Tulip Mania: How a Simple Bulb Created the First Financial Bubble in History?

The Analysis: A Market That Lost Its Mind

There is a phrase you hear at every market peak: *"This time it's different."*

In 1637, in the Dutch Republic (present-day Netherlands), merchants, artisans, nobles, and even servants believed it too. The object of their madness? A simple tulip bulb.

Seventeenth-century Holland was the world's leading economic power. Amsterdam was the centre of international finance. Trade routes brought exotic goods from every corner of the globe — and among them, tulips from the Ottoman Empire. The flower was rare, colourful, and greatly prized by the elite.

How a Bulb Becomes a Financial Asset

It starts normally. Wealthy collectors pay high prices for rare varieties. But gradually the logic changes. People are no longer buying tulips to plant in their gardens: they are buying them to sell at a higher price. The bulb becomes a speculative asset.

One of the first futures markets in history emerges: buyers sign contracts to receive bulbs at a future date at a price fixed today — without even seeing the bulb or having the necessary funds. Pure speculation on the promise of future value.

The result:

The Anecdote: The Sailor Who Ate an Onion

One of the most famous episodes of tulip mania involves a passing sailor.

Entering an Amsterdam trading house, he spots what looks like an onion on a counter and eats it for lunch. He is immediately arrested. What he had ingested was not an ordinary onion: it was a Semper Augustus bulb worth the equivalent of several thousand florins — enough to feed an entire crew for months.

The anecdote perfectly illustrates the madness of bubbles: the value attributed to an asset can become so abstract, so disconnected from its real use value, that perfectly sensible people stop understanding why it is worth so much.

Replace "tulip bulb" with "NFT token", "unknown crypto" or "stock with no revenue at a P/E of 500", and the mechanism is strictly identical.

The Historical Fact: The Collapse of February 1637

The tulip bubble collapsed within a few weeks at the start of 1637.

In Haarlem, a bulb auction falls flat: the usual buyers do not show up. Doubt sets in. If no one is there to buy at high prices, what are these bulbs actually worth?

Within days, panic spreads. Prices collapse by 90 to 99%. Futures contracts signed at outrageous prices find no buyers. Entire families who had staked their savings on bulbs are ruined.

The Dutch government tries to intervene — in vain. Eventually, courts would declare most futures contracts voidable, limiting the most catastrophic losses. But thousands of people lost their capital.

What history remembers: Tulip mania is often presented as a quirky historical curiosity. It is in fact the first documented major financial crash — and the first example of a futures market for assets with no clear intrinsic value. The mechanism would be repeated with South Sea Company shares in 1720, railways in 1840, the stock market in 1929, the internet in 2000, and certain cryptocurrencies in 2017-2021.

The Concept: The Speculative Bubble — Anatomy of an Eternal Mechanism

A speculative bubble almost always follows the same five-phase pattern, identified by economist Hyman Minsky:

• Displacement: a new asset or technology attracts the first rational investors.
• Boom: prices rise, media hypes up, new buyers arrive.
• Euphoria: "This time it's different." Prices soar, debt rises, valuations make no sense.
• Profit-taking: insiders and early entrants start selling quietly.
• Panic: prices collapse. Latecomers suffer maximum losses.

The Bubble Asymmetry: those who enter early and exit before the collapse can profit. Those who arrive during the euphoria phase — convinced it will "keep going up" — are the ones who pay the bill.

How to recognise a bubble in real time? Three warning signals to watch:

• Disconnection between price and fundamental value: if nobody can explain why an asset is worth X, be wary.
• Participation by everyone: when the taxi driver, the baker, and grandma all start investing in the same asset, euphoria is at its peak.
• Borrowing to speculate: buying on credit what you don't understand, to resell at a higher price — this is the hallmark of a terminal phase.

The Axone Lesson: Tulip mania dates from 1637 but taught us little — because every generation is convinced its bubble is different. The Macro · Technique · Mindset method is precisely about not getting swept up in collective euphoria: analyse fundamental value, read the macro context, and maintain a rational framework when everyone around you seems to have lost their head. Risk is part of investing — but taking a risk you understand is very different from speculating on an onion.