That was the year that tulip mania finally ran out of puff, the year when one of the most insane investment bubbles of all time burst spectacularly. And yes, we're talking about tulips.
Originally from Turkey, they became highly fashionable in the early part of the 1600s, sought after by the well-to-do and, ultimately, a symbol of wealth and power deemed an absolute necessity for anyone with social pretensions or ambitions.
By 1634, demand for tulip bulbs – which not only were rare but fragile – was such that the trade crowded out most other Dutch industries. At its peak, a single tulip bulb cost six times the average income, with some going for as much as $1 million in today's money. They were traded on stock exchanges in Amsterdam, Rotterdam and other Dutch cities.
Three years later, it all came to a crashing halt. A large swathe of the population had borrowed to buy bulbs, certain that prices would only ever go higher, and when the market turned, it did so with a vengeance as investors were forced to dump their, um, flowers.
If this sounds too ridiculous to be true, you're right. But it really did happen. And it all looks a bit Bitcoin-ish, doesn't it? So, what do tulips have to do with Bitcoin? A lot, as it turns out.
Economics is really a study of human behaviour at both an individual and a group level and there are a couple of fundamental laws, or assumptions, used as the bedrock. One is that individuals always act rationally. The other is that everyone always acts in their own best interest.
That explains why economists have such a dismal track record in forecasting anything. Not sure about you, but my behaviour occasionally has veered towards the irrational and certainly not in anyone's best interest. Multiply that several billion times and you have a recipe for unconstrained lunacy.
It's why we have booms and busts, prosperity and poverty, wars and famine, why we lurch from one extreme to the other. You can't just assume it all away and pretend it's not there.
Which brings us to Bitcoin and the mysterious world of cryptocurrencies. Millions of investors, most of them unsophisticated, have been lured into pouring trillions of dollars into what primarily appears a hoax, overseen often by anonymous entities, some criminal, in a completely unregulated environment. It has been a breathtaking sight to behold.
This hype and hysteria around cryptocurrencies have been allowed to build into the most overblown bubble since the Dutch went crazy for tulips back in the 17th century.
