Firstly, it is very important to note that a bitcoin has value only to the extent that its users agree that it does. That obviously is the case with almost everything in our economy, but Bitcoin is, I believe, a special case. Is it hard to believe that its price is largely overstated? How many people really understand what a bitcoin is? How many people who invest in it, understand the mechanism behind Bitcoin? And how many invest, just because they heard you can become rich real quick with “this thing the Bitcoin”? I quite like the idea and it might well be the future, but:
Just after the introduction of the futures markets in Netherlands (Dutch Republic) and increased interest in investing in tulips “February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled crafts worker.” There is recorded sale of 40 Tulip bulbs for 100,000 florins and to help this sink in, according to International Institute of Social History 1 TON of butter costed at the time less than 100 florins and 8 fat pigs would be around 200 florins – so a heard of roughly 3,000 pigs vs 40 tulip bulbs (they calculate that the purchasing power of 1 florin today is roughly equal to £10). So a million pounds for a 40 tulips on the 3rd of February and this was worth nothing by the end of April same year. For 2 months your investment can be worth nothing. Think about how futures contract work and think about what will happen if Bitcoin crashes. Now it trades at almost $14K and if you enter a futures contract imagine what will happen when the price goes down to $1K.
This was in the 17th century, concerning a small group of people, but I think it should not be disregarded. It is widely believed that the tulip mania was caused to a large extent by propaganda and inflating prices- something we should all agree happens to Bitcoin at the moment. Now we have technology and integrated international markets and the impact of a similar crisis will concern much more people. Now we are global…
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