Why the tulip mania analogy for Bitcoin doesn't hold up

Many people like to use the historical tulip mania to warn cryptocurrency investors. This argument sounds very convincing—a speculative frenzy from four hundred years ago that ultimately ended in failure. But in reality, this comparison overlooks the fundamental differences between the two.

Let's start with Bitcoin

Bitcoin, as a digital asset, has characteristics that tulip mania completely lacked. First, Bitcoin can be transferred globally instantaneously—without worrying about transportation costs or damage risks. Second, its supply is fixed, capped at 21 million coins, which means its scarcity can be verified and guaranteed. Furthermore, Bitcoin is protected by encryption technology, making it impossible to replicate or destroy, and it can also be easily divided into smaller units.

In contrast, tulips as biological assets face many problems: limited lifespan of flowers, inability to accurately predict varieties, transportation difficulties and susceptibility to theft, and inability to be used in a divisible manner.

What exactly is tulpanmanin in history?

In the 17th century Dutch Golden Age, the country accumulated a large amount of wealth due to prosperous trade. Against this backdrop of economic prosperity, rare tulips (especially mutated varieties with special stripes and colors) became symbols of status and luxury.

Common versions of the story say: after futures contracts were introduced, the price of tulips soared to incredible levels - the price of a single flower could exceed a craftsman's annual income and could even be as expensive as a property. People rushed to speculate, and ultimately, an oversupply led to the market crash in February 1637, triggering panic selling.

But is tulpanmanin really a financial bubble?

Economists and historians have different views on this. In 2006, economist Earl Thompson published a paper pointing out that the so-called tulip mania was actually related to the government's implicit conversion of futures contracts into options contracts, rather than pure market madness. He argued that this does not meet the definition of a “bubble”—a bubble requires a consensus price that exceeds the fundamental value.

Historian Anne Goldgar provided more archival evidence in her 2007 work, indicating that this legend has been greatly exaggerated. According to her research, both the scale of the tulip market's boom and bust were much smaller than the stories suggest, the economic impact was quite limited, and the number of participants was not as widespread as the legend claims.

The Essential Difference Between Tulpanmanin and Crypto Assets

Even if we acknowledge that tulpanmanin was once a speculative frenzy, this event from four hundred years ago occurred in a completely different historical context and market environment. At that time, there was no global real-time price information flow, no modern risk management tools, and no regulatory framework.

More importantly, tulips and Bitcoin represent two completely different asset classes. Tulips are perishable biological commodities, while Bitcoin is a digital store of value. The former relies on natural conditions and physical transportation, while the latter relies on encryption and computer networks.

Conclusion

While history can indeed provide references, directly comparing the modern Crypto Assets market to tulpanmanin ignores the fundamental differences between the two. The key is to understand the different characteristics of Bitcoin and traditional assets, rather than simply applying historical analogies. Investors should assess risks based on the modern financial environment and the actual characteristics of Crypto Assets, rather than being constrained by a story from four hundred years ago.