Bitcoin is an amazing success story. It was only invented in January of 2009 and was only worth a tiny fraction of a cent for each token. Over just a few years the value of Bitcoin token rose to dollars, hundreds of dollars and now many thousands of dollars. Bitcoin is not a tangible asset like gold and does not have the sort of intrinsic value that a publicly traded stock has with forward looking cash flow. Thus, a common expectation of many has been that the “Bitcoin mania” would burn out much like the tulip mania in Holland in the 17th century. Here is what we think.
Tulip Bulb Mania
The first speculative market bubble in history happened in Holland in 1637. In that era there was a market for buying and selling tulip bulbs in Holland. Holland grows lots of tulips and did so centuries ago. There was a trading market in Amsterdam in the 17th century where unique tulip bulbs were priced based on their beauty and rarity. In 1634 traders began speculating on rare bulbs driving prices higher and higher. This market rally gained momentum of its own as traders based what they would pay for a bulb on expectations of ever higher prices. It got to the point a couple of years into the market rally when some bulbs sold for the price of a mansion along the canals of Amsterdam. This was the “Tulip Mania.” Like other cases of unbridled speculation that followed in different markets in different countries over the years FEMO or fear of missing out became the driving factor until someone decided that enough was enough. They quit paying exorbitant prices and more and more traders came to their senses driving prices lower and lower and the tulip bulb market crashed. This is the scenario that many have cited as they have predicted that Bitcoin prices will plummet to mere fractions of a cent from which they started. We don’t think this will be the case and here is why.
What Supports the Price of Bitcoin?
Although Bitcoin is not a tangible asset like gold or oil it does have a use. It was invented to be used as means of buying and selling via the internet bypassing traditional financial institutions like banks. It has increasingly fulfilled this function over the years. In addition, unlike tulip bulbs of which there was an ample supply in Holland during the mania, there is a clear upper limit to how many Bitcoin tokens there will ever be. There will never be any more than 21 million Bitcoin of which nearly 20 million are in existence at of the beginning of 2026. Unlike major currencies such as the US dollar, euro, yen, British pound, Canadian dollar or Australian dollar, there will never be a government that creates more than the expected number of Bitcoin like they can print dollars, euros, etc. Although Bitcoin tokens are not rare they have a firm upper limit to their number which functions as a price support.
Expectations and Asset Prices
Although we do not think that the rise of Bitcoin has been a “mania,” there certainly has been a large degree of speculation attached to its many price swings. Those thinking of investing in Bitcoin need be aware of fact that much of what is said about Bitcoin is pure hype such as routine predictions that the token will pass a million dollars by the end of any given year. This is part and parcel of the “pump and dump” tactics of those who try to manipulate the Bitcoin market. It is akin to Bitcoin “wash trading” where traders simultaneously buy and sell Bitcoin making the end result a “wash.” This practice produces the impression that the Bitcoin market is in the process of starting a rally and tempts naïve traders into buying only to see the market fall back and produce losses. In the lead up to crypto winter many celebrities were paid to hype Bitcoin and similarly created suckers of their admirers. None of this, however, approaches the blind mania of paying the value of a mansion for a tulip bulb in expectation that the price will still keep going up. Bitcoin is a safer bet than tulip bulbs in a mania but investors and traders are still advised to exercise caution in how they spend their investment and trading capital. Beware of letting your expectations exceed reality!