Bitcoin, Tulips, And Power Consumption

The following is a summary of our recent podcast, “Is Bitcoin a Modern-Day Tulip Mania?“, with cryptocurrency researcher Demelza Hays, which can be accessed on our site Is Bitcoin a Modern-Day Tulip Mania? or on iTunes here.

On the day we are writing this, bitcoin traded as high as $19,227.08. The price increase for 2017 has been so explosive that major media outlets are now providing regular price updates around the clock while profiling a new crop of bitcoin millionaries—some just teenagers—as families sell all their belongings to invest in the new currency that will change the world.

For all these reasons and more, the naysayers love to compare what we see today to the Tulip mania of the 1600s, one of first and most widely-cited bubbles in history.

This time on FS Insider, we spoke with Demelza Hays on the bitcoin-tulip mania comparison and her newly published Crypto Research Report.

Source: Bitcoin.com

A Number of Similarities

During the Tulip mania, new sources of gold and silver from the New World came to Amsterdam, driving up the prices of goods and services.

“When you have currency inflation … those units need to be spent somewhere on goods and services, or they need to be hoarded,” she said. “That’s very similar to Bitcoin. We have basically seen fiat currencies being heavily inflated with quantitative easing and other monetary policies, such as negative interest rates.”

In addition to the increase in money, tulips, like bitcoin, were novel, exotic, and relatively limited in supply, eventually becoming so popular that a tulip futures market was even created, as we now see with bitcoin only days ago.

One Major Difference

While this comparison has some merit, especially when we look at the exponential price increase, tulips were not a technological breakthrough.

Though a horticulturist may disagree, Demelza said, “tulips are just another flower—they don’t really represent a shift in the way we do business or make payments.”