Amsterdam’s Tulip Mania and Bitcoin’s Bubble

by Jack R. Johnson 01.2022

Bitcoin purports to be “digital money” that allows for secure peer-to-peer transactions on the internet without government interference, a kind of libertarian wet dream, but in reality, it’s probably closer to AmWay or your typical pyramid sales scheme. Not so much a currency as an easy, get-rich-quick-investment.  Wall Street’s Motley Fool is probably the most upfront about this, “The only way most crypto tokens can hit new heights is by attracting more and more attention, bringing in more and more buyers.” But recently, even Black Swan author, Nassim Nicholas Taleb, said Bitcoin was like a Ponzi scheme that is “right out in the open.”

“I realized it was not a currency without a government. It was just pure speculation. It’s just a game ...” said Taleb, whose book, Black Swan has been credited with predicting the housing crash of 2008. As such, the Bitcoin frenzy is now being compared to other speculative excesses like the housing bubble of 2008, or the stock market frenzy that drove Black Tuesday in 1929, or even one of the earliest speculative bubbles in modern history, the so called Tulip Mania of the early 1600s in the Netherlands.

Back in the early 1600s, the Dutch mercantile class was coming into its own. Having disposable incomes, they were interested in symbols of wealth from the exotic Ottoman Empire and other outlying regions. There was only one problem. Tulips grown from seeds took between seven to twelve years before flowering. Dutch horticulturalists, however, learned that tulips could be grown from buds that grew on the mother bulb; a bulb itself could flower the very next year. By 1634, there was a flourishing Dutch market in bulbs, and in particular so called ‘broken bulbs’ caused by  a mosaic virus that produced astonishing color combinations with wonderful streaked variations, almost like flames. A market took hold, and soon everyone wanted a bulb, not so much for its bloom but for its potential as an investment. The Library of Economics and Liberty writes, "The rage among the Dutch to possess [tulip bulbs] was so great that the ordinary industry of the country was neglected, and the population, even to its lowest dregs, embarked in the tulip trade."

Charles Mackay, author of "Memoirs of extraordinary popular delusions and the madness of crowds” reports that a single bulb could be worth as much as 4,000 florins. The most expensive tulip was the so called ‘Semper Augustus’, an incredible flower with dark blood-red streaks and flashes on white petals. From a value of 1,000 florins in 1623, a single Semper Augustus bulb was reportedly sold for 5,500 florins in 1633 and saw a 10,000 florin asking price in February, 1637. 

One florin is about $150. So 5,500 florins is approximately $825,000 USD; 10,000 florins would be worth the equivalent of one and a half million dollars today. 

Not all bulbs were so pricey, of course. Many traded in the lower altitudes, in the $50,000 to $150,000 range. Somewhere in the ballpark of an average Dutch merchant’s yearly salary.

By 1636, the demand for the tulip trade was so large that regular markets for their sale were established on the Stock Exchange of Amsterdam, in Rotterdam, Haarlem, and other towns. It seemed that "the passion for tulips would last forever." Then, convinced of its eternal ascendance, people began buying tulips on credit, using margined derivatives contracts to buy more than they could afford. By the end of 1637, the bubble had burst. Buyers announced they could not pay the high price previously agreed upon for bulbs and the market fell apart. While it was not a devastating occurrence for the nation's overall economy, (as Mackay had originally reported), it certainly undermined relationships built on trust and people's willingness and ability to pay. It also served as a handy moral apologue for Dutch Calvinists appalled by the frenzy of buying and selling that the bulb mania had produced.

Some of the same ideas that propelled the Tulip Mania are also present in the current Bitcoin fever, of course. A sense that something utterly new has emerged that can somehow outwit the gravity of the market; or that the passion for Bitcoin “will last forever.”  Alas, that incantatory whisper of the most beautiful tulip, ‘Semper Augustus’ lingers still, balanced only by that singular Latin phrase, ‘Caveat Emptor’. Buyer beware!