Cryptocurrency is the Next Tulipmania? -Cryptocurrency is a rising commodity in the past few years. It is quite an attractive symbol that some people are interested in cryptocurrency. Some people bet that cryptocurrency can be a future currency and will do some exchange transactions using this kind of currency. Basically, cryptocurrency is a virtual currency based on a ledger that is decentralized (not old-fashion centralized banking currency) and is secured by cryptography. This is a digital form of currency or does not have a physical forms like coins or paper money issued by the central bank in each country. The record of the transactions of cryptocurrencies is in a spreadsheet or ledger. Every single transaction can be looked at in this ledger or spreadsheet since the start of cryptocurrency. Furthermore, the ledger is updated in every single transaction.
If you buy and sell the cryptocurrency, you do the transfer of digital assets, not physical assets. Historically, in 2009 led by the unknown and mysterious man, Satoshi Nakamoto, Cryptocurrency with bitcoin have launched and become decentralized with peer-to-peer (P2P). From time to time, in the last decades, more products of cryptocurrencies are launched. Bitcoin (BTC) in the early, followed by Ethereum (ETH), Litecoin (LTC), Cardano (ADA), Polkadot (DOT), Bitcoin Cash (BCH), Stellar (XLM), Dogecoin (DOGE), Binance Coin (BNB).
Like the 2 different sides of the coin, there are some controversies about the birth and awake of cryptocurrency. Some of the controversies are about a speculative bubble, environmental impact, and tool of illegal activities. Firstly, a speculative bubble of cryptocurrency comes because the cryptocurrency has no intrinsic value behind the cryptocurrencies. The marker price is formed by absolute demand and supply in the market. Besides, Elon Musk’s statement, the CEO of Tesla Inc, in receiving the cryptocurrencies in transactions of tesla but pulls back his statement again. It makes the fluctuation of the cryptocurrency.
Secondly, the environmental impact of cryptocurrency looked at the operational aspects. Because bitcoin is a decentralized currency and it is run with zillions of computers or laptops. Every single transaction is verified by many computers, and it needs a lot of energy/electricity if it does many times. Furthermore, some cryptocurrency miners need a lot of electric energy to do their activities. Meanwhile, the controversy of cryptocurrency as illegal activities because some cryptocurrencies can be used as payment for illegal or criminal activities like dark web and drugs transactions. Because the transaction of cryptocurrency can do the transaction without needing to verify the person.
Tulipmania is the biggest speculative era of the Dutch Golden Era. In the 1600s, tulip (Tulipa L) become the hottest commodity in the Netherlands. Some people and traders hunt this commodity because of the economical benefits. Originally, the tulip is not from Netherland, but its native to the Persian area with the help of the ottoman trade to Europe. The Netherlands was one of the countries that have an attraction to this commodity. One of the most prized tulips was the Semper Augustus bulb. It was a virus-infected tulip that has a distinct color gradient in its bulb. One bulb has a value of 5,500 guilders in the tulip mania era. With this money, you can purchase a grand house on the most fashionable canal, fed an entire Dutch family for half a lifetime.
Tulip becomes pricier because of the speculative aspects. Some people and traders do the transaction with a futures contract. the transaction is happened in ownership certificates or contracts without delivering the products of tulips. With irrational transactions, the price of tulips soars in a brief time without measuring its intrinsic value. Some traders and buyers enter the trap in the circle of irrational transactions, and they sacrifice their money to buy the tulip.
In The Tulip Era, one bulb has the same value as a house or villa. After achieving the mature cycle, it had to go down because of its reduced demand. Some of the holders of tulip eagerly sold it to cope with the further deep losses. Some of the people have felt the loss of these transactions because of the irrational behavior of markets. They finally realized that the price is just a game and leaves tulips as commodities investing. Finally, that’s the market has worked and it recured from time to time until now…
What about cryptocurrency??
Cryptocurrency is the invention of currency and some people rely on cryptocurrency as an investment portfolio. But the case of tulipomania has potential the same with cryptocurrency. I have some reason the cryptocurrency can be the potential next tulip mania:
- 1. Cryptocurrency has no intrinsic value
The value in cryptocurrency is not measurable. The price of cryptocurrency is based on demand and supply. The more buyer can buy at a higher price, the more expensive the price. We can’t ‘s measure the intrinsic value of cryptocurrency. It is different from stock/ shares. in stock or shares, we can calculate the price based on price/earnings per share (PER) or Price to book value ratio (PBV).
- 2. Cryptocurrency creates nothing
If we buy cryptocurrency, we own nothing. That is different if we invest in land, stock, and property. If we buy stock, we can get a dividend. If buy land, we then can rent it or plant it with crops so we can the money of it. Property like a house, we can rent it so we can get income from the renthouse.
- 3. Speculative aspects
The speculative aspect of cryptocurrency still has more importance in driving cryptocurrency. Some cases like Elon Musk’s statement on cryptocurrency, or some companies like Facebook, Microsoft, and others about cryptocurrency can change the price drastically. It is too risky when the statement is not real and just an issue, not a real fact. It makes the currency go down. Therefore, cryptocurrency can go freely depending on Mr. Market’s wants without any obstacles.
- 4. Cryptocurrency still has no permission / allowed in most the countries
Most official countries still trust the old-fashioned centralized currency. They don’t want alternative currencies without any permission. They don’t want cryptocurrencies because of it more vulnerable and have irregular fluctuation. Just some merchants that can accept bitcoin or other cryptocurrencies.
- 5. Cryptocurrencies vulnerable to criminals transactions
The transaction with cryptocurrencies without knowing our real identification can give the potential problems by the way in one side. The potential of illegal activity or criminals can do the transactions with cryptocurrency and it’s legal. It’s different when the centralized found the suspicious or crime transactions. The official or the authority can freeze or bank the account number or users.
Bibliography of Cryptocurrency is the Next Tulipmania
Wikipedia. 2022.Tulipmania. Accessed via https://en.wikipedia.org/wiki/Tulip_mania on January 31st, 2022.
Frankenfield, J.2022. Cryptocurrency. Accessed via https://www.investopedia.com/terms/c/cryptocurrency.asp on January 31st, 2022.