Bitcoin Bubble and The Tulip Mania

Bitcoin Bubble and The Tulip Mania

bitcoin
December 10, 2018 by Hitesh Malviya
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The word and phenomenon ‘bubble’ has been associated with the cryptocurrency market in more than one way. In fact, the king of the cryptocurrency market; Bitcoin too has been called a bubble that is well on its way to bursting in anytime. In the past many other markets and commodities that rose to high values
Bitcoin Bubble & Tulip Mania

The word and phenomenon ‘bubble’ has been associated with the cryptocurrency market in more than one way. In fact, the king of the cryptocurrency market; Bitcoin too has been called a bubble that is well on its way to bursting in anytime. In the past many other markets and commodities that rose to high values have been called the same and probably one of the most famous of those is the tulip bubble.

 

The Tulip Market

 

The Tulip market or as it is known more popularly, the Tulip Mania, was a time in which tulip bulbs were traded and exchanged for exorbhitant amounts of money in the Dutch Golden Age. The tulip market flourished for quite a while, but following that in February 1637, the entire market collapsed and tulip bulbs returned to being financially worthless.

 

The Tulip Mania, as it is called, is one of the first ever recorded speculative bubbles in a traders market. It proved that irrespective of the asset, if there are people willing to pay for it, the price will continue to rise. In other words, the price of a commodity is solely dependant on how much money people are willing to pay for it.

 

But the fact of the matter is that the burst of the Tulip Mania’s bubble could’ve been and was predicted well before it happened. The assumptions and predictions of the bubble bursting were dependant on three reasons; it has nor does it fetch any income, scarcity and how much someone will pay for it. Using these three factors, the intrinsic value of the commodity being traded can be estimated and the price rising upwards, justified.

 

The commodity being traded in the Tulip Mania were tulip bulbs. They had no income, were scarce and hence in demand and people were willing to pay quite a bit but cannot use it to buy or sell anything. With all three factors being negative for the Tulip buds, it becomes clear that the actual intrinsic value of the Tulip bud is zero. And the reason it rose in price and value was that people were willing to pay exorbitant amounts of money for the same.  

 

Tulip Mania and Bitcoin

 

One of the most similar markets in today’s world is the Bitcoin and cryptocurrency market. Because the value of the Bitcoin has gone up by more than anybody in the market could’ve expected it to. And for people who bought Bitcoin before 2017, the return on investments are incredibly high.

 

In 2017, the cryptocurrency market set new all-time highs for itself, with Bitcoin going right up to $19,000 USD. The bull of 2017 set the tone for the market because following that the cryptocurrency market started getting global attention in terms of governments and regulatory bodies discussing possible futures for the cryptocurrency market.

 

The Bitcoin and cryptocurrency market is often referred to as the 21st Century’s Tulip Mania because with a mix of scarcity and public interest the cryptocurrency has soared in the past. Currently, Bitcoin is valued at $3,547 USD and the entire cryptocurrency market’s capitalisation is $112,290,127,977 USD.

 

Bitcoin Bubble

 

Right now, the cryptocurrency market is on one of its worst declines in history. The Bitcoin price has fallen below previously predicted support lines and has all the signs of it expecting to go further down. The cryptocurrency market in the last year has been on a gradual slope down since the bull last year, but in the last couple of weeks, it has been especially rough for the cryptocurrency market.

 

There are many speculative reasons as to why it is so bad in the cryptocurrency market right now, but one of the major reasons is the fact that the end of the US tax year is nearing.

 

With that in mind, if we were to estimate the intrinsic value of the Bitcoin market as a whole, we would ask ourselves three questions; does it have an income? What is the availability? Are people willing to pay? While answering these questions, it is important to remember that the price of a commodity is solely dependent on the amount of money traders are willing to pay for it.

 

To answer the three questions above, Bitcoin provides no income (other than short-term gains due to market fluctuations, which in this case are inapplicable), there is a scarcity of supply because there is only a certain number of it available. The scarcity of the product itself increases the demand for it. The third question is that, yes people are willing to pay for it and own it. But there is a serious disparity in distribution because 4% of the market users control more than 95% of the Bitcoin in the market.

 

Since it is neither an income provider nor is it a currency, the intrinsic value of Bitcoin, like the Tulip bud back in the day, has zero intrinsic value.

 

Must Read Best Bitmex Trading Tips to Maximise Profits

 

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