In this article we will cover the myth that is known as Tulipmania and how it is misused in a crypto context, as well as buy/sell signals and cycles to help you navigate the crypto landscape.
Tulipmania
Tulipmania refers to a period during the Dutch Golden Age in the 17th century when prices for some tulip bulbs reached extraordinarily high levels and then dramatically collapsed in February 1637. It is often cited as the first recorded speculative bubble (or economic bubble) in history.
The tulip, introduced to Europe from the Ottoman Empire in the late 16th century, became very popular in the Netherlands. By the 1630s, the demand for tulip bulbs, especially for rare varieties, began to rise. This led to increasing prices and speculative buying. At the height of the “mania,” in 1636 and 1637, some tulip bulb contracts reached incredibly high prices, only to collapse suddenly.
This is where comparison to crypto often comes in. Crypto is often called a a digital Tulipmania and that it will collapse like famous Dutch tulips. With every cycle pull back such mania notions are deemed to have been proven correct.
”I told you it was a Tulipmania bubble” -Every crypto skeptic after a 50%+ drawdown.
I am in the Netherlands as I am writing this article, it is mid April and Tulips are in full bloom. The remnants of the Tulip “craze” are as beautiful as they come.
Many of the stories about the extremity of the tulip bubble have been exaggerated over time. For example, tales of people trading their homes for a single tulip bulb are likely fictitious according to respected historians.
Nonetheless, the rapid increase and decrees of tulip bulb prices did have real economic consequences for some individuals involved in the trade. The same can be said for some crypto traders and investors in each boom and bust cycle. (We’ll get into the crypto cycles later.)
While prices of certain tulip bulbs did rise dramatically, the economic impact of their subsequent crash was limited. The tulip trade was not a major part of the Dutch economy, and its collapse did not lead to a broader economic downturn in the Netherlands. Anne Goldgar, in her book "Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age," argues that the speculative bubble of Tulipmania was not as widespread as often believed. She suggests that it involved a relatively small group of people, and many of the stories about ordinary citizens investing and losing vast sums of money are likely myths.
Many of the most sensational stories about the Dutch Tulipmania come from sources written after the bubble burst, and some were written by people with specific moral or political agendas. For instance, some contemporary pamphlets used the event as a cautionary tale about the dangers of speculation and moral decay of society.
Peter Garber, an economist, analyzed the price data of tulip bulbs during the period and argued that the extreme price movements could be explained by the fundamentals of the bulbs themselves, particularly the rare varieties. People pay thousands of dollars even today for a rare decorative plant or a rare cat or dog breed. Garber suggests that the price patterns were not necessarily indicative of irrational speculative behavior. When compared to other financial bubbles in history, like the South Sea Bubble or the 2008 housing crash, Tulipmania was relatively small in scale and did not have the same kind of broad economic impact.
In the centuries that followed, Tulipmania became a cautionary tale and was often referenced in discussions about the irrationality of financial bubbles. As a result, it has been depicted in various forms of media, including political cartoons, which might use the event as a metaphor for other perceived economic bubbles or irrational behaviors.
I prefer the term “irrational exuberance” to Tulipmania, mani, bubble, or craze, and being so deep into crypto I hear Tulipmania comparison way too often.
Crypto
While Tulipmania was somewhat a real event, the way it has been portrayed and remembered has been influenced by a mix of fact, exaggeration, and myth, and therein lies the real comparison between crypto bull and bear cycles.
There is a saying in crypto that there isn’t a single investor that has held blue-chip crypto (Ethereum or Bitcoin) for more than 5 years that isn’t up massively. Anyone interested in verifying this need only look at a price chart of Ethereum or Bitcoin and look back five years from almost any point in the last 15 years to realize it is always up much more than any short term correction might erase.
Due to the extreme volatility of crypto, financial media outlets in my opinion overexaggerate the downside as a CRASH, an obvious “Tulipmania,” and often like to have a very short memory. Be it for clicks, or legacy financial industry allegiance and influence, they are surely not reporting facts.
At the time I started writing this article I read that BTC was down -60% since 2021, and while this was true at the time of that article; the fact still remains that it was $3,000 in 2020, and it was $30,000 at the time of that article citing -60% drawdown from the top. It was still a 10X return in 3-4 years making it hardly a loser in a portfolio. At its worst it was still a 10 bagger, even with a -60% “crash” from the top. In traditional markets a portfolio manager with a 10 X return would be more famous than Warren Buffet.
