Tulip Bubble Incoming: it’s the early 1600s, and the Netherlands is booming thanks to the trade routes that are bringing in spices, silks, and other exotic goods. And of course, tulips.
It all started with the Dutch obsession with tulips, which were seen as a luxury item and a symbol of wealth and status (pride). Prices increased, and people began to invest in tulips as a form of speculation. This led to the creation of tulip futures contracts, which were essentially promissory notes that allowed investors to buy bulbs at a future date at a predetermined price.
So, speculators began to buy and sell tulip futures contracts as financial vehicles, driving up the prices to ridiculous levels. For example, at the peak of the bubble, a single bulb of the Semper Augustus variety sold for 6,000 guilders, the equivalent of over USD $35,000 in today’s currency. That’s expensive for a plant that you can’t even eat.
This speculative frenzy was fueled by a number of factors, including the fact that tulip bulbs were seen as a limited resource (even though they can be easily reproduced), and the belief that the market would continue to grow indefinitely. Sound familiar? That’s because it’s the same kind of irrational exuberance that led to the dot-com bubble and the housing market crash. And maybe Crypto.
As with all bubbles, the party had to come to an end. In February 1637, prices began to fall, causing panic among investors. They began to sell their tulip futures contracts en masse, which led to a chain reaction of falling prices and more panic selling. It was a classic case of a market correction.
Within weeks, the tulip bubble burst, and prices fell by as much as 99%. People who had invested heavily in tulip futures contracts were left with worthless pieces of paper, and many were forced into bankruptcy.
And to think that tulips are a reminder that speculation greed can lead to financial disaster. But, for a brief moment in history, the tulip was arguably most valuable thing in the world in dollar/ounce terms.
