** 24-Jan-2021 World View: Tulipomania versus Bitcoinomaina
This argument over whether Bitcoin is a bubble is very familiar to me,
because it's very similar to what I saw with the housing bubble in the
I just don't understand why people couldn't see that there was a
housing bubble. It was obvious to Alan Greenspan, and I quoted
several speeches by Greenspan where he talked about it. It was
obvious to financial commentator Mish Shedlock, and I quoted some of
his sarcastic columns about people ignoring the housing bubbles. It
was obvious to me and I became so panicked about it that I sold my
condo -- at the height of the bubble, which was good for me.
But here's what the élite were saying at the time: "Housing prices
can't go down -- people have to live somewhere," and "Banks won't
foreclose -- it's not in their interest to do so" and "These housing
construction firms know what they're doing, and they wouldn't be
building houses if it were just a bubble."
These are the same kinds of reasons that are used today to justify the
In the 2007 time frame, I had a couple of friends who were buying
homes. I begged them not to do it. I told them they would lose a lot
of money. But they didn't believe me. One of them got very angry
with me, the same kind of anger that we're seeing in this forum over
bitcoin. Of course they both lost a great deal of money, which was
very sad for me because, as I said, they were my friends.
I was actually shocked in late 2008 or 2009, the FIRST TIME that I
heard an economist or "expert" on tv refer to the housing bubble. I
couldn't believe my ears that I was hearing about a housing bubble on
tv. Of course, that was in the PAST TENSE, as in "when the housing
bubble occurred, blah, blah." These so-called "experts" never said
anything like that during the ACTUAL housing bubble.
The comparison between Bitcoinomania and Tulipomania is very relevant,
though not for the obvious reason. It's not because of an equivalence
between bitcoins and tulips.
The tulip market began to take off in 1634 with rising prices for
tulips. It led to a tulip craze, as tulip prices began to soar.
However, the worst of the bubble did not occur because tulips
themselves were being traded at high prices. The worst occurred when
TULIP FUTURES were being traded.
Here's an excerpt that I've quoted in the past from the description
given in Edward Chancellor's 1999 book, Devil Take the Hindmost, a
history of financial speculation:
"No actual delivery of tulips took place during the
height of the boom in late 1636 and early 1637 as the bulbs
remained snug in the ground. A market in tulip futures appeared,
known as the windhandel (the wind trade): sellers promised
to deliver a bulb of a certain type and weight the following
spring, buyers took the right to delivery -- in the meantime, cash
settlement could be made for any difference in market price. Most
transactions were expedited with personal credit notes which also
fell due in the spring when the bulbs would be dug up and
delivered. Gaergoedt boasts of having made 60,000 guilders from
his tulip speculations but admits that he has only received "other
people's writing." By the later stages of the mania, the fusion
of the windhandel with paper credit created a perfect
symmetry of insubstantiality: most transactions were for tulip
bulbs that could never be delivered because they didn't exist and
were paid for with credit notes that could never be honoured
because the money wasn't there." (pp. 16-18)
So the explosive growth of the tulip market was not caused by trading
in tulips themselves, but in trading in the futures market for tulips
-- known as the Dutch word "windhandel," literally "trading in the
wind." Bitcoin trading today is exactly the same -- trading in the
At some point in the future, so-called "experts" will talk about the
"bitcoin bubble," but it will be in the past, after a lot of people
have lost a lot of money, and will be destitute because they went into
debt to invest in bitcoins, like the Dutch in 1636 went into debt to
invest in windhandel.
Plus ça change, plus c'est la même chose.
- Soooo pretty -- Tulips and Bitcoins