Chart of the week: Bitcoin's crash is a mere tiptoe through the tulips

21 November 2018

Bob Cunneen, Senior Economist and Portfolio Specialist


Bitcoin vs Tulip prices

Sources:  Reuters, Datastream. McClure.J.E and Thomas D.E (2017), Financial History Review


Chart update: In January 2018 we plotted Bitcoin’s price rise (black line) and posed the question “Is Bitcoin the new tulip mania?” Over the past year, Bitcoin has suffered large price falls. From a peak of US$19,700 in December 2017, Bitcoin is now below US$5,000 (blue line).

Bitcoin was essentially the new ‘mania’ for this millennium. Bitcoin’s appeal reflected the perception of ‘novelty’, ‘notoriety’ and ‘scarcity’. Novelty came from Bitcoin being a digital currency stored on a single computerised global ledger known as a block chain. The notoriety comes from the ability to hide transactions and the chequered history of stolen Bitcoins. The scarcity element for Bitcoin comes from the absolute limit of only 21 million registered units.

History provides an ominous precedent that novelty can become tired and notoriety can be dangerous to your wealth. The Tulip Mania in Holland (1636 -1637) saw tulip prices rise by similar twenty times in a very short time period (red line) only to subsequently collapse. The Dutch speculators back then, like the modern Bitcoin investor, mistakenly perceived their asset as being rare and valuable.

So Bitcoin has been a ‘tiptoe through the tulips’ where the bloom of potential gain has wilted with financial pain.

 Source : Nab assetmanagement November 2018

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