Recently, I have heard several people comparing the popularity of Bitcoin and other cryptocurrencies with the Dutch Tulip Mania. In my opinion, this comparison really makes no sense. As the title of my post says: You can’t just grow as many Bitcoins as you want.
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The only thing the Tulip Mania and Bitcoin have in common is that the prices of both suddenly soared sharply. But if that's the definition of a bubble, I can show you a lot more bubbles from history that eventually turned out not to be a bubble.
The tulip failed on its way to becoming a currency
The Dutch Tulip Mania is to this day one of the most famous market bubbles of all time. Speculation drove the price of tulips and tulip bulbs to extremes during the early 1600s. After a couple of colourfull years the bubble bursted in 1637 and many people suffered severe losses.
It bursted because the tulips had not enough intrinsic value. The attribites of a tulip could never meet the requirements of being a good store of value or a medium of exchange. As a beautiful flower it has value, but a tulip is perishable whereby it loses all of its beauty and value. Another attribute of a tulip is that it is undividable. Therefore, a tulip could never become a currency. Just like stones, seashells and horns which were defeated by gold and silver.
Bitcoin
Bitcoin, on the other hand, has all the attributes required to be a useful currency. It is easy to divide (Satoshis), It is imperishable (Cannot be hacked), it is transportable (online, faster than anything else.) and the available amount can not be controlled by anyone (21 million is the limit).
And unlike a dead tulip, Bitcoin has a lot of value due to the underlaying blockchain technology.
Bitcoin's future
The price of Bitcoin will probably have its ups and downs in the months ahead, but I believe we are still in the early days of this entire movement. Bitcoin is not in a bubble, because there are heaps of innovation coming in the months and years ahead.
- Segwit - Recently, we had SegWit implemented into the code of Bitcoin.
- Lightning Network - Which will scale Bitcoin to VISA/MasterCard levels and beyond.
- Rootstock - Which is a smart contract platform that is connected to the Bitcoin blockchain. It will basically enable us to do anything we can do on Ethereum on Bitcoin as well.
- Schnorr signatures - Which will reduce the use of storage and bandwidth.
- Cross-chain atomic swaps - The technology to take out an exchange to be the middleman when trading one cryptocurrency to another. A peer-to-peer exchange of two different coins.
And I believe there's so much more I don't even know about yet. Like the birth of the internet, we could never know how the internet was going to look like exactly. There are heaps of innovation coming and we don't even know where this is actually heading. We live in exciting times!
Well put. BTC is nothing like tulip mania. Anyone who tries to seriously make that comparison is an idiot.
Of course BTC still has potential to go to $0. Many potential bad scenarios.
But as time goes by, BTC shows survivorship bias and increasingly proves imperious to hacks or fraud.
And the value will keep going up.
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People who compare bitcoin to the tulip mania don't understand bitcoin or try to manipulate the thoughts of people who don't understand bitcoin.
I think this year will be huge for bitcoin. Segwit and 2nd layers that you mention will transform bitcoin from a payment system to the internet of trust and value.
Also adoption seems to go exponential this year with even wallstreet and nation states getting involved. And what you think if the 8 year long bull market in the regular markets ends??
Very exiting, the revolution has really started and the currently powerful people / entities are really getting nervous. (China gov. / Jamie Dimon)
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Meaning that literally not everyone can have one. I guess if you want a system of literal haves and have nots it works well though...
Also regarding its "speed" one of the biggest problems facing Bitcoin right now is how slow transactions are so...
And while you can't create more bitcoin, there certainly has been a huge influx of altcoins which isn't terribly dissimilar to growing your own tulips.
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BTC is tracked to 8 decimal places, so lots of room to divide individual BTC into smaller unts.
Think of BTC as a $10,000,000 piece of paper money, which can be divided down into $1 bills if you want
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Because if there's anything people love it's working with numbers out to 8 decimal places!
What's your current salary?
0.00015039!
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Really good article and it's quite comical every time I hear some financial analyst compare BTC to tulips. They were very different situations and I know it's simply to spread FUD and discredit BTC, but it's still a joke that the tulip craze has become their go-to analogy for the crypto market.
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That's not how the Tulip bubble ended though, it was not an increase in supply. The tulip bubble was not focused on ordinary tulips, although they did also rise in price. It was focussed on unique "breeds". However unlike regular "breeds", you could not reliably cultivate new examples of the same breed. We know today that this phenomenon was caused by a virus, but at the time the bulbs* were essentially unique and it was very difficult to reproduce the same "breed" twice.
So actually the tulips involved in the Dutch bubble were fundamentally scarce. Tulips were also never supposed to be a currency, the utility was as a prestige item. The bubble was based on speculative demand that French nobles would join in the mania to purchase these rare items, which never materialized substantially. The bubble ended not when farmers produced an oversupply, but when in February 1637 nobody turned up to a routine auction on tulip futures in Haarlem. Panic spread throughout the markets and the entire tulip economy was gone within a month. The actual reason nobody turned up was because of an outbreak of disease, nothing to do with tulips or demand for them, but speculative bubbles collapse on speculative reasons.
