Bitcoin Looks a Lot Like an Early Amazon

You might as well get used to the  Bitcoin headlines. They aren’t going away. And that’s because  cryptocurrencies like Bitcoin aren’t going away. If history is any  guide, this may only be the beginning. Bitcoin may be the most lucrative trading opportunity since  internet stocks such as Amazon.com Inc. in the dot-com era. If that  notion sounds as scary as it does exciting, it should. While it is true  that trading digital currencies holds real risk, there is also a real  opportunity for traders right now. Please note that I said traders here, not investors. Even  if it were true that investors could multiply their money, they would  take that trade at the risk of great volatility. Since inception,  Bitcoin owners have endured price drops greater than 75 percent of  previous peak values. Most recently, during Bitcoin's 2017 June swoon  for Bitcoin saw prices fall nearly 40 percent before bottoming out. Amid the roiling price churn and innovation headlines, it is important to see the bigger picture. Bitcoin and all the other cryptocurrencies  (yes there are others — over 800 and counting) are the start of  something big. That’s because the blockchain, a technological accounting  protocol, is an idea whose time has come. In very simplistic terms, the blockchain  is a set of thousands of interconnected ledger books where anything  that gets updated on one copy of the ledger is copied on all of them.  While that might sound like something you’d expect from the world of  Harry Potter, it is a growing reality in the world of electronic  payments right now. The implications for efficiency within and across  any given political borders are quite staggering. Whether it be land rights in developing economies or lower  fees on e-commerce transactions, blockchain technology enables value  transfer without a middleman and promises many more possibilities.The  latest run-up in the price of Bitcoin is an indication that many more  people are starting to believe these promises could actually be  fulfilled. But if the speed of these rising prices seems a bit too  fast for your taste, consider that this has happened before — most  recently with internet stocks and their rise leading up to the dot-com crash of 2000. In those days some stocks clearly got caught up in the  media, and some ventures never left the ground, but the stocks that  rocketed to orbit, and stayed there, are the companies we rely on today. In fact, there is a worthwhile comparison between one  dot-com of that time and Bitcoin prices today. Consider the following  charts comparing Amazon (AMZN​)  shares from 1997 to 1999 (blue chart) with Bitcoin from 2016 to 2017  (tan chart); Ethereum, Bitcoin’s biggest rival, from 2016 to 2017 (red  chart); and Bitcoin from 2009 to 2010 (green chart).    Investors were not able to fully and accurately quantify  Amazon share value at first. Can you blame them if it was hard to  analyze the idea of using supply-chain management software to create a  virtual book warehouse and factory outlet mall synthesized into a single  website? Even by the start of 1997, everyone knew Amazon had a great  idea, but no one could fully explain how much its shares should be  worth. Consequently, investors had to guess at the company’s  value, notoriously overestimating the possibilities for a time. Amazon  rose more than 6,000% in its first two years after its public offering.  18 years later the peak price from back then looks cheap by comparison  today. Surprisingly, Bitcoin’s performance in its first two years  only achieved two-thirds of Amazon’s original run-up. The recent price  appreciation of Bitcoin over the last two years and the price of  Etherium since its initial coin offering have both made dramatic gains,  but have yet to match Amazon’s meteoric rise. It’s possible that cryptocurrencies are not only here to  stay, but potentially a life changing mechanism for all of us. If that’s  the case, then Bitcoin offers investors a multi-decade investment  opportunity, rising like Amazon's market cap — and a price — that defies  logic.