They say history repeats. But I really hope the bitcoin will not have the same future as the tulips of the 17th century. At the height of the bubble the average price per bulb paid would have employed a master carpenter for two years. That is the average price, the rarest tulips commanded prices far higher. Untill suddenly the tulip fell out of grace, the sellers far outnumbered the buyers and the market began to collapse which caused a crash in prices.
In the wake of a 1581 revolt against Spain, conflict drove many of Antwerp and Brussels’ merchants and artisans north to the newly founded Dutch Republic even as Protestant immigrants from other parts of the Spanish Empire streamed north, swelling many Dutch towns to twice their size over a brief period of time. Many of these immigrants had money to invest, the high work ethics typical of northern European Protestants and substantial skill as craftsmen and artisans. By the early 17th century, the Dutch Republic was one of the richest countries in Europe with Amsterdam its most important city. This era saw the rapid establishment of the Dutch diamond industry and a stock exchange that funded foundation of the wildly successful Dutch East India Company (with a Dutch West India Company following only twenty years later).
Into this environment came the tulip. At the time, the flower was still relatively rare and its choicest form, the delicately striped and variegated broken tulips so familiar from Dutch paintings, came to obsess people at all levels of Dutch society..
At first this obsession may seem surprising. The Dutch were Calvinists, merchants and traders packed into a small country where land for houses and gardens was at such a premium that property in Amsterdam was taxed by the width of its canal frontage. But the 17th century Dutch were also among the wealthiest people on earth. They were looking for ways to display their wealth, as well as to increase it. The tulip became the surprising vehicle for these twin ambitions.
The tulip craze grew slowly, starting among a handful of late 16thCentury scholars and connoisseurs, who valued the “broken” tulip above all others. With time, professional growers stepped in, followed by middlemen who often bought and sold bulbs without ever seeing them bloom. Finally, speculators, usually called florists, many of them middle class artisans, farmers and tradesmen, began to meet in taverns all over the Dutch Republic. Most cared nothing for the flowers themselves, buying and selling the bulbs according to the model of the new futures markets established for Amsterdam grain sales. Florists simply wanted to get rich . . . and quickly. Their lively trade, fueled by tobacco and alcohol, drove prices up in a frenzied market boom. By the mid-1630s almost anyone with money to spare seemed willing to risk it in the tulip market. Prices escalated exponentially. A single bulb that sold one day for 46 guilders changed hands a month later for 515, while another rose from 95 to 900 guilders in a similar period of time.
Tulipmania peaked in the early winter of 1637, with an auction at Alkmaar to benefit the orphans of the former local innkeeper and tulip speculator, Wouter Bartelmiesz. The previous year a single bulb of Semper Augustus, the most precious tulip of all time, cost more than a sumptuous house on Amsterdam’s grandest Canal. The average price per bulb paid at Alkmaar (which did NOT include the most valuable tulips of the age) would have employed a master carpenter for two years, with the rarest commanding prices far higher.
Before the Alkmaar auction, the tulip market was already showing signs of strain. Then one day, at a tavern in Haarlem, a florist offered some bulbs at a reasonable price. There were no takers. He dropped the price a little, still no bidders. He cut his price again, still to no avail. The crash had begun. Suddenly, across the republic, sellers far outnumbered buyers and the market began to collapse. In mid-February, the tulip trade was suspended and by June courts were refusing even to hear cases concerned with the fabulous flowers. The tulip fell into such disfavor that a prominent botanist was seen beating at the blossoms when he came upon them in Leiden, site of Clusius’ famous garden.
The botany of tulips supported the arc of boom and bust. The broken tulips that Dutch collectors and speculators so valued can’t be raised in large quantities from seed. Instead, they must be propagated by bulb division. This process builds healthy bulb stock exponentially, but yields only small increases for the diseased bulbs that produced Dutch treasures like Semper Augustus or Viceroy. Nonetheless, with time, even the rarest bulbs had become more common, a factor that also supported the crash in prices.
I found an article from Belgium made in 2017 (click here for the link) which shows 5 historic bubbles (tulips, southsea, mississippi, dotcom and bitcoin). Compared to the tulip rally the bitcoin was almost at the peak of 50 times the value it was 3 years earlier. But that was in 2017, 3 years ago and we all know what happened. The price rose to $20,000 and than fell back to €4,000. The bottom of $4,000 was almost exactly 1 year ago and now we have just hit the $40,000 mark. I think that is one year salary for a master carpenter. So we have about one more year salary to go 🙂