Bitcoin is a bubble, but manias can have economic benefits
Summary
The South Sea Bubble , Tulip mania , railway shares , the dotcom boom and now bitcoin are all part of that same psychological failing of not recognising that prices can and will fall as well as rise.South Sea and the Mississippi Company bubble were simply speculative frenzies, but the tulip story – while appearing very similar – can be read another way.It is still true, for example, that a few sheds near Schipol, just outside Amsterdam, are the centre of the world’s trade in cut flowers – the result of that historical episode where a single tulip bulb became worth more than a year’s wages.The art of cross-pollinating tulips to gain desirable characteristics was only just becoming generally known, and Europe was reaching a stage of wealth where the purely ornamental was becoming valuable.Amazon and Google got financed, and the gigamiles of fibre-optic cable that was laid in this bout of optimism aided in continuing the internet revolution as the costs of using that surplus capacity fell to near zero.