Long-term crypto holders have a meme called “diamond hands” which is in opposition to weak “paper hands.” This meme tries to teach new commers not to panic and instead “HODL” (Hold On for Dear Life) tight through the inevitable drawdowns and volatility of this industry.
Selling at a loss when prices go down has so far always been a wrong move for those with a time frame longer than 3 years.
By the time I came back around to writing this and was inspired by being in the Netherlands to finish my post, BTC is at $72,000. This means that only people that could possibly be negative are the ones that bought at $74K a few weeks ago at the new “All Time High” (ATH). I suspect, that if they check back in 5 years from now, it will likely be the best investment of their lives.
Signal: The Skeptical Uncle
This brings us to the Skeptical Uncle theory of crypto.
Early in my investment studies I had a seasoned investment professor that said he knew the “dot com” bubble was at the top when he overheard regular people talk about tech stocks at an ice cream shop. That anecdote has stuck with me over the years and I look for similar heuristics in my top signals.
When prices are down -50-80% your ill informed uncle will tell you at a family gathering like Christmas or Thanksgiving that it was always an obvious fad, a bubble-like Tulipmania, or that it is a Ponzi scheme. Regurgitating much of what he likely heard from the short-term memory, mainstream media. This is often a good time to buy, at peak pessimism in the market. Be greedy when there is blood in the streets. Knowing the facts about Tulipmania is also a fun way to make the Cynical Uncle realize he is talking about not one, but two things he completely hasn’t researched or studied.
When the crypto market is at the peak froth and irrational exuberance, the same Uncle or cynical friend will call you asking how they can invest in the latest meme crypto coin you have never heard of; even though you eat, sleep and breathe crypto.
That is a signal that the “TOP IS IN” and the market that just 20 X’ed will pull back a usual 50% or more. Don’t be hard on your sweet uncle or cynical friend. Thank them and use them as a signal to buy or sell. The Uncle theory is one of the most reliable signals in crypto. Inverse Cramer is a second best signal candidate, and celebrities talking about crypto is also a top tier signal.
The contrast between cynics' skepticism and optimists’ hopefulness is gracefully encapsulated in the saying:
“Cynics get to be right, and optimists get to be rich.”
Personally, I aim to be a Realistic - Optimist, who has lofty hopes and is grounded in reality about risk and expectations. I think in probabilities and bets with positive expected values over time.
Ethereum could be the world’s Web 3 infrastructure layer, or the asset A.I. agents use to accomplish tasks and interact with the world but, at the same time there also could have a bug in the code, ETH could lose out to competitors, or flat out never achieve the technical improvements to be scalable for billions of users. I am investing in this assed knowing those risks, but expecting a reward to be more than worth it.
Crypto Cycles
There is an idea in crypto about Orange pilling someone: which means revealing the truth about Bitcoin to them so they can never see the world the same way again.
Similar to when Neo takes the Red pill in the movie Matrix and wakes up in the real world.
I no longer bring up crypto to friends and family unless they ask. They know I’ve been in it for a long time and done well. It is a pill in their deep subconscious that has taken root and springs new shoots every time someone mentions blockchain, crypto, Bitcoin, Ethereum, Web 3, NFT, and especially during the bull market when they see the parabolic rise in price and get FOMO.
Now when someone wants to call crypto a scam or a Ponzi that clearly has never studied money or economics, I just like to say to them:
"It is not for you.”
Crypto comes and goes in cycles. So called “experts” call doom and gloom, and bubbles, Tulipmaina, every time crypto goes up 10X, but they fail to recognize the pattern because they are not experts at crypto. They may be experts in other fields, even that is questionable, but they are definitely not experts in crypto and therefore should keep their opinion to themselves.
Crypto comes and goes in four phases.
After #4 “Crash” there is a period of time know as #1 “accumulation.” This is often known as the bear cycle and it can last a couple of years sometimes.
After accumulation comes #2 growth , and growth turns into irrational exuberance
or #3 bubble, which inevitably has to be correct because nothing goes up forever.
