Our Feature series this month is on Cryptocurrency and the Blockchain Technology that enables it which has taken the world by storm.
With Bitcoin reaching record levels this year, it has sparked greater interest amongst potential new Investors who are attracted to the returns offered by Bitcoin. This ‘Bitcoin Mania’ has sparked a debate in the marketplace as to whether Bitcoin and indeed the entire Cryptocurrency market is just a Bubble, or whether there is long term value in it.
The answer to this question cannot be answered in one article, but should be apparent by the end of the series as we explore the concept and inner workings of Cryptocurrency and Blockchain Technology.
In the end as you will see, we are compelled to consider the potential implications for Civilization itself.
For now, the immediate concern is whether you could make a ‘quick return’ on a Bitcoin investment? For assistance, we turn to another historical ‘Bubble market”…The 17th Century Dutch Tulip Flower Bubble Market.
The Roots of Tulip Mania
The Tulip is a national symbol of the Netherlands.
A Botanist by the name of Carolus Clusius who in the 1590s had begun an important botanical garden at the University of Leiden, was one of the first to really pioneer the cultivation of tulips in the Netherlands. He had his own private garden in which he planted numerous bright and beautiful tulips and devoted much of his later life to studying the tulip and the mysterious phenomenon known as tulip breaking.
Tulip breaking is key to the story of the tulip mania. It was a strange occurrence in which the petal colors of the flower suddenly changed into multicolored patterns. Many years later it turned out that these strange looking tulips were actually the result of a virus that had infected them. Nonetheless, these essentially diseased multicolored tulips did nothing but serve to ramp up the tulip craze further.
The mesmerizing diseased tulips became even more valuable than the uninfected ones and Dutch botanists began to compete with each other to cultivate new hybrid and more beautiful varieties of tulips. These became known as “cultivars” and would be traded among a small group of botanists and other flower aficionados. As time passed, the trade grew out from the group and botanists began to receive requests from people they did not know for not only the flowers, but the bulbs and seeds in exchange for money. Tulip brokerages began to open up and what was originally a “gentlemanly pursuit” turned into an all-out war for profits.
Tulips became the talk of the fledgling Dutch Republic.
By the 1620s, prices were already rising to incredible levels. In the years that followed it became more and more apparent that the tulip bulbs themselves were going for more money than the actual bloomed flowers. Speculators piled into the markets like wildfire, trading the bulbs rather than the flowers, which resulted in what you might call a futures market. By 1633, rather than bother with guilders, the Dutch even began using the bulbs as a currency themselves. There are numerous records of land properties being sold for bulbs.
The climax of tulip mania took place in Alkmaar at an auction shortly thereafter where cultivars Viceroy and Admirael van Enchuysen sold for 4,230 florins and 5,200 florins, respectively. By the height of the tulip and bulb craze in 1637, everyone had gotten involved in the trade, rich and poor, aristocrats and plebes, even children had joined the party.
Prices skyrocketed at one point in 1637, increasing 1,100% in a month.
Almost overnight the bulb trade disappeared because as the price rose to dizzying heights, finally someone just decided not to pay, everyone lost confidence and prices plummeted.
As is often the case with economic bubbles, as the price rose to a point where it was obviously so incredibly inflated, some prudent people decided to get out and capitalize on the absurd prices. Then a domino effect took place where more and more tried to sell at ever decreasing prices.
The burst created unmitigated pandemonium and widespread panic throughout the Dutch Republic, resulting in financial ruin for many, as the bulbs that they had paid so highly for were worth virtually nothing. Eventually the majority of the contracts were cancelled.
Cryptocurrencies and especialy Bitcoin are the talk of the town of late with new ones such as Ethereum being launched. According to reports, the price of a single Bitcoin “has gone up at a faster pace than any other speculative vehicle in market history, as investor enthusiasm for the new medium has reached a fever pitch.”
Some have likened the Bitcoin craze to the Tulip Mania, believing that the Bitcoin bubble is getting ready to burst. In my view, the difference between Bitcoin and the Tulip Bubble is obvious…The question of practical utility.
Bitcoin and Blockchain Technology actually have an inherent value as tools for facilitating Trade, as well as the broader Administrative aspects of Human Political and Economic Civilization…We will discuss this in more detail as we continue our exploration of Bitcoin by tracing its origin the Creator/Author of the Bitcoin and Blockchain Code…..the elusive Satoshi Nakamoto.
Meanwhile you can check out the articles below on the Tulip Bubble, its significance to the Bitcoin market today, and also revisit another more recent Bubble, the Dot Com Bubble of the early 2000s.
Stay tuned for a new Podcast and more.
Links & Credits
Tulip Mania: https://www.focus-economics.com/blog/tulip-mania-dutch-market-bubble
Tulip Bubble vs Bitcoin: http://www.cryptonews.biz/tulip-mania-vs-bitcoin/
Bitcoin Bubble Burst: https://www.economist.com/news/leaders/21722841-latest-frenzy-tulipmania-gold-rush-or-dotcom-boom-what-if-bitcoin-bubble
Dot Com Bubble: http://www.businessinsider.com/heres-why-the-dot-com-bubble-began-and-why-it-popped-2010-12