start generating profit.
Facebook was already a hugely popular social media platform long before it began making any revenue. Facebook's early years were spent being propped up financially by venture capitalists, and the platform didn't bother seeking profitability until 2009.
Ethereum offers a similarly disruptive value proposition to Google and Facebook. Ethereum is the platform on which all manner of DeFi solutions can be built. But as we will see in the example of Netflix, innovation is not a guarantee of future success.
Netflix: The Risk of Unforeseen New Competitors
When talk of the FANG companies' dominance began in the 2010s, Netflix was a pioneer in its field. Created as a DVD distribution service, Netflix introduced online streaming of film and television content in 2007. Netflix quickly grew into a tech giant and now boasts more than 207 million users.
The growth of Netflix's subscriber base has failed to meet expectations in 2021. Having added 8 million new subscribers during the last quarter of 2020, Netflix set a target of 6 million new subscriptions for the first quarter of 2021. The company fell short of these expectations, attaining just 4 million new subscribers. Shares in Netflix fell by 11% after this news was released.
There are many possible factors behind the slowdown in Netflix's growth. $207 million is an incredibly impressive number of paying users, and it would be unrealistic to expect this to continue growing exponentially forever.
Netflix has also faced increasing competition within the online streaming space. Disney+ launched in 2019. By April 2021, Disney+ had signed up more than 103 million subscribers, almost half Netflix's total. The streaming services HBO Max, Hulu, and Peacock, have all attracted more than 40 million subscribers each.
Netflix remains the dominant player in paid content streaming, but an increasingly crowded marketplace could make it difficult for Netflix to remain in first place in the years ahead.
Similar warnings could be heeded for early cryptocurrency movers Bitcoin and Ethereum. Many cryptocurrencies have launched with promises of lower fees and faster transaction times than Bitcoin and Ethereum. Other cryptocurrencies have attracted attention with alternative platforms for DeFi and tokenized applications to Ethereum. While Bitcoin and Ethereum are still way in front of the competition, things may not stay that way forever.
Is Cryptocurrency Comparable to the Big Tech FANG Companies?
There are clear parallels between cryptocurrency and the Big Tech giants of Facebook, Amazon, Netflix, and Google. While mass adoption of cryptocurrency seems to be becoming an ever more realistic prospect, there is still some way to go before we are even close to fulfilling the bold visions initially presented for Bitcoin by Satoshi Nakamoto and for Ethereum by Vitalik Buterin.
The Big Tech FANG companies have grown enormously since 2014. As cryptocurrency becomes increasingly entrenched in the world of mainstream finance, there are good reasons for cryptocurrency backers to believe the likes of Bitcoin and Ethereum will become similarly dominant over the next decade.