According to recent news reports, the sharp sell-off that gripped cryptocurrency markets this past Wednesday has extended into a second day, with major digital assets across the spectrum continuing to fall during trading on Thursday.  The slump was then exacerbated by a Business Insider report that Goldman Sachs has put plans to launch a bitcoin trading desk on hold for the foreseeable future. But really one only has to look to speculative bubbles throughout history not to be surprised by the news.

Back in the early 1600s there was another investment scheme that just couldn’t lose: tulips. Tulip mania was a period in the Dutch Golden Age during which contract prices for some bulbs of the recently introduced and fashionable tulip reached extraordinarily high levels and then dramatically collapsed, and is generally considered the first recorded speculative bubble.  At the peak of tulip mania, in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled crafts worker. As prices drastically collapsed over the course of a week, many tulip holders instantly went bankrupt.

I think cyber currencies will play an increasing role in our financial and economic system over the course of the next decade. However, a little caution may be in order before deciding to place your captive assets in such a vehicle! In November 2013 Nout Wellink, former president of the Dutch Central Bank, described Bitcoin as “worse than the tulip mania,” adding, “At least then you got a tulip, now you get nothing.”

Thank you all very much, and I look forward to hearing from you.

Rich Smith
VCIA President