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Inside the Market Don’t worry about a bitcoin crash (unless you own it)

Here's one popular way of looking at the rise of bitcoin.

It compares the cryptocurrency's meteoric surge with that of tech stocks during the dot-com boom, culminating with the Nasdaq composite's peak in 2000.

Bitcoin vs. dot-com stocks

Percentage change in market cap over 300 days

(bitcoin) or 300 trading sessions (Nasdaq

composite members)

Nasdaq composite members

Bitcoin

1,400%

1,200

1,000

800

600

400

200

0

-200

0

36

72

108

156

204

252

Days: Bitcoin (Feb. 10 to Dec. 7, 2017)

Trading days: Nasdaq (Dec. 29, 1998 to March

10, 2000)

THE GLOBE AND MAIL, SOURCE: BLOOMBERG,

COINMARKETCAP.COM

Bitcoin vs. dot-com stocks

Percentage change in market cap over 300 days (bitcoin) or

300 trading sessions (Nasdaq composite members)

Nasdaq composite members

Bitcoin

1,400%

1,200

1,000

800

600

400

200

0

-200

0

36

72

108

156

204

252

Days: Bitcoin (Feb. 10 to Dec. 7, 2017)

Trading days: Nasdaq (Dec. 29, 1998 to March 10, 2000)

THE GLOBE AND MAIL, SOURCE: BLOOMBERG, COINMARKETCAP.COM

Bitcoin vs. dot-com stocks

Percentage change in market cap over 300 days (bitcoin) or 300 trading sessions (Nasdaq

composite members)

Nasdaq composite members

Bitcoin

1,400%

1,200

1,000

800

600

400

200

0

-200

0

36

72

108

156

204

252

Days: Bitcoin (Feb. 10 to Dec. 7, 2017)

Trading days: Nasdaq (Dec. 29, 1998 to March 10, 2000)

THE GLOBE AND MAIL, SOURCE: BLOOMBERG, COINMARKETCAP.COM

In percentage terms, it's no contest: Bitcoin is in a different league.

Now, here's another way of comparing the two, in dollars.

Bitcoin vs. dot-com stocks

Dollar change in market cap over 300 days

(bitcoin) or 300 trading sessions (Nasdaq

composite members). Measured in billions of

unadjusted U.S. dollars.

Nasdaq composite members

Bitcoin

$4,500

4,000

Nasdaq:

$4.1-trillion

3,500

3,000

2,500

2,000

1,500

1,000

Bitcoin:

$223-billion

500

0

-500

0

36

72

108

156

204

252

Days: Bitcoin (Feb. 10 to Dec. 7, 2017)

Trading days: Nasdaq (Dec. 29, 1998 to March

10, 2000)

THE GLOBE AND MAIL, SOURCE: BLOOMBERG,

COINMARKETCAP.COM

Bitcoin vs. dot-com stocks

Dollar change in market cap over 300 days (bitcoin) or

300 trading sessions (Nasdaq composite members).

Measured in billions of unadjusted U.S. dollars.

Nasdaq composite members

Bitcoin

$4,500

4,000

Nasdaq:

$4.1-trillion

3,500

3,000

2,500

2,000

1,500

1,000

Bitcoin:

$223-billion

500

0

-500

0

36

72

108

156

204

252

Days: Bitcoin (Feb. 10 to Dec. 7, 2017)

Trading days: Nasdaq (Dec. 29, 1998 to March 10, 2000)

THE GLOBE AND MAIL, SOURCE: BLOOMBERG, COINMARKETCAP.COM

Bitcoin vs. dot-com stocks

Dollar change in market cap over 300 days (bitcoin) or 300 trading sessions (Nasdaq

composite members). Measured in billions of unadjusted U.S. dollars.

Nasdaq composite members

Bitcoin

$4,500

4,000

Nasdaq:

$4.1-trillion

3,500

3,000

2,500

2,000

1,500

1,000

Bitcoin:

$223-billion

500

0

-500

0

36

72

108

156

204

252

Days: Bitcoin (Feb. 10 to Dec. 7, 2017)

Trading days: Nasdaq (Dec. 29, 1998 to March 10, 2000)

THE GLOBE AND MAIL, SOURCE: BLOOMBERG, COINMARKETCAP.COM

This time around, the bitcoin boom is more bitcoin blip.

The comparison is somewhat apples-to-oranges, but it's worth keeping in mind as bitcoin gyrates to record highs, fuelling concerns of an imminent collapse. (A year after the Nasdaq composite's dot-com peak, the index had plummeted 60 per cent.)

The fact is, bitcoin is relatively puny, owned by few and decidedly isolated from major financial institutions. If bitcoin crashes, it's only taking so many people with it.

Just before the 2008 market meltdown, 62 per cent of American adults held stocks in some way, according to survey results from Gallup. That figure has since dwindled, with loads of middle-class households abandoning equities after the crash, Gallup notes.

Still, if the market crashed tomorrow, a slim majority of U.S. adults would be directly affected – not to mention others impacted by reverberations in the wider economy.

It's difficult to imagine anything similar with bitcoin. Ownership appears to be highly concentrated. Perhaps 1,000 people hold about 40 per cent of bitcoin, according to a recent Bloomberg Businessweek article.

Granted, there are mounting ways for retail investors to get involved in cryptocurrencies, without actually acquiring bitcoin. Initial coin offerings have raised more than $3-billion (U.S.) this year, and bitcoin futures started trading Sunday evening on an exchange run by Cboe Global Markets. Plus, the race is on to bring a bitcoin ETF to market.

But for now, bitcoin and its brethren remain somewhat niche and small. The combined market cap of all cryptocurrencies was $425-billion as of Friday afternoon, or a fraction of 1 per cent of total global equity value. On an exciting day, the S&P 500's total value will shift by a greater amount.

"If the price of bitcoin fell to zero today, the paper losses would be equivalent to a 0.6 per cent fall in U.S. equity prices," said Andrew Kenningham, chief global economist at Capital Economics, in a Friday note. "As most investors have bought bitcoin at much lower prices, the relevant losses would arguably be smaller."

Moreover, if bitcoin plummets, the foundations of global finance will be spared. Wall Street has been hesitant to embrace bitcoin, to put it lightly. JPMorgan Chase chief executive officer Jamie Dimon has called the cryptocurrency "a fraud." Back when bitcoin was a mere $7,000, the CEO of Credit Suisse said speculation around it was the "very definition of a bubble."

If that's the case, keep in mind the scale of the bubble.

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