Tulip fever is considered by many to be the first financial bubble in human history, and is said to have occurred in the 17th century. Before discussing whether tulip fever was a real financial bubble, let's look at some of the narratives that believe it was a real bubble.


Tulip Bubble

Tulip fever occurred in the Netherlands during its golden age. At the time, the Netherlands had the highest per capita income in the world, thanks to its rapidly developing international trade and extensive trading business.

The economic prosperity helped people gain more wealth and glory, which in turn promoted the development of the luxury goods market. Among luxury goods, the most coveted one is of course the tulip, especially the mutant tulips, which are even more charming. Those mutant tulips have unusual colors and patterns, which make everyone want to own and show off.

Different varieties have completely different prices. The value of some flowers may be equivalent to the wages of some workers, while some may even be worth as much as a house. In addition, the futures market also drives up prices because there is no physical change of hands in the futures market.

Farmers then planted their land in tulips, which led to a rapid increase in supply, and the bubble burst in a week in 1637. Some believe that the Black Death also had an impact, as it caused many buyers to fail to show up at tulip auctions. Since there are no financial records at the time, historians are not sure whether the tulip mania actually bankrupted some people, but it is certain that the crash must have caused huge losses to investors.


Tulip Mania vs Bitcoin

Tulip mania is considered by many to be a prime example of a bubble burst. The popular narrative describes a period of hype that drove tulip prices to unjustifiable levels. In this case, while some rational people exited early, the majority of people panicked and sold again after prices plummeted, resulting in heavy losses for many investors and service providers.

Today, some people believe that Bitcoin and other cryptocurrencies will follow a similar pattern. However, what they fail to notice is that the financial world has changed a lot compared to the 17th century, and there are many more market participants than in the 17th century. Therefore, it is a bit of a generalization to equate Bitcoin with tulip mania. In addition, there are many differences between the crypto market and the traditional market.

 

Main differences

Tulips are a very different store of value than Bitcoin. Tulips have a limited flowering period, and it is almost impossible to identify the type and appearance of a tulip just by looking at the bulb. Therefore, merchants must plant bulbs and hope that the tulips they grow will be the type or appearance they want. In addition, if merchants want to move tulips, they need a safe way to transport them to their destination and bear all the related expenses. Tulips themselves are also not suitable for payment because people cannot split them into several small parts. Another point is that the flowers in the fields and on market stalls can be easily stolen, which makes tulips even more difficult to protect.

Bitcoin is very different because it is digital and transmitted across a global P2P network. It is a digital currency protected by encryption technology, which makes it highly resistant to fraud. Bitcoin cannot be copied or destroyed, but can be easily divided into smaller units. In addition, the supply of Bitcoin is limited, up to 21 million. Admittedly, there are some potential risks in the digital world of cryptocurrency, but as long as you follow general safety principles, you can protect your assets well.


Was tulip mania really a bubble?

In 2006, economist Earl A. Thompson published an article titled "The Truth and Illusion Behind Tulip Fever", in which he discussed that the tulip fever at the time was actually related to the government's implicit conversion of tulip futures contracts into options contracts, rather than a real market frenzy. Thompson believed that tulip fever could not be considered a bubble because a bubble requires a price that is mutually agreed upon by both parties and exceeds the fundamental value, which is not the case.

In 2007, Anne Goldgar published a book called Tulip Mania: Money, Honor, and Knowledge in the Dutch Golden Age, in which she presented a lot of evidence to prove that the popular tulip fever stories at the time were actually full of myths. In the book, Goldgar's argument involves a wide range of research archives, and finally points out that the emergence and collapse of the tulip bubble were not as serious as most people imagined. She emphasized that the impact on the economy was very small and the number of people involved in the tulip market was very small.


Summarize

Regardless of whether tulip fever was a financial bubble or not, it is certainly unreasonable to compare Bitcoin and other cryptocurrencies to tulips. Tulip fever occurred about 400 years ago, and Bitcoin today is in a completely different historical context than tulips, and flowers cannot be compared to digital currencies protected by encryption technology.