Dutch Tulip Mania & NFTs: A Very Poor Comparison

Welcome back to the Monopoly Man column where we discuss the macro and micro NFT environment. This week, we analyze the Dutch Tulip Mania of the 1630s, and compare and contrast it to the recent trends we see in the greater NFT market.

If you’re anything like me, you follow the fimmeme lords of Instagram. You know: wallstbets, arbitrage.andy, and of course, parikpatelcfa. Over the past few weeks, a few of these titans of industry have weighed in on the recent NFT bump. By NFT bump, I’m talking about OpenSea’s $3 billion month and the 10 million active users on MetaMask.

One finmeme post that particularly captured my attention was econ_memess’ dig at the wider NFT market, comparing the latest NFT trends to Dutch Tulip Mania.

History Class

In case you missed Intro Econ History, Dutch Tulip Mania was purportedly the first speculative bubble. In the early 1600s, tulip bulbs futures fetched extremely high prices in Dutch markets. This was due to the booming Dutch economy mixed with a spike in demand and limited supply of tulips throughout western Europe (tulips were native to Turkey and hadn’t been grown in Europe until the late 1560s). Additionally, the supply chain between (present-day) Turkey and the Netherlands was strained due to ongoing Moldavian Magnate Wars.

During this time, people reportedly traded land, homes, horses, and other high-value assets for tulip bulbs. Some even traded entire mansion estates for rarer tulip bulbs. This build in the price of tulip bulbs, and in-turn tulip bulb contracts lasted for almost forty years when it suddenly plummeted in 1637. Almost overnight, tulip bulb futures dropped more than 90%. The price drop-off was due to the surplus of Dutch tulips complimented by a demand shift from tulips to hyacinths.

The retelling of this history is often (and incorrectly) cited as a mania, or a speculative bubble. To be fair, citing a historical economic event from the 1630’s (even if done incorrectly) is a fun trick. It does well at dinner parties, impressing your date’s parents, or even drawing half-truth inference comparisons to other economic phenomena. The truth of the matter is, comparing the NFT market to the Dutch tulips of the 1630’s is a bit like comparing apples to oranges.

Buy Side Differences

The Dutch tulip bulb contract purchasers were generally agriculturists. They purchased bulbs which took seven to twelve years to flower. This means, only a very limited portion of the population purchased tulip bulbs (the farmers) and they did so in aspiration of a longer-term return on their investment.

NFT purchasers on the other hand, touch all corners of society. Anybody with a digital wallet and the funds to do so, can purchase an NFT. The rationale behind of NFT purchasers, ranges from person to person. Some people buy an NFT and immediately list it in hopes for some short-term gains while others buy an NFT with intention to hold -forever- to maintain access to a club (see the reluctance of BAYC members to sell their tokens).

Sell Side Differences

For the majority of the early 1600s, there were only a few sellers of tulip bulbs. A limited number of tulip fields in The Netherlands and the tulip producers of Turkey. Given the demand, sellers in this market could name their price (leading the inflated prices of tulip bulbs).

By contrast, there are thousands of NFT collections with more joining every day. Anybody with a working internet connection and the funds to launch a contract ID can become an eligible seller. There is clearly more of a free market in the NFT space than in the Dutch tulip market of the 1600s.

Putting It All Together

Some of the most educated and financially literate people I’ve ever met claim that the NFT market is a speculative bubble, due to burst at any moment. These people often cite historic bubble bursts, like the Dutch Tulip phenomenon. While there will be ups and downs (as with any market), be leery of the ‘NFT financial predictions’ given by crowds that 1) don’t understand NFTs and, 2) don’t understand economic history.

*If you’re interested in learning more about Tulip Mania, check out Peter Garber’s Tulipmania (The University of Chicago Press, 1989).

Want more? Connect with NFT Plazas

Join the Weekly Newsletter
Join our Discord
Follow us on Twitter
Like us on Facebook
Follow us on Instagram

*All investment/financial opinions expressed by NFT Plazas are from our site moderators’ research and experience and are intended as educational material only. Individuals are required to research any product before making any investment thoroughly.

Leave a comment

Calculators

LIVE Prices for all cryptocurrencies related to Decentraland, Somnium Space and Cryptovoxels.

Ethereum

Decentraland MANA

Somnium Cubes

Newsletter

Stay up to date with our weekly roundup of independent news

Discord

Join in live community chat & all updates as they happen