Bitcoin and Tulip Mania: The Most Insane Financial Manias in History

There was a time, not too long ago, when the world seemed to go mad. Prices for a new asset—one that didn’t produce anything, didn’t yield dividends, and had no intrinsic value—began to rise. Slowly at first, but then everything changed.

What started as a curiosity became a global sensation. People from every walk of life wanted a piece of it. This wasn’t just for the wealthy or well-connected. Farmers, tradesmen, business owners—everyone saw an opportunity.

It didn’t matter if they had to sell their property, mortgage their homes, or go into debt. The chance to own a piece of this phenomenon was too tempting to pass up.

Week after week, prices climbed higher. People were doubling, tripling, even quadrupling their money. A fever swept through the market. Conversations in town squares, markets, and bars were dominated by speculation. Tales of overnight riches and wild predictions fueled the frenzy.

It was like everyone had unlocked the secret to newfound wealth. But beneath the excitement, a few skeptics wondered: What is this thing really worth? How could a market be driven by something that had no inherent utility or lasting value?

Then, as if overnight, the frenzy turned to fear. Prices plummeted. Fortunes vanished. What once felt like a golden ticket now seemed like a foolish gamble. Those who had risked it all were left with nothing but shattered dreams and heavy debts.

But this isn’t the story of Bitcoin. This is the story of Tulip Mania, the first financial bubble that gripped the world. And while the names have changed, the psychology remains eerily the same.

Understanding Speculative Manias

Years ago, I came across a book that completely changed my perspective on finance: Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay. Published in 1841, this classic work dives into financial bubbles and crowd psychology. Mackay’s insights remain as relevant today as they were back then.

Mackay observed how crowds often abandon reason in favor of popular opinion. Once an idea is adopted by the masses, rationality seems to disappear. Emotions take over, excitement builds, and one by one, people lose themselves in the frenzy.

According to Mackay, financial bubbles don’t start with mania. They begin quietly. A few people notice a new opportunity and invest. As prices rise, others take notice. Early adopters see the potential, but soon the masses join in—many with little to no experience—believing they’ve found a sure path to wealth.

Mackay noted that during these manias, people stop asking questions about real value. They focus on the hype, convinced that rising prices mean something must be valuable. It’s only after the crash that the madness becomes clear.

Bitcoin and Tulip Mania: Striking Similarities

Bitcoin’s story is a modern parallel to Tulip Mania. Its journey began quietly, with only a handful of tech enthusiasts, libertarians, and early adopters taking notice. It was a niche idea, something only a few believed in.

As Bitcoin’s value climbed, word spread. Investors saw profit potential, and the buzz began. Soon, financial experts, celebrities, and major corporations joined the conversation, amplifying public interest.

Suddenly, Bitcoin wasn’t just a digital asset; it became a movement. It was hailed as the future of money. This is the point Mackay would call "when the crowd goes mad."

Social media and news outlets echoed Bitcoin success stories, fueling excitement. People who had never invested before rushed in, many taking on debt to buy Bitcoin, convinced they were witnessing the dawn of a new financial era.

But as Mackay observed, bubbles are driven by the belief that prices can only go up. In reality, no asset is immune to volatility. Bitcoin’s history is marked by extreme highs and devastating crashes.

Yet, with each rebound, the belief grows stronger. Bitcoin is now seen by many as the new digital gold.

The Psychology of Bubbles

Mackay explained that speculative bubbles often blur the line between innovation and illusion. While Bitcoin’s blockchain technology is undeniably revolutionary, its value is largely driven by belief. Like tulips in 17th-century Holland, Bitcoin’s price depends on collective confidence.

Crowd psychology plays a huge role in these manias. Social media amplifies the excitement. Influencers, tech leaders, and even celebrities hype Bitcoin’s potential. FOMO (fear of missing out) drives more people into the market, pushing prices even higher.

Mackay warned that the true test of an asset’s value comes during a crash. Like the South Sea Bubble or the housing market crisis, bubbles seem unbreakable—until they aren’t. When prices fall, investors are left wondering how much of their belief was based on hype rather than substance.

So, is Bitcoin truly different, or is it simply another chapter in the long history of financial manias?

Lessons from History

Speculative manias are not new. The dot-com bubble of the late 1990s promised a future connected by the internet. Investors couldn’t resist. Tech stocks soared, but when the bubble burst, trillions of dollars vanished, and countless people lost their savings.

The housing bubble of the 2000s followed a similar pattern. Fueled by easy credit and the belief that housing prices could only rise, people rushed to buy homes. When the market crashed, it led to the Great Recession, causing financial hardship worldwide.

Even in recent years, smaller bubbles have emerged. Meme stocks like GameStop and AMC skyrocketed overnight, driven by online communities. But, like every bubble, they eventually fell, leaving many small investors with heavy losses.

These stories remind us that whenever quick wealth is promised, manias often follow. Mackay’s work shows us that bubbles are a recurring feature of human behavior.

Bitcoin: Innovation or Hype?

Bitcoin’s blockchain technology holds undeniable promise. It offers decentralized finance, a hedge against inflation, and, for many, a vision of economic freedom.

But Mackay’s observations still apply. Bubbles often grow from something real—a breakthrough idea or a rare asset. When hype outweighs fundamentals, speculation takes control.

Bitcoin’s value largely depends on belief. Its status as "digital gold" is fueled by sentiment. Mackay reminds us that excitement and potential aren’t guarantees of stability.

So, is Bitcoin different, or is it just another chapter in the history of speculative bubbles? Time will tell.