Bitcoin is sometimes compared to tulip mania. So let’s compare the two.
#tulipmania
Tulip mania: A market bubble in the 17th century, in which the price of flower bulbs rose due to speculation by Dutch investors, led to a major crash.
Prices were six times higher than the then average annual income. The rarest flower bulb has become one of the most expensive items in the world.
The story:
At the beginning of the 17th century, tulips were brought to the Netherlands from the Ottoman Empire. The exotic and colorful flowers quickly attracted the attention of the city’s wealthy residents. They were considered a symbol of wealth and status.
The supply of tulip bulbs was limited. In addition, rare varieties were more difficult to obtain than others. Because of this, people started trading tulip bulbs speculatively.
An important factor in the tulip mania was the use of Futures contracts → People started buying light bulbs they didn’t already have, hoping to sell them later at a higher price. This led to even more speculation. The prices of tulip bulbs have risen exponentially. But as prices rose, more and more foreigners became involved in the tulip trade.
Unlike expensive collectibles such as paintings or Chinese porcelain, flowers were very easy to propagate. Anyone who managed to breed a special variety could expect not only significant profits, but also status and prestige.
“On February 3, 1637, trade in the Haarlem ‘colleges’ suddenly collapsed. A large number of flower bulbs turned out to be unsellable. Two days later, the greatest prizes of all time were won in Alkmaar at the Oude Doelen. The most expensive tulip, the Admirael van Enkckhuizen, changed hands on paper for more than 5,000 guilders. But the panic could no longer be contained. In the following weeks, sales plummeted on all stock exchanges. This meant an abrupt end to the tulip mania.” (Source)
Tulip mania is now considered one of the most notable examples of a financial bubble → in which the prices of an asset (in this case, tulip bulbs) rose excessively and then suddenly collapsed.
It serves as a warning about speculative bubbles and the dangers of investing without a real underlying value.
The comparison with Bitcoin
Bitcoin also involves trading and speculation. This happens in all markets.
However, the difference with Bitcoin is:
– If the price rises, suddenly no one will be able to create more Bitcoin.
– It has inherent properties that make it valuable.
A bubble means that the underlying asset is illegal.
Bitcoin Properties:
Bitcoin can be seen as the digital evolution of money.
- It moves value efficiently and securely across the Internet.
- It can be used by anyone as a global payment method, without the intervention of third parties.
- Moreover, it is ultimately limited, with a maximum supply of 21 million.
University degree
Bitcoin has been around for over a decade and has proven to withstand many challenges and price fluctuations.
The tulip mania was short-lived, while Bitcoin has a longer history of survival and growth.
The graph above says it all. There is slowly growing acceptance. Once the bubble bursts, you will no longer rise above the old price level.
However, Bitcoin is reaching higher and higher peaks and less and less deep troughs. It is a comparison between plants and a technological innovation.
Bitcoin expert Rick Hutting writes a weekly column on this subject during the weekend. You can sign up for your free daily newsletter online by clicking here. You can also follow him on Linkedin.
Source: BtcDirect
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Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.
