Today’s post is written by guest author, Simon Burns.
Over the course of the 1630’s, tulips grew in value for no apparent reason. The resulting “tulipmania” built prices up to 10 times the salary of a skilled worker or several thousand times their original trading price. This exponential run was much more to do with the perceived investment value of tulips than the market economy’s demand for the plant. Following a meteoric rise in prices, the price came crashing down in 1637 evaporating personal fortunes of many.
In the last few months, Bitcoin (the virtual currency) has seen a similar meteoric rise from growing publicity, ease of use as a legitimate payment and most problematically, in perceived investment value. The combination of these factors have moved the price of Bitcoins from $13 USD per Bitcoin in January 2013 to a peak of over $240 this past week.
Then in a move few in the technology industry predicted, but most in the financial industry had foreseen, the Bitcoin price collapsed as the “madness of the crowds” and the insane promotion of Bitcoin’s potential elapsed. The price fell from it’s peak over 50% in a few hours.
The phenomenon of a fast rising commodity followed by a much faster crash is much older than modern financial markets and is first seen affecting mainstream investors in 1637. That’s correct if the technological, progressive innovators that were so heavily invested in this “currency of the future” had taken the time to reflect and analyze the very basis of financial markets from their inception. They would have clearly seen the crash predicted by financial professionals, it’s well known as a “Pump and Dump” in financial circles.
Long live the digital revolution, as long as it recognizes it is not immune from the lessons of the past.
The opinions expressed in this article are those of the author, and may or may not represent those of The App Store Chronicle’s as a whole.
Author Bio: Simon Burns is a startup CEO, Investment Firm Manager and Aspiring Visionary. Read more at simonburns.in/a/cardigan