Tulipomania (or Tulip Fever) is considered by many to be the first financial bubble in history, which supposedly occurred in the early 1600s. Before we discuss whether Tulipomania was actually a financial bubble or not, let's delve into the most common narratives that consider this event a real hypothesis.


The Tulipomania Bubble

Tulipomania happened in Holland, during the Dutch Golden Age. The country had the highest per capita income rate in the world at that time, thanks to its expanding foreign trade and extensive international negotiations.

The booming economy helped many people achieve their goals of becoming rich and prosperous, which gave life to the luxury goods markets. In this context, one of the most desired items were tulips, particularly those with genetic mutations that made them more beautiful than normal. These unique flowers were very different from the other options available, so everyone wanted to display them as a status symbol due to their rare beauty.

Depending on the variety, the price of flowers could exceed the salary of some workers and in some cases even the price of a house. Furthermore, futures markets pushed the price up as it was no longer necessary to have the flowers on hand to negotiate.

However, with an increasing number of farmers growing flowers, supply eventually became too high and the tulip market reached its peak in February 1637. There was a sudden lack of buyers and after a failed attempt at an auction in Harlem, fear and panic spread, causing the bubble to burst within a few days.

Historians do not know for sure whether the bankruptcies of the time were due to Tulipomania, as it is difficult to obtain financial records from this period. However, there were certainly significant losses for investors who held contracts related to tulips. But what does this have to do with Bitcoin?


Tulipomania vs. Bitcoin

Tulipomania was considered by many to be a perfect example of a financial bubble and what bursting one can do. The popular narrative describes a moment of greed and euphoria that caused prices to rise far beyond what was reasonable. While the more experienced ones were exiting early, the latter started panic selling as soon as the price drop started, causing several investors and service providers involved in the market to suffer huge capital losses.

It is very common to hear that Bitcoin and other cryptocurrencies are following a similar pattern. However, the financial world is very different and with many more players than in the 17th century, so connecting Tulipomania to Bitcoin doesn't make much sense. Furthermore, cryptocurrencies and traditional markets are very different in many other aspects.


Main differences

One of the biggest differences between Tulips and Bitcoin is the potential to act as a store of value. Tulips had a limited lifespan and it was almost impossible to tell the exact variety or appearance the flower would have just by looking at its seed. Traders would have to plant it and hope they were the exact type they intended, especially if they had paid for one of the rare colors. Other than that, if they wanted to transfer the tulips, they needed a way to safely transport them to their destination, with all the associated costs. Tulips were also unsuitable for payment because it was not possible to divide them into smaller parts as this would likely kill them. Furthermore, they could easily be stolen from the fields or off a shelf at the market, making them more difficult to protect.

In contrast, Bitcoin is digital and can be transferred within a global peer-to-peer (P2P) network. It is a type of money digitally guaranteed by cryptographic proof, making it highly resistant to fraud. Bitcoin cannot be copied or destroyed and is easily divided into several smaller units. Additionally, it is relatively scarce, with a fixed supply limited to a maximum of 21 million units. It's true that the world of cryptocurrencies presents some risks, but having basic security precautions will likely keep your funds safe.


Was Tulipomania really a bubble?

In 2006, economist Earl A. Thompson published an article titled “Tulipomania: Fact or Artifact?” where he discusses how Tulipomania was directly related to the government-orchestrated conversion of futures contracts to option contracts - and not as a market euphoria. According to Thompson, the Tulipomania episode cannot be considered a bubble because “bubbles require the existence of mutually agreed prices that exceed fundamental values,” which was not actually the case.

In 2007, Anne Goldgar published a book titled “Tulipomania: Money, Honor and Knowledge in the Dutch Golden Age”, where she presents much evidence that the popular story of Tulipomania is full of myths. Based on extensive archival research, Goldgar's arguments indicate that both the rise and burst of the tulip bubble were much smaller than most of us tend to believe. She claims that the economic repercussions were very small and that the number of people involved in the tulip market was quite limited.


Conclusion

Regardless of whether Tulipomania was a financial bubble or not, it is irrational to compare flowers to Bitcoin (or any other cryptocurrency). The event took place almost 400 years ago, in a completely different historical context and the flowers cannot be compared to a digital currency guaranteed by advanced cryptography.