Right, you took the bait and thought that Bitpanda was now buying and selling tulips. Or maybe you didn’t. But anyway, what’s the deal with tulipmania and Bitcoin? Is there really a parallel to be made between the two, as countless articles and analyses have suggested?

A tulip is a tulip is a tulip…

Conventional thinking has it that the 17th century Dutch obsession with tulips (the so-called “Tulip mania”) offers a nice historical comparison for understanding the rise of Bitcoin and cryptocurrency in general. We are told how “tulip mania”, the first speculative bubble, created a situation in which the price of tulip bulbs skyrocketed 200 times over a four-year period, peaking in February 1637 before prices quickly plummeted, with the bulbs becoming all but worthless.

In fact, tulips have become synonymous in finance reporting with extreme asset price deviations. If there’s a hint of a bubble bursting, then there’s likely a tulip analogy not far behind.

What’s in a name?

Heads of legacy institutions appear to be the biggest sceptics — and the most frequent purveyors of the tulip analogy. Take comments made by the former president of the Dutch Central Bank, Nout Wellink: “Sooner or later the facade will fall”. Wellink has even called bitcoin “pure speculation” and “hype”. JPMorgan CEO Jamie Dimon has said that bitcoin is a fraud: “It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed”. Nobel Prize-winning economist Robert Shiller has commented that bitcoin reminds him of tulip mania. Nouriel Roubini called Bitcoin the “mother of all bubbles”, and “much worse” than the tulip bubble.

Bursting the tulip analogy bubble

But the bubble has already burst. According to Anne Goldgar, a Professor of Early Modern History at King’s College London, who has written a book on the subject (Tulipmania: Money, Honor and Knowledge in the Dutch Golden Age), any talk of a link between tulip mania and a Bitcoin bubble is misguided and even misinformed. As she has argued in her essay “Tulip mania: the classic story of a Dutch financial bubble is mostly wrong”:

“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. 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.”

The takeaway

The journey is just beginning. It’s important to remember that a cryptocurrency such as Bitcoin is still in its infancy. Although it might be hard to believe, it is in fact only ten years old! Far from a temporary phenomenon, cryptocurrencies, and technology like blockchain that underpins them, are full of unrealised potential across many industries and applications. With their increasingly widespread availability, cryptocurrencies are more omnipresent today than ever before. By any measure, ‘the Bitcoin experiment’ is a striking success.

Knowledge is power. And the Bitpanda Blog aims to provide its readers with the latest information to enable them to make the best decisions regarding their assets and investments.