And it all loops back to #4 “Crash”
Below are a table and a chart of what these 4 phases tend to look like. Study these and understand which phase you are in, and act accordingly.
https://downloads.ctfassets.net/4ua9vnmkuhzj/2NWceG0tkZeyPei0SDYxtv/26e3fe58445cbd65aa5f024d8a95810a/C_B-House-View-Research-Report-2023.pdf
Bitcoin Rainbow Chart
Another way to visualize the cycle is with a rainbow chart. Bottom of the chart blue is low prices of the cycle, sometimes know as crypto winter or as the chart has it labeled “fire sale.” Prices are likely to be only up from there and it is the best time to buy. Red in contrast is the max bubble irrational exuberance, basically when your cynical Uncle calls you to buy a dog coin with hat. This is the time to take some profit.
Some have argued that the BTC Spot ETF might have pulled this cycle forward at least 6 months. This remains to be seen and is just a guess.
Now, this might mean everything happens 6 months sooner, or that the cycle is different all together and we should not use prior cycles as a blueprint for what to expect this cycle.
KISS: Number go Up
Best not to assume this time is different until it is. Don’t over complicate things and over think them. Crypto cycles have been set by the monetary policy of BTC since crypto started and even with an ETF it just makes BTC more dominant. It is also aligned with sovereign debt cycle that is on a three year cadence.
So don’t Mid-Curve and over think. What a low IQ noob (on left) might know about the cycles, and the Master Crypto Jedi with 145 IQ (on the right) is probably the same argument: “ Number go up.”
Everything in the middle is overthinking guess work. As my programing professor would say: KEEP IT SIMPLE STUPID “KISS”
In any case we are still in either “Still Cheap” or “HODL” phase in the rainbow chart above, and we can expect BTC to go to $180-500K by the end of the cycle based on prior appreciation patterns. This would also put ETH at $10K-$30K by the end of 2025.
So if you can stomach the volatility like the rollercoaster we experienced this week (Mid April) then you will likely do well during this crypto cycle.
Still a crypto skeptic?
If you are hesitant about crypto, first of all, good job reading this far or even clicking on this blog post. Second, I assure you there is no fad that lasts 15 years and is worth over $2.5 Trillion. Crypto will continue to grow at a pace faster than internet adoption and once 1 billion people are on board the growth from here to there will be parabolic. What comes after that is only more people and more growth. Anyone that takes time to study this industry will likely come to the same conclusion. Anyone that is screaming “Tulipmania” hasn’t invested at least 100 hours of studying the technology and or has no true understanding what money is and for that matter as we explained earlier; “Tulipmania“ as we know it is misunderstood by 99% of people that reference it.
Risk off & War Fears
Don’t let fears of War scare you into selling. If anything crypto is the best asset to own in a war. Don’t let politicians scare you into selling, crypto is the best check on their power and your property right to vote with your feet and go where they appreciate your citizenship and taxes.
Catharsis
As I leave the Netherlands with a few stops in Germany, a war between Iran and Israel is looking like a possibility. Russia and Ukraine are still at it, with talks of Nuclear weapons becoming more common. Stocks and crypto just experienced a noteworthy correction, much attributed to the military conflict.
I am reminded of the Hyperinflation Germany experienced leading to WW2 and what I experienced in former Yugoslavia in the early 1990s. In fact, many historians and economists blame the WWI reparations Germany had to pay as the leading cause of their hyperinflation and monetary debasement, which in turn led to poor German people suffering and their anger being exploited by a strong man “Hitler” and leading to WWII.
This is now again happening around the world as well as at home in the USA. As a war survivor and with first hand experience of hyperinflation, it is looking very similar to me. I am reassured with my investments in crypto during turbulent times like these, and see sell offs as a good time to buy more.
Holding my private keys and with them my ability to escape tyranny, or war should I need to do it again, gives me a sense of freedom; I am not sure many people can understand.
In writing this article to help my readers understand crypto cycles and missuses of the term Tulipmania I’ve been filled with more conviction in this industry than ever. We are a hours away from the Bitcoin halving, which historically has been a massive supply shock catalyst that starts a new bull cycle, and tend to top out 12-18 months after. Study the cycles and charts in this post, & do with that information what you will.
If you are not long crypto; you are short crypto.
As always, may the Force of Compound Interest be with you!
PEACE
Ends of the bell curve strat
DCA and HODL