Tulip Mania was the first price bubble in history. This bubble occurred in the 1600s. Before introducing the economic bubble, we will thoroughly explain it to you in detail.
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The Tulip Mania Bubble
Tulip Mania occurred in the Netherlands in the early Dutch Golden Age. Due to the sudden economic growth, wages per capita in this country were very high.
This economic problem gave a lot of people a lot of wealth. Meanwhile, tulips caused economic growth and prosperity because of the unique colors and shapes in the Netherlands. These particular flowers were different from many other flowers in the world.
Based on the variety of these flowers, the price of each covered several times the wage of a worker. The formation of future contracts also caused the price of flowers in the Netherlands to increase day by day. The Bubonic plague was also said to have had a significant impact on the market as people became more inclined to maintain and invest their currency.
As the number of farmers growing flowers increased, so did the storage capacity. In February 1637, the Tulip market reached its peak. At this time, the buyers of this market suddenly dropped, fear penetrated society quickly, and the tulip price bubble suddenly burst.
It is never clear in history why such a price bubble did not cause the complete bankruptcy of the Netherlands. But in any case, the owners of the tulips suffered a lot of losses. But what does this have to do with Bitcoin?
Tulip Mania Vs. Bitcoin
Tulip Mania is one of the most prominent examples of an economic bubble bursting. At one time, this product experienced an abnormal price increase. People who made intelligent decisions left the market sooner. Still, many others who kept their capital in the market suffered much more severe losses, causing other people to lose in this market as well.
Some people also see Bitcoin as an economic bubble. But the connection between Tulip Mania and Bitcoin confuses people a little because of the difference in market type and capital. The cryptocurrency market is also different from other global markets in terms of the kind of currency traded.
Differences between Bitcoin and Tulip Mania
The main difference between Tulip Mania and Bitcoin is the type of commodity traded. Each tulip has a specific expiration date, and its market volume not measures at a glance. It must be planted for sale so that it can be sold after harvest. It is very likely to be damaged. The methods must be safe and have a system that does not damage the flowers. On the other hand, tulip can not be used as a payment method because it is not divisible. On the other hand, the security of tulips is much less than the security of cryptocurrencies and any flower stole.
Instead, Bitcoin is a kind of digital commodity and transmit over a peer-to-peer network. This product is a type of digital currency that is encrypted with cryptographic methods to prevent fraud. Bitcoin is not copied or destroyed and can break into smaller pieces. In addition, it has a limit, and a ceiling of 21 million units has been considered for it. Although the digital currency market is precarious, it is much more secure than other financial markets.
Was Tulip Mania a real bubble?
In 2006, an article called tulipmania: Fact or artifact was published, which showed that the problem of the tulip mania bubble had nothing to do with market behavior and was primarily due to the government’s failure to regulate futures contracts properly.
According to Thompson, the episode cannot be considered a bubble because “bubbles require the existence of mutually-agreed-upon prices that exceed fundamental values,” which was not the case.
In 2007, Anne Goldgar published a book entitled “Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age,” where she presents lots of evidence that the famous Tulipmania story is full of myths. Based on extensive archival research, Goldgar’s arguments indicate that both the rise and the burst of the tulip bubble were much smaller than most of us tend to believe. She states that the economic repercussions were relatively minor, and the number of people involved in the tulip market was relatively small.
Regardless of whether Tulip Mania was a kind of economic bubble, there are many differences between it and Bitcoin. These two markets are 400 years apart and have completely different histories. Nor can a tangible commodity like flowers be compared to cryptocurrencies, which use compelling cryptographic methods. Although the cryptocurrency market is still volatile, it has a much brighter future than we imagined.