In the first part of a three-part series, the team at Moneybrain looks at The Tulip Bubble, the first financial bubble
IN the first in a series about understanding economic forces, we look at why economic principles don’t vanish with innovation; they evolve.
Human behaviour – specifically the psychology of need, want and demand – drives value, whether it’s gold, property or crypto. Let’s start with history’s most famous example of hype gone wild: the Dutch tulip mania.
In the 1630s, during the Dutch Golden Age, tulips became the ultimate status symbol. Imported from the Ottoman Empire in the 1500s, these flowers were rare, vibrant and a must-have for the wealthy. By 1636, tulip bulbs were trading at insane prices. Some cost as much as a house in Amsterdam.
Speculators jumped in, creating futures contracts to bet on future bulb prices. This was no “need”, it was pure “want”; a societal craze for status that inflated values beyond reason. By 1637, the bubble had burst. Tulip mania is often called the world’s first widely recorded financial bubble, showing how hype can outpace reality.
Why is this important and relevant?
The reason it is important and relevant is because certain crypto currencies, for example memecoins, are all “want” and speculation much like that associated with the tulips.
It’s important to understand this before investing in hype and to sit back and consider the alternatives.
Memecoins, like Dogecoin, thrive on “want” and hype, soaring on social-media buzz but often crashing when the frenzy fades.
Bitcoin, by contrast, is like gold, and draws value from scarcity. Its supply is capped at 21 million coins, making it a less speculative bet.
Ethereum blends both: its value comes partly from hype around tokens built on its platform and partly from its limited supply and utility in powering smart contracts. The lesson? Before chasing the next crypto craze, pause and weigh the risks. Hype burns out, scarcity and utility endure.
Remember when you invest to invest smart and understand the risks. We’ll dive deeper into the other forces in parts two and three.
For now, if you’re curious about crypto and digital asset, check out the Moneybrain Digital Asset Summit. Tickets are half-price if you sign up through our app and pay with our GBPB stablecoin.
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