Sunday, October 26, 2014

Are we approaching the Tech bubble 2.0 ?

Published on the Sunday Times 26th October 2014. (Business & Finance supplement)

Friday the 10th March 2000 was a black day for technology companies.  The Nasdaq stock exchange opened as usual at 9am, stock brokers were already expecting a disastrous day as in the preceding week hundreds of tech companies started going bust.

Earlier that week as many twenty year-olds, who were already millionaires after setting up their companies in Silicon Valley, were already bust and were moving out of their multi-million estates back to a small room with their parents as their companies declared bankruptcy.

10th March 2000, noon, the Nasdaq-Tech listings were already down 55% and by closure time the figure went further down to 78% as hundreds of tech-related companies suddenly went bust.  It was a complete washout, Silicon Valley which just weeks before was buzzing with enthusiasm amid new businessmen and employees arriving from all around the world suddenly went silent.  Banks immediately sent their repossession agents to take over entire buildings in the hope of recovering some of their debts.  Over that weekend Silicon Valley was transformed into a ghost town.

Many experts had been warning about this for years.  It seemed that the tech bubble which started at around 1992 as many people started investing in fancy online companies, with investors pouring money in even the most stupidest of ideas came to an abrupt end.
Some major examples include an online company,, founded only 1 year before the bubble burst burnt 135 million dollars in advertising without ever registering a profit.
The first social network, was lauched in 1994 and essentially offered the same services Facebook provides today.  In 1998 this company offered shares to the public for $9 and by 1999 it’s shares were trading at $100 only to go down to around 5 cents per share in the week the bubble burst.

The website had an innovative idea at the time, to transmit radio and tv shows over the internet.  Investors were literally pouring money in this company and it managed to raise 5.7 billion dollars.  The founders’ business plan however expected broadband internet connection to be available worldwide by the year 2000.  Broadband connectivity only started entering homes around 2008.  The company burnt all the 5.7 billion it was entrusted with in a matter of months and nearly no one ever managed to see any tv show over their service at the time.

Most of the ideas mentioned in these stories have become a reality today, Facebook is the new social network taking over from and Ebay became the new whilst Netflix became the new  One could argue that most tech companies went bust because their ideas were too innovative for the year 2000 but it seems that history really is destined to repeat  itself and the lessons learnt just 15 years ago weren’t enough to stop greed.

Today it is estimated that nine out of every 10 new startup companies are failing, mostly because they grow too fast.  Some companies are having great success with one particular product or app launch and are expecting each and every product they launch to achieve the same profit levels.  The stock of King-Digital, producers of the hit game Candy Crush, is already dropping after the company failed to replicate the success they achieved with newly launched games and apps.  The same thing is happening to Zynga and Rovio, creators of Farmville and Angry Birds respectively.  It seems that these companies managed to have a lucky one time hit rather than a series of hits over the years which would be able to build a sustained business model.  These companies are simply not living up to the expectations when compared to their first hit.

King Digital’s IPO (initial public offering) price was set at $22.50 per share last April, and all shares were snatched immediately.  Today their shares are trading at $11, this means that investors lost half of their money in less than six months only because they expected that King-Digital to be able to replicate sales for all their games.

Other companies with absolutely no revenue, but just having a great idea are raising extraordinary amounts of money in venture capital, for example, an e-commerce company, recently raised $336 million, all this since launching in 2011 and without ever having registered a single dollar in profit ever since and having earlier this year fired 400 employees after it had to downsize as it couldn’t cope with the salaries being issued.
A photo messaging application developed by 3 friends during their summer break at university, Snapchat, which is also gaining traction in Malta, is being valued at over 3 billion dollars when in reality it has yet to register a profit.

Huge companies like Yahoo are once again starting to acquire companies for unrealistically high valuations just like it did in 2000.  Yahoo’s largest fiasco, back in 1999, was when it bought Geocities for over 3 billion dollars and never even recouped their initial investment.  Nevertheless just last year Yahoo bought Tumblr for 1.1 billion dollars, even though Tumblr is not expected to break even in the coming years.

Timothy Draper is a famous American venture capitalist who has in the past invested early on in successful companies such as Hotmail and Skype, before both were sold to Microsoft and earning him a thousand times his initial investment.  Draper was recently interviewed on the New Yorker where he stated that he believed that “Tech venture capital may have reached the top of it’s cycle once again”.

His theory is that after a recession, lots of people including intelligent business-minded youngsters lose their jobs, people notice it is easier to start a business instead of finding a job and millionaires with lots of extra cash suddenly find it more lucrative to invest in such startups rather than risking their money in the stock exchange or leaving it to rest in a bank with zero interest.  After some successful business stories are rolled out in the media people start thinking that they could replicate their success as well and investors start believing that anything they touch will turn into gold.  This leads to sloppiness and eventually to a market crash.

This is what happened exactly prior to the year 2000 crash and according to Draper we are now at a point where negligence is blurring business decisions once again, only to inevitably lead us to the unavoidable market crash.  Let us only hope that this time the cycle is broken before the inevitable strikes again.

