The Largest Bubble of All Time? Bitcoin Overcomes Tulip Mania

The Largest Bubble of All Time? Bitcoin Overcomes Tulip Mania

Four months have passed since the historical drama “Tulip Fever” was opened in cinemas. For the past four months, bitcoin has grown in price by 4.2 times from $4,338 to $18,305, managing to hit a very new record of over $20,000 in December.

A price analysis from Convoy Investments shows that the fast-forwarding increase of bitcoin has overcome Tulip Mania 1600s, which was portrayed in the 2017 film by Justin Chadwick, as PitchBook reports. It has also overtaken the Mississippi Bubble of the 1700s to become the biggest asset bubble in the history of the whole world. All of this taking place while the exchanges launch the trade on bitcoin-based futures.

Disputes whether bitcoin hype is a bubble or not continue, however, there are some features of crypto frenzy that match characteristics of the antecedent manias. For example, “perceived scarcity wrapped in the veneer of "the new" and enabled by low-interest rates, animal spirits, and excess monetary liquidity.”

"In terms of how it ends, bubble history suggests it will be with a bang, rather than a whimper. I can't think of any reason why this time would be different," told CNN Sharon Zoller, an economist at ANZ.

Is the similarity genuinely striking?

Recently, before the Convoy Investments data has been released, CNN Money compared bitcoin boom to the world's most speculative bubbles.

Tulip mania

At the beginning of the 17th century, the Netherlands was obsessed with the mainstream flowers, which came from Turkey. The speculation indulged the rise of tulip’s price, but as in many bubble cases, the cause of it was people’s avarice or their fear of losing an opportunity. Finally, these led to the drop in tulip prices as the market charge was much higher than the real one. Some experts believe the same could happen to bitcoin.

"Prices will become so out of reach of the common man that ultimately demand fades," said Stephen Innes, who is a head of Asian trading at currency broker Oanda.

18th Century South Sea Bubble

Once a British trading firm – the South Sea Company – based its expectations on getting abundant benefits from trading with South America. But this never happened as Spain, who was at war with Britain, controlled Hispanic Lands. Though the conditions for investment were not perfect, lots British invested into the South Sea Company’s stock. Consequently, it shot around 900% in the frames of a year. But later the speculators started selling the shares, and it let to collapse.

The dotcom boom

At the end of 1990s web-focused companies dominated the attention of investors, who were glad to pile into them, raising Nasdaq index up for around 200% in the frames of a little bit more than a year.

Those were multi-billion stock floats which boosted such a success at that time, however, lots of them were just profitless software and internet firms.

Sure enough, the bubble burst at the beginning of 2000. One of the reasons for this was that borrowing was made more valuable by higher interest rates.

There are numbers of others bubbles that bitcoin craze can be compared to. Among them are Beanie Babies, McMansions in Phoenix and the Wall Street Crash of 1929.

Notwithstanding the above, Shane Oliver, an economist at Australia's AMP Capital, believes that bitcoin's disconcerting speed of increase is not pretty like any other bubbles he has ever seen before. "Bitcoin leaves them for dead," he said.

So is bitcoin a zilch?

"Bitcoin has all the attributes of a bubble in the making. First, it’s radically new. It’s a digital payment system that allows users anywhere in the world to transact directly without interference from intermediaries, governments, regulators or central banks – at least for now. Transactions are administered by a decentralized network of computers, much like the internet," wrote Nir Kaissar for Bloomberg. Does he have a point?

“Speed of light”

This year bitcoin has grown by more than 1,400%. The acting head of New Zealand's central bank, Grant Spencer, believes that bitcoin bears a resemblance to a traditional bubble given its extra significant price rise.

Is there any issue that bitcoin may solve?

Bitcoin appeared right after the 2008 financial crisis. There was a version that bitcoin was supposed to “substitute” the undesirable structure of banks. Currently, when it comes to primary qualities of this crypto coin, experts name bitcoin’s transaction system.

The direct digital peer-to-peer system was created to deprive a headache over transaction validation as well as the commission, demanded by banks. However, there are still concerns whether there are any benefits of using bitcoin, mainly, regarding safety, ease of use, cost and validation, which can be offered by PayPal or Visa PayWave.

Bitcoin mining consumes too much energy

There are calculations which prove that bitcoin mining hardware uses as much power as Denmark, whereas one bitcoin transaction, taking nearly a day to settle, consumes the same amount of electricity as eight US houses in a day. If the situation is not changed, by February 2020, the bitcoin system will use as much power as the whole world at the moment. So is bitcoin worth all this?