Tulips… A follow up
At the end of last year, it seemed the world was captivated by cryptocurrencies, Bitcoin in particular: Do you recollect the hype?
Back then I commented: “And, now Bitcoin…. Let’s see, a year ago the price for one Bitcoin was $770.41. As of this writing (Friday, December 8th @ 11 AM), the price is $15,678.38 that’s after giving back nearly $1,500 early this morning.***
Is bitcoin worth today’s price? I’m not even sure how it should be valued. But like a tulip in the 17th century in Amsterdam, it’s worth what someone will pay for it.”
It’s 1637, February, you’re in Amsterdam. The Dutch Republic is at its peak of economic and financial power: Tulip prices reach an all-time high – the peak has been made, some tulip bulbs sold for more than ten times the annual income of a skilled craftsman.
Beginning in 1636 tulips were traded on the exchanges of numerous towns and cities: “Many individuals grew suddenly rich. A golden bait hung temptingly out before the people, and, one after the other, they rushed to the tulip marts, like flies around a honey-pot.
Every one imagined that the passion for tulips would last for ever, ….Nobles, citizens, farmers, mechanics, seamen, footmen, maidservants, even chimney sweeps and old clotheswomen, dabbled in tulips.”** Last December the Chicago Board Options Exchange starts allowing investors to trade Bitcoin futures, sound familiar?
Why would folks bid Bitcoin up and up? Human behavior; that’s why. Hoping the next person buys it from them at an even higher price – it’s not about value, it’s about greed. Remember house flipping circa 2004-07?
As I write this (8/15/18, around 11 AM) the price of Bitcoin as reported by coindesk** is $6,383.34 – down around 67% from it’s high of $19,343.04.
Tulips after all….
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Carlos Dominguez – Portfolio Manager, RJFS
*Chart courtesy of Thompson, Earl (2007), “The tulipmania: Fact or artifact?” (PDF),Public Choice, 130 (1–2): 99–114, doi:10.1007/s11127-006-9074-4, retrieved 2008-08-15 https://en.wikipedia.org/wiki/Tulip_mania#CITEREFThompson2007
** “The Tulipomania”, Chapter 3, in Mackay 1841
Chart courtesy of Earl Thompson, “The tulipmania: Fact or artifact”
The prominent underlying risk of using bitcoin as a medium of exchange is that it is not authorized or
regulated by any central bank. Bitcoin issuers are not registered with the SEC, and the bitcoin
marketplace is currently unregulated. Bitcoin and other cryptocurrencies are a very speculative
investment and involves a high degree of risk. Securities that have been classified as Bitcoin-related
cannot be purchased or deposited in Raymond James client accounts.
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The preceding information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Carlos Dominguez and not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice.