Financial History Issue 125 (Spring 2018) - Page 16

thousands of foreigners flocked to Paris . The Internet provides a global dragnet to scoop up cryptocurrency enthusiasts . Coinbase , which offers bitcoin wallets , boasted some 12 million accounts last December — a three-fold increase over the course of the year . While the Mississippi boom minted the first paper “ millionaires ,” bitcoin appeared to be conjuring up digital billionaires — including reportedly the Winklevoss twins of Facebook notoriety .
Speculative Tales
Every great bubble produces great anecdotes . Charles Mackay ’ s famous account of the early bubbles , Extraordinary Popular Delusions and the Madness of Crowds ( 1841 ), is stuffed with memorable , if rather fanciful , tales . The Dutch tulip mania of the 1630s inspired several legends , including that of the black tulip ( which inspired Alexandre Dumas ’ s eponymous novel ). Mackay narrates a story of a sailor inadvertently eating a priceless tulip bulb after mistaking it for an onion . Even the stories of broken speculators throwing themselves off skyscrapers after the October 1929 crash turn out to be urban legends .
Bitcoin has already produced a number of wonderful yarns . There ’ s the computer programmer who used bitcoin to buy pizzas back in May 2010 . At 2017 , peak prices this snack was estimated to have cost more than $ 150 million . Another story relates how a British IT worker threw away an old computer hard drive which stored a number of bitcoins . A few years later , this digital fortune was valued at more than $ 125 million and the hapless techie was said to be planning to dig up a landfill site to salvage his lost fortune . When the Long Island Iced Tea Corporation , an unprofitable purveyor of soft drinks , changed its name late last year to the Long Blockchain Corporation , its share price soared nearly 300 %.
George Soros argues that a “ super-bubble ” only forms after it has survived a severe test , imbuing speculators with a sense of invincibility . Bitcoin has weathered a number of such trials . After peaking at close to $ 1,000 in late 2013 , it shed more than 75 % of its value over the following 18 months , before starting its more recent , epic ascent . Bitcoin has also survived a number of outright scandals , including grand larceny at the Mt . Gox exchange when billions of dollars ’ worth of bitcoins ( at current value , anyway ) vanished into the ether .
1754 drawing of Scottish-born financier John Law . The bubble created by Law ’ s Mississippi Company is relevant to recent events in the cryptocurrency world .
Easy Money
Great bubbles occur during periods of easy money , when interest rates are low , or falling , and liquidity is super-abundant . The Dutch tulip mania , for instance , appeared in the mid-1630s at a time of large foreign capital inflows into Holland , which spurred money printing by Amsterdam ’ s Wisselbank , Europe ’ s first central bank . Dutch interest rates were also far below their past average levels at the time .
Recent monetary conditions have much in common with the 1630s . At the beginning of 2017 , the world ’ s largest central banks were expanding their balance sheets like never before . At the time of bitcoin ’ s blow-off , some $ 11 trillion worth of bonds worldwide were offering negative yields . The American stock market was more expensive than at any time save for the dotcom peak in early 2000 . This left savers with an uncomfortable dilemma , either speculate or starve .
The ideal speculative object is one which provides no yield and is therefore impossible to value . Think of those tulip bulbs , gold in late 1970s or contemporary art in recent years . Bitcoin , which produces no income , has a restricted new supply and whose ownership is concentrated in
MPI / Stringer
14 FINANCIAL HISTORY | Spring 2018 | www . MoAF . org
thousands of foreigners flocked to Paris. The Internet provides a global dragnet to scoop up cryptocurrency enthusiasts. Coinbase, which offers bitcoin wallets, boasted some 12 million accounts last December — a three-fold increase over the course of the year. While the Mississippi boom minted the first paper “millionaires,” bitcoin appeared to be conjuring up digi- tal billionaires — including reportedly the Winklevoss twins of Facebook notoriety. Every great bubble produces great anec- dotes. Charles Mackay’s famous account of the early bubbles, Extraordinary Popu- lar Delusions and the Madness of Crowds (1841), is stuffed with memorable, if rather fanciful, tales. The Dutch tulip mania of the 1630s inspired several legends, includ- ing that of the black tulip (which inspired Alexandre Dumas’s eponymous novel). Mackay narrates a story of a sailor inad- vertently eating a priceless tulip bulb after mistaking it for an onion. ٕѡѽɥ)ɽձѽ́ѡɽݥѡ)͕ٕ͍́ͭɅ́ѕȁѡ=ѽ(䁍Ʌ͠ɸЁѼɉ̸) э́ɕɽՍյ)ݽəհɹ̸Qɗéѡѕ)ɽɅȁݡ͕эѼ)́5Ѐܰɥ)ѡ́͹݅́ѥѕѼٔЁɔ)ѡѡȁѽɕѕ)܁ ɥѥ͠%Pݽɭȁѡɕ܁݅䁅)ѕȁɐɥٔݡѽɕմ)ȁэ̸܁啅́ѕȰѡ́х)չ݅́مՕЁɔѡԁ)ѡ́ѕ݅́ͅѼ)ѼͥєѼͅم)́Ёչ]ѡ1%ͱ%)Q Ʌѥչɽхٕ)ͽЁɥ̰́є)啅ȁѼѡ1 Ʌѥ)́͡ɔɥͽɕɱ)ɝMɽ́ɝՕ́ѡЁqȵՈ)t䁙ɵ́ѕȁЁ́٥ٕ͕ٕɔ)ѕаեձѽ́ݥѠ͕͔)٥丁 э́ݕѡɕմ)ȁՍɥ̸ѕȁЁ͔Ѽ(İє̰Ё͡ɔѡԔ)́مՔٕȁѡݥѡ̰)ɔхѥ́ɔɕа͍и) э́ͼ٥ٕյȁ)ɥЁ͍̰ՑɅɍ)Ёѡ5и፡ݡ́)ϊdݽѠэ̀ЁɕЁمՔ)݅䤁م͡Ѽѡѡȸ)MձѥٔQ(ЁɅݥMѥ͠ɸȁ)1ܸQՉɕѕ1ߊe)5ͥͥ 䁥́ɕمЁѼɕЁٕ́ѡѽɕݽɱ)5)ɕЁՉ́ȁɥɥ́)䁵䰁ݡѕɕЁɅѕ́ɔܰ)ȁե䁥́ȵո)иQэձȁх)ɕѡ́Ёѥ)ɝɕх́Ѽ!)ݡɕɥѥѕȴ)é]͕ɽéЁɅ)эѕɕЁɅѕ́ݕɔͼ)܁ѡȁЁٕɅٕ́Ёѡѥ)IЁх䁍ѥ́ٔՍ)ݥѠѡ̸Ёѡ)ܰѡݽɱéɝЁɅ)́ݕɔѡȁ͡(ӊ %99 %0!%MQ=IgMɥ ܹ5ɜ)ٕȁɔЁѡѥэe)ܵͽāɥݽѠ)ݽɱݥݕɔɥѥٔ奕̸)QɥѽɭЁ݅́ɔ)ͥٔѡЁѥٔͅȁѡ)эɱQ́Ёٕͅ)ݥѠչхѡ)ձєȁхٔ)QձѥٔЁ́ݡ)ɽ٥́奕́ѡɕɔ̴)ͥѼمՔQѡ͔ձձ̰)є́ȁѕɅ䁅)ɕЁ啅̸ эݡɽՍ)́ɕɥѕ܁)ݡ͔ݹ͡ Ʌѕ