Former president of the Dutch Central Bank: "Bitcoin worse than tulip mania"

The former president of the Dutch Central Bank, Nout Wellink, has said that bitcoin hype is worse than the so-called "tulip mania" of the 17th century.

"At least then you got a tulip," he said. "Now you get nothing."

The famous tulip mania was one of the first recorded speculative bubbles in history. During the height of the mania, which occurred shortly after the introduction of the flower to the Netherlands, 12-acre plots of land were reportedly bought for a single tulip bulb. The bubble saw the value of tulips rise by 200 per cent, with a bulb selling for ten times a worker's annual wage.

Other bubbles have occurred in real estate, in debt, credit, "dot com" companies, and of course in multiple stock market bubbles that have been responsible for many of the largest crashes of the last century.

Over the last few weeks, the extra attention brought to bitcoin by the US Senate's Homeland Security and Banking Committee hearings has led to front-page coverage of bitcoin in the Wall Street Journal, among other prominent newspapers, and the resulting media hype has led to a rapid rise in the Internet currency's value. Further coverage of its meteoric rise has thrown more fuel into the fire.

The bitcoin stood at $200 [£124] at the end of October and at the time of writing is fluctuating just over $1,000 (£611), according to MtGox.com, the most popular bitcoin exchange site. The volatility of the currency has meant that anyone who invested in bitcoin way back when its original price was $0.01, would have seen an average gain of over 90,000 per cent over the last week.

A search on Google Trends reveals the spiking interest in bitcoin over the last few months.

Many have called bitcoin a speculative bubble before. Matthew O'Brien of The Atlantic called bitcoin "the Segway of currency," describing it as "a Ponzi scheme libertarians use to make money off each other."

Regardless, Wellink's comments have been some of the most scathing.

"Sooner or later the facade will fall", he told students at the University of Amsterdam, and called bitcoin "pure speculation" and "hype".

Wellink's comments come shortly after the Dutch Central bank issued a warning about the dangers of virtual currencies.

"The exchange rate is volatile and there is no central issuer which may be held liable," the bank warned. It also alerted citizens to the fact that the country's deposit guarantee scheme "does not apply" in the case of bitcoin.

In the time it took to write this article, bitcoin's value fluctuated by over $250 (£152).

Image: Flickr (Martin Godfrey)

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