It was the early 1600s and the Dutch Republic was in its economic and political Golden Age. They had the most sophisticated and advanced financial and economic systems ever seen in history. Stock and commodity exchanges, Investment banks, Mutual Funds, deposit banking, securitisation, and other markets have their roots in the Dutch innovations of the seventeenth century. Prosperity was relatively widespread and the Dutch Republic was a beacon of modernity. But with this great advance came some externalities. Probably to be expected, the Dutch Republic was home to the first properly recorded asset price bubble in history — paving the way for many similar events down the line. The most interesting of such cases was the ‘Tulip Mania’ that gripped them in the 1630s. The introduction of the tulip to Europe is often attributed to Ogier de Busbecq, the ambassador of Ferdinand I, Holy Roman Emperor, to the Sultan of Turkey, who sent the first tulip bulbs and seeds to Vienna in 1554 from the Ottoman Empire. Cultivation of the wondrous tulips is thought to have began around 1593 when Dutch Botanist Carolus Clusius established the Hortus Botanicus — botanical gardens — there. Shortly thereafter, Tulips grew massively in popularity due to their beauty, initial exclusivity and exoticism, turning them into a status symbol. Consequently, tulips quickly became a coveted luxury item, and a host of varieties followed. Variegated Tulips — actually now known to be caused by a virus called TBV — were the most sought after. As the flowers grew in popularity, professional growers paid higher and higher prices for bulbs with the virus, and prices rose steadily.
During the plant's dormant phase from June to September, bulbs could be uprooted and transported around, so actual purchases occurred during these months. Throughout the rest of the year, tulip traders signed contracts before a notary to buy tulips at the end of the season — effectively forming futures contracts. Thus the Dutch, who developed many of the techniques of modern finance, created a market for tulip bulbs. Short selling was banned in the Netherlands by an edict in 1610 but speculation wasn’t dampened. By 1634, in part as a result of demand from the French, speculators began to enter the market in ever increasing hoards. Somewhere around this point, the popularity and price increases reached a ‘Tipping Point’ where the frenzy began to spread like a social epidemic throughout Dutch society. The contract price of rare bulbs continued to rise throughout 1636 and by November, the price of common, "unbroken" bulbs also began to increase, so that soon any tulip bulb could fetch hundreds of guilders. The price of tulips skyrocketed because of speculation in tulip futures among people who never saw the bulbs. Tulip mania reached its peak during the winter of 1636–37, when some bulb contracts were reportedly changing hands ten times a day. And then it all collapsed. People made and lost fortunes overnight.
Cryptocurrencies and NFTs (Non-Fungible Tokens) have been recently growing exponentially in value, faster than any speculative stock in recent history. Bitcoin is up over 300% over just the last year and nearly 8000% over the last five. Similar to Tulip Mania, this has been fuelled by unprecedented speculative attraction. Many have early a clue what it is, but are still willing to buy into it. Ultimately, the populous has largely been piling money into these digital assets with no intrinsic value, purely due to the fact that that they believe the price will continue to rise and they will consequently make a profit. Random cartoon computer images have been selling for millions of USD and only recently, an NFT of pixelated flowers inspired by the Dutch tulip bubble has sold for more than $55,000.
But many have showed skepticism. In 2013, Nout Wellink, former president of the Dutch Central Bank, described Bitcoin as "worse than the tulip mania", adding, ‘At least then you got a tulip, now you get nothing’. Charlie Munger, Warren Buffett’s wise right hand man was quoted saying ‘It (Bitcoin) is disgusting and contrary to the interests of civilisation’. They’re not the only ones either.
But, who knows? Certainly many supporters of cryptocurrency and NFTs argue that its rapid growth in prices is justified as more firms and people accept their value as genuine currency. Others tout the fact that Bitcoin has crashed before, only to return to heights well above pre-crash levels. This didn’t happen with Tulips. Of course it is possible that the Crypto and NFT prices will continue to grow, and I may gladly look back at this article in a few years kicking myself for not being a ‘believer’. But if history is anything to go by, it might just not end so well.
Please send it on to someone who you think might find this interesting! That’s the only way this page can grow :)