A Satire of Tulip Mania by Jan Brueghel the Younger (ca. 1640)
I am not a financial advisor. This post is to provide information and not provide financial product advice. I discuss why I personally chose to invest in the financial product/cryptocurrency and also share information that is public about the following financial product/cryptocurrency.
It is recommended that you should always consider visiting a financial advisor for independent financial advice before making important financial decisions.
Often you hear about a speculative or asset bubbles in the news.
But when it comes to these bubbles, the first recorded is the Dutch Tulip Bubble of May 1637, the South Sea Bubble of the 1720, Japan’s Real Estate and Stock Market Bubble of 1991, the Dotcom Bubble of 2002 and the U.S. Housing Bubble of 2009.
But I want to blog about the first speculative/asset bubble and that was Tulip Mania (Tulpenmanie). There are some economists who tend to compare Tulip Mania with today’s Cryptocurrency. But are they the same or are they different? Are their similarities?
The Dutch Republic was one of the world’s leading economic and financial powers in the 17th century, having the highest per capita income in the world from 1600 to 1720.
During a time when tulips were seen as valuable, with tulips reaching high levels, it would collapse in February 1637.
Prior to that collapse, a single tulip bulb sold for more than 10 times the annual income of a skilled artisan.
Tulips were popular for their ability to tolerate harsher conditions and there was demand for these tulips which were seen as a luxurious item. Especially specialized tulips that had a virus which made it look like it had flame streaks.
And the way they were traded, they were like today’s stocks, tulip traders signed contracts before a notary to buy tulips at the end of a season (ala futures contracts).
With the popularity of tulips, professional growers paid higher prices for the bulbs with the virus and with demand in France, speculators entered the market pushing the contract price of rare tulip bulbs, but common bulbs also started to increase and many people began to make money.
Tulips became the fourth leading export of the Dutch after gin, herrings and cheese and because of speculation, people who never saw tulip bulbs invested and because so many bulb contracts changed hands and no deliveries were ever made to fulfill any of these contracts, in February 1637, tulip bulb contracts collapsed and many people who invested on speculation, lost their money.
People who bought in to the belief that they could get rich from tulips and that they would last forever, because of the demand from other countries.
Imagine getting your hands on tulips and because of demand, being able to sell it for a profit. But the problem was that the price of tulips got so high that there were hardly any buyers, the demand collapsed and prices plummeted.
But considering that prior to the bubble, people found it unimaginable that a common flower could be worth so much money than people earned in a year.
Flashforward to 2021:
Imagine saving all your life and investing regularly so you can stop working at 65 only to be beaten to retirement by some teenager who YOLOd his savings on Dogecoin
— Dr. Parik Patel, BA, CFA, ACCA Esq. 💸 (@ParikPatelCFA) April 16, 2021
A lot of people are going crazy over cryptocurrency. Now, I’m not talking about the type that people hold on to for years, people are jumping on cheap cryptocurrency in the hopes that it goes up and make them a few thousands of dollars or better yet, make them a millionaire.
There is a lot of debating over Dogecoin. Why? Because it was created as a joke with no true purpose. It can be mined and there is no cap, so there is no scarcity. But while called a jokecoin by some, the Dallas Mavericks and Houston Rockets are now taking Dogecoin as payments and expect businesses to follow.
But let’s go back to Dogecoin. I bought it in 2017:
So, $20 would earn you around 10,000 coins, $200 would have earned you 100,000 coins, $2,000 would earn you 1 million Doge Coins.
If you held and Dogecoin reaches $1.00…that’s $10,000 from your $20 investment, $100,000 from a $200 investment and $1 million from a $2,000 investment.
There are those who are already Dogecoin dillionaires (that haven’t cashed in to become a millionaire but their holdings show that their coins are worth over a million on their exchange app).
Naturally, people saw how people made money through this investment and in March 2021, bought in at .05 cents, in April bought in at .13 cents and right now it’s around 36 cents, people are investing hundreds, thousands on Dogecoin in hopes they can get a payoff if it reaches $1 or $10.
But Dogecoin, while a speculative coin with high volatility, with the many companies, celebrities and companies promoting this mass hysteria over Dogecoin (especially through social media, with other cheaper coins, may it be ankr, safemoon and other cheaper cryptocurrency), many hope their investment will pay off.
Go back to 1637, it wasn’t cryptocurrency but people wanted Tulips and bought Tulip bulbs or contracts in the hopes they can earn quick money and become rich.
But the concern is that while there are those willing to invest wisely on speculative coins, there are those who are willing to bet rent, sell their car for doge coin and make high risks that may impact them financially, may it be positively or negatively.
As mentioned, I purchased Dogecoin, but at .0002 per coin, what I spent was not a risk. At the time, I spent less than $20, because if it was a joke or not, I was not taking a huge risk, if anything, if it makes money, then great.
That’s my approach to a lot of speculative coins, because there are so many coins and tokens, not all of them are going to reach the success of Bitcoin, Ethereum or even Dogecoin but I get them when their cheap and I #hodl.
I add these to my portfolio as a percentage of what I invest, but I still invest primarily in stocks, ETF’s, REITs and other forms of investments for passive income.
I personally wouldn’t take on high risks, based on speculation. But in today’s YOLO and FOMO society, unfortunately there are people who will buy into speculation and risk way too much in hopes of becoming rich.
Do your research, don’t take unnecessary risks if you can’t afford to do so. But if you are among the lucky investors who were able to successfully earn money, then all power to you!
