The rise of Bitcoin – Just call it Tulip Mania or Speculative Fever

Posted By on November 30, 2017


As someone who had an early interest in cryptocurrency as a replacement for product and services exchange, the recent rise of Bitcoin is nothing more than frightening. Supply and demand obviously has traders of this public ledger block chain protected transaction “currency” excited and like all manias, is concerning since eventually trading profits will be too attractive for speculative traders not want to cash in.

Who knows when the bubble will burst … but even as someone who likes the idea of a stable and secure world cryptocurrency … this is currently just ridiculous gambling.

Some suggest it is on par with the dot-com boom and crash, which maybe true, but personally I’d go back a few more centuries to ‘Tulipmania.’

Tulipmania was the first major financial bubble. Investors began to madly purchase tulips, pushing their prices to unprecedented highs; the average price of a single flower exceeded the annual income of a skilled worker. Tulips sold for over 4000 florins, the currency of the Netherlands at the time. As prices drastically collapsed over the course of a week, many tulip holders instantly went bankrupt.

Tulipmania reflects the general cycle of a bubble: investors lose track of rational expectations, psychological biases lead to a massive upswing in the price of an asset or sector, a positive-feedback cycle continues to inflate prices, investors realize that they are merely holding a tulip that they sold their houses for, prices collapse due to a massive sell off and many go bankrupt.

EDIT 11/29 afternoon: Since I wrote this early Wednesday morning, I figured it would at least be appropriate to show what happened in the afternoon. If you own Bitcoins, you need a strong stomach.


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