Crypto Crash: The Tulip Model All Investors Fear

Have you ever heard of the tulip accident? Is about first financial collapse of modern history. Originally, it was the discovery by Europeans of the tulip, a flower that did not yet exist in the Old Continent. During expeditions to Constantinople (now Istanbul), Europeans discovered this flower. But, beyond the simple tulip, there is an even rarer form of tulip that has two colors. This is the broken tulip. Very rare, Europeans fall in love with it.

Speculation of tulip bulb growth

Shortly after this discovery, European traders decided to import the prized tulip bulbs to Europe. But, they realize that it takes at least 12 years for a bulb to give a flower. It is therefore an investment a priori unprofitable.

So, in the Netherlands, traders decide to launch a stock exchange where citizens can invest in investments related to tulip bulbs. Thus, as the 17th century progressed, there were many transactions. It is estimated today that each tulip was sold up to 10 times a day. And, great innovation, each buyer does not buy the tulip directly: but a contract on the not yet mature tulip bulb.

Crash and end of this financial product

Over time, the price of each bulb broke records. It is estimated that in the end, tulip bulb Up to 1 year of annual salary of a craftsman could be negotiated. It is considerable! Until the day when nobody wanted to buy tulip bulbs anymore, judging the prices too high compared to the final product. This interruption in demand led to a drastic drop in prices.

This accident resulted in immediate loss of value to collectors. However, since the only people who really cared about the tulip were very rich, the crisis had a very limited effect on the global economy. Today it’s hard not to think about cryptocurrency when we talk about the fall of the tulip bulb. and a lot ofcrypto investors afraid that such an accident will happen today…