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In 1841, Charles Mackay wrote a very famous book that is mandatory reading for anyone in the investment industry. It was called, ‘Extraordinary Popular Delusions and the Madness of Crowds’. The book was a study of crowd psychology and mass mania with classic swindles, schemes and scams. One such example was the South Sea Company. Shares in the company soared on continual stories of fame and fortune, only to crash soon after, ruining thousands of lives and adversely affecting the British economy.
Probably the most famous example of irrational exuberance was the Dutch Tulip Mania of 1634 – 1637. Tulips were so fashionable and so sought after that at their height, a tulip bulb was reported to have sold for 10 times the annual income of a skilled craftsman.
When I originally wrote about Bitcoin back in 2018, many institutions suggested that the Bitcoin bubble had probably eclipsed the Dutch Tulip Mania episode. Seven years before that article, you could buy 1 bitcoin for 10 cents. At that time, the price of 1 bitcoin had reached NZD$30,000 before crashing to NZD$11,000 – still a pretty profit if you bought some bitcoins early enough, but more than a 50% drop in just a few weeks.
What a difference 7 years make. Today, Bitcoin has not only recovered from those early crashes but has achieved something that seemed impossible back then: institutional legitimacy and mainstream adoption. The cryptocurrency that was once dismissed as speculative mania has fundamentally transformed the financial landscape.
Bitcoin’s price has experienced extraordinary volatility since my original article, reaching peaks of over NZD$100,000 per coin before experiencing significant corrections. However, what’s more remarkable than the price movements is the institutional transformation that has occurred.
The most significant development has been the approval of Bitcoin Exchange-Traded Funds (ETFs) in major markets, including the United States. Companies like BlackRock, Fidelity, and other major financial institutions now offer Bitcoin ETFs, allowing traditional investors to gain exposure to Bitcoin through their regular brokerage accounts. This represents a seismic shift from the early days when Bitcoin was primarily the domain of tech enthusiasts and speculators.
Major corporations have also embraced Bitcoin as a treasury asset. Tesla famously added Bitcoin to its balance sheet, though it has since reduced its holdings. MicroStrategy has become perhaps the most prominent corporate Bitcoin holder, accumulating tens of thousands of bitcoins as part of its treasury strategy. Even traditional companies like Block (formerly Square) and Coinbase have significant Bitcoin holdings.
The blockchain technology I mentioned has indeed become the “next worldwide phenomenon” in ways we perhaps couldn’t have fully imagined. The Australian Securities Exchange (ASX) did implement blockchain technology as planned, though the project faced delays and technical challenges that led to eventual restructuring.
However, blockchain adoption has exploded across numerous sectors:
Central Bank Digital Currencies (CBDCs): Central banks worldwide are developing their own digital currencies using blockchain technology. The Reserve Bank of New Zealand has explored a potential digital New Zealand dollar, while countries like China have already launched their digital yuan, and the European Union is advancing with the digital euro.
Decentralised Finance (DeFi): An entire ecosystem of financial services has emerged on blockchain platforms, including lending, borrowing, trading, and yield farming – all without traditional banks as intermediaries.
Non-Fungible Tokens (NFTs): Whilst controversial, NFTs have created new markets for digital art, collectibles, and intellectual property rights, generating billions in trading volume.
Supply Chain Management: Major companies like Walmart and Maersk use blockchain to track products from origin to consumer, improving transparency and reducing fraud.
Smart Contracts: Self-executing contracts with terms directly written into code have enabled new business models and automated processes across industries.
The payment landscape for Bitcoin has been more mixed than initially hoped. While Microsoft did accept Bitcoin payments for a period (as mentioned in my original article), it has indeed suspended this service due to volatility concerns. However, other major companies have embraced cryptocurrency payments:
The volatility that made Bitcoin challenging as a medium of exchange has led to the rise of stablecoins, cryptocurrencies pegged to stable assets like the US dollar. These have become increasingly important for international payments and as a bridge between traditional finance and the crypto ecosystem.
One of the biggest changes since my original article has been the emergence of clearer regulatory frameworks. Governments worldwide have moved from uncertainty and scepticism to developing comprehensive approaches to cryptocurrency regulation:
A significant development not anticipated in my original article has been the focus on Bitcoin’s environmental impact. The energy-intensive “mining” process I mentioned has drawn criticism from environmental advocates. However, this has also spurred innovation:
The cryptocurrency and blockchain space continues to evolve rapidly. Current trends and future possibilities include:
Integration with Traditional Finance: The lines between traditional and digital finance continue to blur, with banks offering cryptocurrency services and crypto companies obtaining banking licences.
Programmable Money: Smart contracts are enabling new forms of programmable money that can automatically execute complex financial arrangements.
Cross-Border Payments: Cryptocurrencies are increasingly used for international remittances, offering faster and often cheaper alternatives to traditional services.
Institutional Infrastructure: Professional custody services, insurance products, and sophisticated trading platforms have matured significantly.
Reflecting on Charles Mackay’s observations about crowd psychology and market manias, Bitcoin and cryptocurrency have certainly exhibited characteristics of both speculative bubbles and genuine financial innovation. The extreme price volatility continues to echo historical manias, yet the underlying blockchain technology has proven its worth across multiple applications.
Perhaps most tellingly, the institutions that once compared Bitcoin to tulip mania are now the same ones offering Bitcoin investment products to their clients. The “virtual currency” I described as existing only online has become a multi-trillion-dollar asset class that central banks, corporations, and governments can no longer ignore.
The prediction that blockchain technology would become a worldwide phenomenon has certainly proved accurate. Whether Bitcoin itself represents a lasting store of value or will eventually be superseded by other digital assets remains to be seen. However, the broader transformation of finance through blockchain technology appears irreversible.
For individual investors, the same cautions about volatility and risk management that applied years ago remain relevant today. The difference is that cryptocurrency investment has moved from the fringes to the mainstream, with regulated products and professional management available for those who choose to participate.
The madness of crowds may still influence cryptocurrency markets, but the underlying technology has matured from speculative experiment to fundamental infrastructure for the digital economy of the future.
Steve Baron is a New Zealand-based political commentator and author. He holds a BA with a double major in Economics and Political Science from the University of Waikato and an Honours Degree in Political Science from Victoria University of Wellington. A former businessman in the advertising industry, he founded the political lobby group Better Democracy NZ. https://stevebaron.co.nz