400 Years Ago, Tulips Traded like Crypto

In the 1630s, an outbreak of speculative mania broke out in Amsterdam for tulip bulbs. Introduced from the Ottomans in the late 16th century, Tulip Bulbs captivated speculators. Everyone, including merchants, artisans and farmers traded not only physical bulbs but futures contracts on loans called “Windhandel”. These instruments allowed them to buy more bulbs on credit with the expectation they could repay loans from the future profits, as they were sure to sell at higher prices. “In 1624, a Semper Augustus (a red and white tulip bulb) fetched the handsome sum of 1,200 Florins, an amount sufficient to purchase a small Amsterdam town house.” – Edward Chancellor, Devil Take The Hindmost.

In fact, the tulip had essentially become a new currency as Bitcoin is today. Tulips were, “as standardized and undifferentiated as a note of the Wisselbank (essentially the Dutch Central Bank) or a share in the East India Company.” Outsiders from Northern France and “new amateurs” enhanced the euphoria. A trader named Gaergoedt boasted of having made 60,000 guilders of contracted (and not actual) profits. That would have been about 200 times an annual Dutch wage at the time.

But on February 3, 1637 with no apparent trigger, prices collapsed amid panic selling wiping out fortunes overnight. Courts were flooded with unenforced contracts and government intervention was required whereby an arbitration committee in the City of Haarlem ruled that buyers could cancel their extant tulip contracts by paying a mere fee of 3.5% of the original contract price.