Hello everyone. Welcome to the Smart Market Insights here on Kalkine TV. I am Rose, and today
we will be shining some light on comparing tulips to cryptocurrency.
Tulips and cryptocurrencies have more in common than one may initially think.
According to some market experts, cryptocurrencies are sitting in the middle of a pricing bubble,
much like the one seen during the tulip-mania of the 1600s.
The commonality stems from the fact that there is a significantly overheated market
for a product that has limited usage and little inherent value in both instances.
More specifically, tulips have little usage as a commodity other than providing aesthetic
value. Similarly, cryptos have seen a growing use case, which remains limited and does not
entirely justify the sky-high prices of some cryptocurrencies. Thus, there is still large
ambiguity looming over the innate value of a product that investors so vehemently demand.
If you are having a hard time understanding how something as trivial as a tulip can be compared
to the booming market of cryptocurrencies, then picture this: In 1634, buyers purchased
tulip bulbs for amounts sufficient to buy an entire house! This highlights the significant
challenges arising from faulty market perceptions on the valuation of a commodity. The tulip fever
was such pertinent that some individuals took out loans to resell the flower for a profit.
Let us now talk about what happened to the tulip market….
Tulips' massive hype took shape in the Netherlands as buyers perceived them to
be an exotic and rare class that could only be imported from abroad, more specifically,
Turkey. Any individual living in the present day will know that the same is
not true in the current context, and this was a major oversight back in those days.
The tulip markets eventually saw their glory days ending abruptly after a tulip auction in 1637
failed to attract any bids. As a result, the market experienced an imminent crash,
causing serious financial trouble to those who bought tulip bulbs on credit. The collision
also managed to shake the Dutch economy, making a case for one of the earliest known market bubbles.
It is only human to predict the future based on one's previous experiences.
Many experts have pointed out similarities between the current crypto markets and the
markets for tulips in the 1600s. While the view is subject to many disagreements, it paints a rather
unruly cautionary tale for crypto investors, who have grown immensely over recent years.
Is the comparison justified?
The ongoing prices of cryptocurrencies are barely reflective of their intrinsic
value. Many nations have banned digital assets altogether, complicating their overall position.
Pricewise, cryptocurrencies have seen phenomenal success in the last year. However,
this triumph has also paved the way for oodles of speculation on how valuable the asset truly is.
To say that cryptocurrencies are a fad would underestimate their strength as
an asset class in the markets. Out of all cryptocurrencies,
Bitcoin's successful standing of over ten years has outrun the entire tulip-mania saga,
which lasted roughly for four years. While the coin has seen a recent drop in prices,
investors are still hopeful that it is far away from the possibility of a crash.
Alternatively, pessimism is riding high among policymakers, who have been striving for
regulatory control in the crypto space. Some experts even suggest that the crypto rush is
worse than tulip-mania as the latter at least left investors with a tulip in their hands.
However, a key aspect to remember here is that these cryptocurrencies represent the
innate strength of blockchain technology that can revolutionise existing financial systems.
The highly speculative nature of cryptocurrencies has largely overshadowed its potential use cases
in the financial playfield, leading to widespread speculation over the asset's real worth.
Bottom Line
A critical takeaway from the polarising views on crypto markets being the next tulip-mania is that
both have stemmed from highly speculative markets. The modern-day global economy has survived many
bubbles, leaving enough trails for policymakers to take cues from. Some governments have recognised
the need for regulation in the crypto space and are coming up with a set of new reforms.
Overall, drawing parallels between current crypto markets and
tulip-mania may not be factually accurate due to the varied circumstances in both cases.
However, the bizarre tulip-mania saga is often heralded as a cautionary tale in
the speculation-fuelled markets of the modern-day and is often looked back on.
Well, that’s all for now. We will be back again with the exclusive
Smart Market Insights Show. Till then, keep watching Kalkine TV for
the latest market updates and related insights. I am Rose, signing off.