- Tulipmania gripped the Netherlands in the 1600s as the price of tulip bulbs skyrocketed.
- Bitcoin has been compared to tulipmania.
- When the tulip bubble collapsed, much of the Dutch economy was unaffected, which is likely the case if bitcoin ever collapses, according to Capital Economics.
- Watch the price of bitcoin move in real time on Markets Insider.
Tulipmania is a famous period in the 1600s when the Netherlands was enraptured by tulip bulbs, sending their prices sky high before collapsing in a spectacular fashion. Recently, people have been comparing bitcoin to that period in history because of the cryptocurrency’s meteoric rise, and the two have a lot more in common than you might think.
JPMorgan CEO Jamie Dimon said that bitcoin’s is “worse than tulip bulbs,” and added it’s a fraud that would eventually blow up. Since those comments in mid-September, the price of bitcoin has spiked 268%. While Tulip bulbs rose as much as 1,100% in one month at the peak of their mania, its easy to see the similarities between the two.
But the comparisons don’t stop there.
“Like bitcoin, tulips became popular “because of their strangeness and rarity” and because they were new, having arrived from the Ottoman Empire in the late 16th century,” Andrew Kenningham, chief global economist at Capital Economics, wrote in a note to clients.
In addition to the novelty of the two, tulipmania and bitcoin were only enjoyed by a select portion of the population. Tulips, while talked about by much of the nation’s population, were primarily traded among the elites and aristocrats who could afford the flower’s high prices. Bitcoin gained notoriety on the backs of early adopters and enthusiasts, and its high volatility and climbing price have kept many people at bay.
With the recent media hype, more people are trading bitcoin than ever before, evidenced by the record-high traffic at a number of the exchanges. Still a relatively small amount of the population is involved, making bitcoin more like the tulip bubble than the housing crisis of 2007 or tech bubble of 2000.
If the bitcoin “bubble” ever bursts, it would likely be equivalent to the stock market falling just 0.6%, according to Kenningham. Bitcoin is still a relatively small asset, with a market cap of about $US240 billion, according to CoinMarketCap.com. Meanwhile, the companies in the S&P 500 represent more than $US24.8 trillion combined, according to data from Bloomberg.
While a stock market plunge would be devastating, the fallout from a bitcoin crash would likely be limited. Those who are personally invested in the cryptocurrency would feel the pain, but financial institutions and 401(k) plans would likely shrug off any decline in bitcoin’s value, Kenningham says.
After the price of Tulip bulbs collapsed, specialty commissions were formed to help sort out the financial mess, but the Netherlands, where a majority of the trading was happening, continued to prosper. The system built up around tulips was shuttered, but the majority of the country’s financial system continued humming along.
“There is no correlation between the prices of bitcoin and other risky assets, so a fall in its price should not affect wider financial conditions,” Kenningham said.