There has been many comparisons between Bitcoin’s recent price surge, and, the Tulip mania in Holland in the early 17th century. The argument made by some is that tulip bulb prices between 1634 AD and 1637 AD grew in a short period of time, on, surging demand and scarcity of tulip bulbs to exceed the price of real estate. During the peak season one could purchase an entire real estate property for the equivalent of 1 tulip bulb. However, the moment price crashed, tulip prices became equivalent to that of a single onion. The crash in prices further led to significant bankruptcies, and, an economic downturn.
Bitcoin vs. Tulips
Bitcoin – unlike Tulips – are a completely different kind of asset (though speculative on prices).
The tulip economy is based on the principle that tulips have a small shelf life, and, supply-demand sustains when individuals produce more quantity. Storage, transportation and exchange of tulips both nationally within a locality and outside takes significant physical effort. Bitcoin on the other hand is a global digital currency that can be instantaneously transferred from the buyer to the seller across both national and international borders seamlessly (using many mechanisms – including on paper).
Bitcoin can be exchanged to many different national currencies on exchanges. Unlike tulips that can theoretically be grown infinitely by individuals, mining or creating bitcoin is challenging and the supply is practically limited.
There is an entire ecosystem of software and application developers using Bitcoin and its blockchain for a wide variety of applications e.g. BITT is a company using Bitcoin for financial disintermediation, wirexapp and moneypolo for money transfers, Rsk-contracts on the Bitcoin blockchain, several hedge funds invest in Bitcoin for growing investor wealth, etc…
International nature of Bitcoin
Lastly the international nature of Bitcoin – specifically, when large economies and banking systems like those in Japan and Australia accept this currency as a legal mode of payment, the network effects are huge. The price piggy backs on the large demand and limited supply of available bitcoin in the market.
Tulip bulbs would never have seen such growth, international adoption or functionality.
The growth of BTC pales when compared to Amazon’s growth during the 1998-1999 epic boom in the market, and, the entire networth of all crytocurrencies today is still smaller than that of the top 10 most valuable companies by market capitalization. Actually, the richest man on planet earth can buy allmost 90% of all cryptocurrencies in circulation and can own all traded bitcoin with about 50% of his wealth.
So much for the hype about price growth and predictions of the cycles of price rise for a global asset.
Also read: Do you think Bitcoin is future proof?