Investors say that Bitcoin is just tulip mania – but the classic story of a Dutch financial bubble is mostly wrong

While the world remains fixated with the constant rise and fall of Bitcoin, analysts are quick to point out that similar bubbles have been seen before.

Currently it’s Bitcoin, but in the past we’ve had dotcom stocks, the 1929 crash, 19th-century railways and the South Sea Bubble of 1720. All these were compared by contemporaries to “tulip mania”, the Dutch financial craze for tulip bulbs in the 1630s.

Bitcoin according to some sceptics  is “tulip mania 2.0”, with some investors even using the term as an extreme form of financial hyperbole, stating that the cryptocurrency has now even surpassed the Netherlands’ tulip frenzy in its absurdity.

However new research by Anne Goldgar, professor of modern history at King’s College London, has found that much of what has been taught surrounding “tulip mania” is mostly untrue.

“Tulip mania wasn’t irrational. Tulips were a newish luxury product in a country rapidly expanding its wealth and trade networks,” she explains in an analysis for the Conversation.

“Many more people could afford luxuries – and tulips were seen as beautiful, exotic, and redolent of the good taste and learning displayed by well-educated members of the merchant class. Many of those who bought tulips also bought paintings or collected rarities like shells,” she said.

According to Goldgar prices rose, because tulips were hard to cultivate in a way that brought out the popular striped or speckled petals, and they were still rare.

But it wasn’t irrational to pay a high price for something that was generally considered valuable, and for which the next person might pay even more.

Tulip mania wasn’t a frenzy, either, said Goldgar, and the majority of the trading took place in taverns and neighbourhoods rather than on the stock exchange.

“Far from bulbs being traded hundreds of times, I never found a chain of buyers longer than five, and most were far shorter,” she said.

“Despite an epidemic going on during 1636, the biggest price rises occurred in January 1637, when plague (mainly a summer disease) was on the wane. Perhaps some people inheriting money had a bit more in their pockets to spend on bulbs.”

“Prices could be high, but mostly they weren’t. Although it’s true that the most expensive tulips of all cost around 5,000 guilders (the price of a well-appointed house), I was able to identify only 37 people who spent more than 300 guilders on bulbs, around the yearly wage of a master craftsman.

“Many tulips were far cheaper. With one or two exceptions, these top buyers came from the wealthy merchant class and were well able to afford the bulbs,” she said.


Why it crashed

Goldgar said that when the crash came, it was not because of naive and uninformed people entering the market, but probably through fears of oversupply and the unsustainability of the great price rise in the first five weeks of 1637.

“None of the bulbs were actually available – they were all planted in the ground – and no money would be exchanged until the bulbs could be handed over in May or June,” she said.

“So those who lost money in the February crash did so only notionally: they might not get paid later. Anyone who had both bought and sold a tulip on paper since the summer of 1636 had lost nothing. Only those waiting for payment were in trouble, and they were people able to bear the loss.”

“No one drowned themselves in canals,” she said.

“I found not a single bankrupt in these years who could be identified as someone dealt the fatal financial blow by tulip mania. If tulip buyers and sellers appear in the bankruptcy records, it’s because they were buying houses and goods of other people who had gone bankrupt for some reason – they still had plenty of money to spend. The Dutch economy was left completely unaffected.”

Goldgar concludeed that it was not actually the case that newcomers to the market caused the crash, or that foolishness and greed overtook those who traded in tulips.

“But this, and the possible social and cultural changes stemming from massive shifts in the distribution of wealth, were fears then and are fears now,” she said.

“Tulip mania gets brought up again and again, as a warning to investors not to be stupid, or to stay away from what some might call a good thing. But tulip mania was a historical event in a historical context, and whatever it is, Bitcoin is not tulip mania 2.0.”


Read: Reserve Bank confirms that it is looking to regulate Bitcoin and cryptocurrencies

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