Tulips were first introduced to the Dutch, when they were brought from Turkey in 1593. The varied colors and heartiness truly appealed to the people as they became somewhat ubiquitous throughout the land.
During the 1630s, Dutch citizens, even those who did not normally invest, began trading Tulip Bulbs. It was difficult to price the bulbs, however, as there was no exchange from which to price them. Accordingly, the price was set at whatever the buyer was willing to pay. That meant, however, that the market “value” moved in one direction only…UP, and the value only changed when the next bulbs were sold.
What is Money anyway? According to the traditional definitions of money, there are three: 1. A store of value; 2. A means of exchange; or 3. A standard of value.
Tulip bulbs fail on all three definitions:
1. Although tulips are supposedly perennials, most of the flower
lovers just assumed them to be annuals, and planted new ones each year.
2. I doubt that tulip bulbs were used for anything other than trading. It would be difficult to expect a general store or local hunter to accept tulip bulbs in exchange for supplies or game for the dinner table.
3. How can anything become a standard of value if it is unvalued until it is traded, and then, only to the people involved in that particular trade.
So, how does the Dutch Tulip Bulb Bubble of the 1630s—call it what it was—differ from the Bitcoin Craze of today? Not a bit, at all! Now, let’s consider, once again, the three traditional definitions of money:
1. At what value do you regard an “asset” that hit a new all-time value of $14,000 one day last week, $16,000 the next, and $18,000 the following? But, what if some sellers decided to withdraw their money a few days later, and the price dropped to $11,000? Then, what’s the market value?
2. There have been a few Bitcoin traders who have accepted them as a means of paying rent; however, that has been very, very limited. Mall retail stores, restaurants, your CPA, hair dresser, etc. an airplane vacation trip to London? Better bring cash!
3. Lastly, if the market value is ambiguous, there is no possible way to considering it as a lasting standard value. Also, bubbles can be quite volatile; but, especially on the downside if many traders all wish to sell at the same time, and that can attract even more investors not to be left behind–as the market value plummets.
Bitcoins, like the Dutch Tulip Bulbs of four hundred years ago, are a Market Bubble, plain and simple! Only other traders of the Bitcoins or Tulip Bubbles might wish to argue the point, and only those other participants in the bubble might even wish to join-in the discussion.
As the old saying goes: Caveat emptor!