Bitcoin is Dutch tulips! Or not?

Many cryptocurrency haters like to use the analogy of “Dutch tulips” as a typical argument against Bitcoin. But more often than not, they can rarely, on the one hand, explain why these events are similar, and on the other hand, tell what “Dutch tulips” are, getting confused in definitions and historical facts. Let's try to understand the issue in more detail and find out what these two phenomena have in common.

Initially, many opponents of bitcoin do not distinguish between the terms “bubble”, “pyramid”, and for good measure they simultaneously classify them as both worlds along with these same Dutch tulips. 

The term “Dutch tulips” itself describes the economic effect when a large number of non-professional participants enter a new, emerging market, often having no idea about the product itself. It is important that the main goal of such entrepreneurs is the desire to make a quick profit through speculative operations.

A little history

The term “Dutch tulips” appeared after the events in the Netherlands that took place in 1636-1637. Among bulb lovers, especially beautiful, variegated varieties of tulips were in great demand at that time. 

The reason was the fact that tulips with variegated petals are actually the result of infection of the bulbs with a certain viral infection, and it is almost impossible to obtain them as a result of selection. Such flowers were propagated exclusively by vegetative means and they could only be propagated by bulbs, because the seeds gave completely ordinary offspring.

Around 1620, prices for such bulbs reached a thousand guilders apiece, but until the mid-thirties of the Goths of the seventeenth century, trade was carried out exclusively in a narrow circle of wealthy connoisseurs of beauty. 

Now it is difficult to say what caused the rush, but in the summer of 1636, speculators actively became involved in futures trading and developed a rush demand for ordinary and affordable flowers. And already in February 1637, the market collapsed and long legal battles began.

What is the connection?

Haters of bitcoin and cryptocurrencies in general often draw parallels between those events and the cryptocurrency market today. It is difficult to deny that at a superficial glance some similarities are observed. For example, the entry of a large number of untrained traders into the market, as well as people who are far from the crypto industry in principle. At some point, rush demand could also be observed; we can recall at least two cases of spontaneous growth in the value of bitcoin. 

However, there are several radical differences.. And first, the most important thing: if you carefully consider the history of Dutch tulips, you will notice that the main reason for the market collapse was that the cost of ordinary, common varieties of tulips was equated to the price of rare varieties, a sharp increase in the number of which was simply impossible. Simply put - you cannot sell copper at the price of gold. The lack of understanding of the difference between rare flowers and ordinary widely available ones has played a cruel joke on hunters for quick profits.

And although both flowers and Bitcoin are not initially intended for investment, Bitcoin has a fundamental difference from bulbs (in addition to its virtual form, which is different from the physical form of a flower).

The most important property that distinguishes Bitcoin from Dutch tulips, and any other similar product is the impossibility of sudden, avalanche-like growth of supply.The mining process is mathematically predictable, and the total emission is precisely known and determined in advance. In this regard, bitcoin is still closer to precious metals. 

Of course, the situation with the cryptocurrency market is not so rosy, and a number of crises are potentially possible in the future. But still, equating bitcoin to “Dutch tulips” is completely incorrect.

But if we talk about an economic bubble... then options are possible. We'll talk about this in the next article.