Original Article Scan (from printed newspaper):

Copyright notice : This article was written by Ian Vella and published on the Sunday Times of Malta.  Copyright may be shared between the mentioned author and entities.  Please do not republish without permission. 

Sunday, October 19, 2014


Published on the Sunday Times (TechSunday) 19th October 2014

Bitcoin’s technical definition is a “peer-to-peer crypto-currency”.  This means that no particular central authority such as a banking institution prints money or tracks any of the electronic transactions that take place.  

This has a huge implication since Governments and financial authorities have no say or control on how this currency is operated.  An ever growing amount of online shops and now even some real-life stores are accepting Bitcoins as a payment method.
Bitcoin payments don’t need any third parties such as banks to process transactions, traditionally any online purchase has to be facilitated by a banking institution, credit card company or a licensed intermediary like Paypal, which normally charge fees amounting to between 2-3% of the overall transactions This is however not the case with Bitcoin as any payment is directly sent over the internet from buyer to seller.
The original idea was conceived in around 2009 by an individual using the name Satoshi Nakamoto, who wrote a paper describing how Bitcoin should work and created the first open source software.  Nevertheless it is not yet clear if this is a real person, fictitious character, or a group of individuals working under an assumed identity to avoid the pitfalls that popularity brings along.
The Bitcoin network needs a number of electronic data-miners to process and encrypt transactions that take place around the world, for this reason the system rewards such data-miners with a payment of newly generated Bitcoins which is set to reach the maximum milestone of 21 million bitcoins in the year 2140.
Individuals or companies using Bitcoin may opt to sign in for an online virtual-wallet or keep one on their hard disk.  An individual may hold an infinite number of such wallets and since transactions are encrypted and secure Governments may never know exactly what amount of Bitcoins is held by anyone.  This in itself has created a number of problems during the last years, as some shady characters used Bitcoin to deal in  weapons, drugs, gambling and other illegal services.  

The European Central Banking institution and the US Government started trying to regulate the use of Bitcoin transactions, albeit somewhat unsuccessfully as the the US Government only managed to regulate banking institutions who offer the exchange from Bitcoin to US Dollars and vice versa.   The fact that Bitcoin is being utilized by some unscrupulous individuals for illegal trade does not make it wrong or means that it is intrinsically immoral, in fact various high profile individuals are backing the use of Bitcoins, for example Al Gore, US Vice president, Noble price winner (and president contender) during a Bitcoin conference stated “I am a big fan of Bitcoin… Regulation of money supply needs to be depoliticized”.   Many are of the opinion that Bitcoin is the next step in the evolution of our capitalist society since governmental control on currency and payment transactions will be brought down significantly, thereby leaving all trade under the control of market forces.
At time of writing 1 Bitcoin is equivalent to around 314 euro, this currency has still not stabilized and heavy fluctuations means that some people are afraid to start using it and are only investing small amounts at a time.  During 2012 one Bitcoin reached the record value of around 800 euro (per Bitcoin) and many started speculating in this currency.  Some early adopters of this currency became extremely rich, Roger Ver was an early investor and back in 2010 invested thousands of dollars when 1 dollar was still equal to 1 Bitcoin.  Today his capital increased dramatically making him a millionaire, he is one of the few persons who openly discusses his Bitcoin wealth and the Bitcoin community nicknamed him ‘Bitcoin Jesus’ because nowadays he actively promotes the virtual currency and has since also invested in many businesses related to the Bitcoin currency.
The website was one of the first and largest companies traded and held Bitcoin wallets for around 70% of users.  Earlier this year, this company based in Tokyo, filed for bankruptcy, as 850,000 Bitcoins went missing.  Ever since 200,000 bitcoins were “found”.  It is not yet clear what happened exactly but many are suspecting that a group of hackers might be responsible for the missing Bitcoins.  This means that Bitcoins are still vulnerable and can be ‘stolen’ in a high-tech heist even though this will involve different techniques than the typical bank robbery.  Many suspected that the incident would result in the downfall of the Bitcoin network but to the contrary this incident sparked more interest and usage increased considerably this year.
Presently websites like and are accepting bitcoin payments and are selling brand items, sporting goods and electronics.  Earlier this year the Apple store unexpectedly started accepting Bitcoin transactions on it’s networks, this sparked high hopes amongst the bitcoin community and many are now eager to see Ebay following suit.  The Bitcoin currency would gain massive worldwide recognition and unprecedented popularity if this happens.  However at the moment no official statements have been released by Ebay yet and it is unclear whether one day anyone will be able to buy and sell merchandise using Bitcoin on Ebay.

The best way to learn more about the Bitcoin phenomenon is to get some and experiment.  You can check the live quoted prices on to see how much a bitcoin is worth in Euro/ USD at the moment and you can purchase Bitcoins on sites like and

Extra resources:

Bitcoin news:

1BTC to euro:

bitcoin charts via cryptonews:

Original article published on the Sunday Times (Tech-Sunday supplement) on the 19th October 2014:

Copyright notice : This article was written by Ian Vella and published on the Sunday Times of Malta.  Copyright may be shared between the mentioned author and entities.  Please do not republish without permission.