The Tulip Bubble
The tulip bubble, which took place from 1634-1637, was sparked when a non-fatal virus infiltrated the Dutch tulip crop. This virus resulted in a variety of beautiful petal patterns, and tulips–which were already rare in Holland–grew in value according to the scarcity of their patterns.
Demand exceeded supply, causing prices to skyrocket and speculators to begin buying tulip bulbs as investments. Tulipmania became so pervasive that people even traded their homes and life savings for tulip bulbs. At one point, tulip prices increased twenty-fold in a single month.
Eventually, early investors began selling their tulips to secure their profits, creating a chain reaction of decreasing tulip prices as people rushed to sell before the price went down further. Soon, people began to panic sell, causing the price to crash and the Dutch economy to sink into a depression.
Is Bitcoin a Digital Tulip Bulb?
Tulipmania is the quintessential example of a price bubble, and cryptocurrency critics have lobbed this analogy at bitcoin for years. Whenever the bitcoin price breaks through a new barrier, they rush to explain to mainstream news outlets that the bubble is going to burst, killing bitcoin once and for all.
The implication behind this analogy is that, like 17th-century Dutch tulip bulbs, bitcoin has little or no inherent value and derives its price entirely from speculation. It is true that bitcoin, like any asset, has experienced price bubbles in the past and will continue to see them in the future. It is also true that some people invest in bitcoin on speculation alone, without understanding or believing in the potential of its underlying technology.
But where the tulip bulb comparison diverges from reality is that bitcoin has recovered from multiple market corrections, despite naysayers’ predictions to the contrary. Moreover, what critics disingenuously refuse to admit is that cryptocurrency has a myriad of use cases, and more are being developed every day. Tulip bulbs have a limited, well-defined use case, and that use case did not justify its rapid (and localized) price increase. Bitcoin adoption, on the contrary, is a global phenomenon fueled by a truly revolutionary technology.
Featured image from Shutterstock.
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-People keep saying it will crash because it has no intrinsic value.
-They have been saying this since 2011 when bitcoin first came out.
-Bitcoin has been rising for years reaching new all time highs after big dips over and over again.
People see the benefits of bitcoin over fiat money and are learning what value really is.
Don't think bitcoin will ever go below 3000 again.
Agreed :)
I really hope you are right! Better to be in it now than regretting it later. Let the blockchain revolution succeed and change the world we live in bit by bit...
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I think 'The Internet' is in a bubble as well. 2011 wants its tulip bubble FUD back by the way.
They used the same tulip analogy during the dotcom bubble crisis too... sure there were plenty of companies that went bankrupt but among them survived the real companies like Amazon and Google today, multibillion dollar companies that no one from the pre-internet era ever imagined could exist let alone thrive with the internet