* What was interesting was that although you couldn't reproduce a specific flower reliably, the bulbs themselves had markings which allowed you to identify how the flower would turn out.
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Everybody wants bitcoin, and will need bitcoins ans crypto because safe fast efficient decentralized trading, payments, settlement, data storage and more are going to be the bright future.
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How do the forks (Bitcoin Cash) plus an additional coming next (maybe as early as November) alter your thoughts on the limited supply. Many of the Bitcoin "haters" say this is a major flaw, while others think it is perfectly fine.
Personally I think it isn't a huge deal, but is a little concerning that although Bitcoin itself is limited to 21 million coins, why can't they just continue to fork and create other pseudo-Bitcoins?
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I see the fork of Bitcoin Cash more like a dividend on Bitcoin. Free money for all Bitcoin holders. Bitcoin's price didn't even drop much after the fork.
We may see another fork in November (Segwit2X), but Bitcoin will still be Bitcoin with a 21 million limit.
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Why didn't you report this dividend analogy before the fork? I would have held onto BTC to get the dividend. LOL
I agree with the analogy by the way. So time to hold through the next fork
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That is an interesting point about it being a dividend! Yeah I think november seems likely for another fork!
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Agree. What stops them from just continuing to fork creating new coins each time?
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Exactly... I see this as a potential major problem.. But maybe that's just a few of us
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Look at bitcoin cash, the bitcoin 1st fork, is people using it? Only a few.. there can be created as many forks as you want but are separate systems, separate software versions, that need separate mining power. It's not that simple as a copy paste. A currency have the power people give: if for new bitcoin version people will buy , it will take value and will work eventually... Otherwise it will just be a unused software that nobody cares about to use or mantain
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Very good points here! It does require its own set of mining power and is much more complicated than a copy-paste.
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I used to believe Bitcoin was a mania too until I bought some and started playing with it, sending it back and forth across the world with minimal effort and saw how secure its blockchain is. That's when I realized its potential.
Just as a Gold replacement it has a great future, imagine if we add all the other cherries on top (remittances, smart contracts, micropaymets etc)!
I still own some Gold, but not much, the bulk of my savings have been moved to cryptocurrencies following this passive indexing strategy: https://steemit.com/bitcoin/@cryptoeagle/great-time-to-pick-up-cheap-alts-what-percentage-should-you-invest-in-each-to-become-a-multi-millionaire-a-winning-index
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The main characteristic of manias and bubbles is NOT that the goods / assets are expensive, it's that they are OVER-valued. In that sense, we now have real estate bubbles in various cities and countries, a stock bubble in the US, bond bubbles everywhere, and various other sorts of bubbles. It's been said, correctly, that we are essentially in an "everything bubble." And the bubble will burst eventually.
On the other hand, it's not clear (and probably not true) that cryptocurrencies are over-valued. Was bitcoin over-valued at $100? Apparently not. At $1000? Nope. At $2000. Doesn't seem so. And we can make a strong case stating that cryptocurrencies are in fact presently far UNDER-valued.
As for precious metals, I still hold more gold and silver than bitcoin. With the price suppression over the past few years, it was clear that they were under-valued. So, I bought more and more insanely inexpensive silver. Kinda wish that I had bought more bitcoin instead.
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Yeah well, Bitcoin is here to stay.
FIAT doesn't stand a chance :)
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Great post.
Let's hope Bitcoin fairs better than the Tulips did. :)
I expect it will; however, I do think we will see an evolution of the coin. I wish I really knew what that will look like and when.
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I'm still eating tulips!
Thanks for sharing.
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All valid points. I just shake my head when people try to make crazy comparisons like this. There is no correlation between the two other than an ascending price. Of course, many thought Amazon was in a bubble with the stock was at $400 a share. How does that outlook appear now?
Bitcoin is a technology, hence subject to technological curves. The S curve explains Bitcoin and the crypto market in general. When viewed through this lens, we see crypto have a huge upside. We are only at the beginning.
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good post friends, continue good luck always.
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Thanks for turning this into a blog post. I remember this course really helped me out when you realised it a while back!!
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it would be pure idiocy to think that a flower could be traded for goods these days.
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Everybody wants it. I am the same opinion as you. Great Post, and I follow you now.
Follow me @thunderland
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We do live in exciting times! (:
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Interesting.
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Yes, exactly. And even if bitcoin were to be a "bubble" we are still in the first half of the game so plenty of good money to be made still even if a worse case scenario somehow played out and it crashed. I'm still accumulating and holding for 10k or bust :-)
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You will sell out at $10K? Hmmm.
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At least half of it! ;-)
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nice post guys,.,.
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upvoted
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nice
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I feel the comparison more leans on the "exchange/transfer of wealth" factor. Pockets went from Zero to WTF almost overnight. I dont know where this is all heading either, but so far its definitely changed what I do with my time and money in quite a drastic manner. Although this version of exchange/transfer took over a year or so for me, it went from zero to HELL YEAH!!! I used to just traded my recyclables, now Im also trading crypto! Awesome Article BTW!!!
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