In the golden age of exploration, when Dutch ships came home to Europe laden with spices from the Far East, the Netherlands became a place of great and somewhat unexpected wealth. A large middle class, keen to enjoy its newfound riches, emerged.
The recently introduced tulip, a beautiful and fascinating flower (I personally am more fascinated by begonias) became a status symbol, and quickly became a luxury item amongst the nouveau rich.
This led to a futures market where prices for tulip bulbs grew at exponential speed. I say futures because a lot of the tulip bulbs had not been grown yet, and that, as I learned in childhood, it can take between 7 and 12 years for a tulip bulb to grow from seed.
Of course, along the way, speculators got into the action. If the price is constantly rising for something, then Fear Of Missing Out kicks in and people start pushing the price upward in the hope of making a packet before the price collapses.
As happened in 1637.
And now we have Bitcoin.
I have always been skeptical about cryptocurrency. It is backed by nothing, except a community of computer nerds. Bitcoin started out as next to worthless, and rose to about $2000 a year or two ago at what seemed like an all time high.
And now, recently, it has gotten to about $50,000, as various more respectable investors and financial institutions have gotten onboard.
I do not think this is going to end well, particularly for those who are now piling their cash into Bitcoin or other cryptocurrencies at these prices. Bitcoin will crash eventually, just like tulip futures in 1637, or junk bonds in 1987, or Dotcom stocks in 2000, or all those supposedly premium bonds in the GFC. The thing with this is that unlike junk bonds or the GFC bundles, there is no sleight of hand or duplicity by bond traders or other financial brainiacs – Bitcoin is obviously as worthless as magic beans.