Tulips vs Crypto: Why The German Minister of Finances Doesn't See The Difference

The Finance Minister of Germany Olaf SCHOLZ compared digital coins with flowers. But not with their beauty and harmony. And not even with those floral tributes that are laid on the rivals’ graves. Everything is ruder and more commonplace. Performing before the soldiers of the German-Danish corps in Münster, the official reminded every one of the Dutch "Tulip bubble" of the 17th century, comparing it with the current situation on the digital market. But is such a comparison permissible? And in general, are the historical analogies in the economy appropriate?

"Today, I doubt whether the digital coins have a future as a currency," the Minister shared the anxiety with his listeners. "We (the Government - ed. note) do not believe that today they have any significant economic meaning."

Olaf SCHOLZ also noted that the technical processes associated with the turnover of virtual assets were too complex and energy-intensive. In the next 20-30 years, the future of this market seems to him vague: "The danger is great that the same inflation is waiting for digital coins as the tulips had," he stressed.

Let us give you some background. What do scientists call the "Tulip bubble"? For the first time, they began to grow these flowers in Persia and the Ottoman Empire. In nature, there are many species of wild tulips, and mankind has known them for thousands of years. But for some reason, it was in the East where they became a symbol of beauty and tenderness. Flowers came to Europe at the end of the 16th century. And originally, the center of the "tulip culture" was located in the north-east of France. They came to the Netherlands a little later, at the beginning of the 17th century.

The country has just survived the war of independence from the Spanish crown and the revolution. People certainly needed beauty. Flowers came to Holland and gained incredible popularity. The price for them began to grow. Especially for the bulbs of varicoloured tulips. By 1620, more than 10kg of silver or almost a kilo of gold was offered for one bulb. After 10 years, trade went to futures schemes. The thing is that tulips blossom in Europe in April-May, and it was necessary to dig new bulbs out in the middle of summer to plant them in autumn. In order not to waste time and miss profit, the cheeky traders began to sell bulbs still in the soil. Tulip-ETFs appeared. Sales were conducted at special auctions similar to those on the Amsterdam Stock Exchange. The market reached its peak in 1635-36. Then two bulbs could be exchanged for a stone house.

But then the market collapsed. In November 1636, the price for a bulb fell seven times. In 1637, prices shot up again. And several-fold, in relation to the previous highs. And again, they collapsed completely, burying the hopes of florists and traders.

Does this ring any bells? If you look at the graph of the cost of flower futures now, you can see the classic scheme of pump and dump - a rise with a characteristic saddle, and then a rapid decline. With the amendment, of course, for the 17th century. Currently, the standard pump lasts hours, sometimes even minutes, and sometimes - a whole year. Perhaps, this is the first example of an artificial driving up of value; when traders raised hype around a useless, in general, subject using rumors and opinion leaders. Who made a profit on pumps - the chronicle keeps it in the dark. But historians associate the collapse of the market with the Battle of Wittstock, peasant rebellions, and the closure of marketplaces in Germany and France.

Isn’t it similar to the current situation in the market of virtual assets? But “to be similar” does not mean “to be the same”.

So, the first difference is that tulips were not a consensus value. It's not a secret for anyone that behind each digital coin there is a blockchain - an open distributed ledger with a lot of users confirming transactions. Each virtual payment unit is nothing else than a record in the ledger. Therefore, as we already mentioned, the blockchain is not only a technology but also a right. After all, each transaction confirmation is not only a mathematical action but also
the will of the chain participant. And, therefore, the confirmation of value. The price of coins may fluctuate, but the value remains, as it is confirmed by people every time.

Tulips in Holland were a thing. A very expensive thing that was actively traded. But it did not possess intangible value, like gold, for example. That's why flowers cannot be compared with virtual assets.

The second difference is globality and transboundariness. The tulip boom was topical only for three or four European countries. It involved the Netherlands, France, the German states, some Apennine provinces, and England a little. That’s all. For example, in Spain and Portugal, there was no flower hype. Nor was there in Russia, the largest European country.

We can say that the value of these flowers was manifested only in one narrow cultural group, united by common notions of beauty. But for the rest... Steppes of the Volga region are overgrown with hundreds of millions of tulips every year. And people do not need them much.

Virtual assets are in demand in all parts of the world, among people of different cultures, social strata, and religions. There are halal coins for Muslims, there are kosher coins for the Jews. There are Asian digital money, American, and African. They are in demand on all the continents, except, perhaps, Antarctica.

The virtual market has embodied hundreds of millions of people. According to a sociological survey conducted by Ipsos MORI in 15 countries, 9% of the people asked own digital money. Most of all in Turkey - 18%, least of all in Luxembourg - 4%. At the same time, 25% of respondents think about becoming owners of coins. The figures speak for themselves.

And, finally, the third thing. It is not a difference, but rather a resemblance. But determining the positive trend. The "Tulip bubble" burst, leaving a few dozens or even a few hundreds of people poverty stricken. But it was this bubble that gave start to the whole industry. Four hundred years later, the Netherlands controls 50% of the world flower market and sells 4.3 billion bulbs of tulips annually. A good result, isn’t it?

Any stock market bubble, no matter how awful it sounds for traders, is a very positive economic phenomenon. On the one hand, it eliminates scammers, speculators, and simply not serious players; on the other hand, it provides funds and, most importantly, an impetus for the rapid and sustainable development of various sectors of the economy. Therefore, if the "bubble" of virtual assets is still “blown”, it will be better for the market.

Why, then, politicians, officials, some economists, and investors, speaking of digital currencies, are so fond of mentioning various bubbles?

The answer is simple. The search for historical analogies is often a sign of an intellectual crisis. If someone sees something new, incomprehensible, and unexplored, but he does not have the strength, time, and abilities to understand this thing, then the search for the closest historical analogies is the simplest way out.