Financial History Issue 125 (Spring 2018) | Page 15
The Bitcoin
Premonition
By Edward Chancellor
Last December, the acting head of New
Zealand’s central bank, Grant Spencer,
said that the most famous of crypto-
currencies resembled a “classic” bubble.
Bubbles aren’t just about the madness
of crowds — nor are they simply mani-
festations of loose monetary conditions.
Although both of these factors have been
present in the extraordinary rise and fall of
bitcoin over recent months, every bubble
also involves an anticipation of the future.
The trouble is that the speculators’ vision
turns out to be deeply flawed.
It’s true that bitcoin has much in
common with great historic speculative
manias. First, there’s the telltale super-
exponential price rise. The South Sea
Company stock soared 10-fold in 1720. By
late last year, the red-hot cryptocurrency
was up more than 20-fold over the previ-
ous 12 months, peaking before Christ-
mas just short of $20,000. Bubbles also
exhibit tremendous volatility during their
so-called “blow off”stage. Bitcoin’s recent
price oscillations suggest as much.
Then, there are the host of other crypto-
currencies, conjured up by eager promot-
ers to take advantage of the hype: Litecoin,
Ethereum, Dash and Ripple, and spin-offs,
or “forks,” from the original, Bitcoin Cash
and Bitcoin Gold. By the end of last year,
there had been nearly 1,400 “initial coin
offerings.” These lesser-known cryptos call
to mind the famous “bubble companies”
of 1720 which followed in the wake of the
South Sea Company. These speculative
ventures covered a variety of activities
from insurance to fish transportation, the
most famous being “A company for carry-
ing on an undertaking of great advantage,
but nobody to know what it is.”
Great bubbles attract speculators from
far and wide. At the high point of France’s
Mississippi Bubble, also of 1720, tens of
Dutch satire engraved cartoon depicting the
failure of the South Sea Company, the Mississippi
Company and the bubble schemes of John Law
and others, 1720.
www.MoAF.org | Spring 2018 | FINANCIAL HISTORY 13