The promises of enormous and fast profits have also lead to some incredible
speculative bubbles. One of the most famous was the Dutch “Tulip Mania” that at its peak in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman.
The seminal book on bubbles is Manias, Panics, and Crashes, by Charles P. Kindleberger, Robert Aliber. According to their book, a bubble involves an unsustainable (parabolic) move in prices, or cash flows. See page 8, price history for Bitcoin for an example.
The book lists 10 of the most famous and biggest bubbles in economic history:
1. The Dutch Tulip Bulb Bubble
2. The South Sea Bubble, 1720
3. The Mississippi Bubble, 1720
4. The U.S. stock market bubble, 1927 – 1929
5. The surge in bank loans to Mexico and other emerging countries in the 1970s
6. The Japanese real estate and stock market bubble, 1985 – 1989. Japan hasn’t really recovered from their bubble.
7. Scandinavian’s real estate and stock market bubble, 1985 -1989
8. Thailand, Malaysia, Indonesia and other Asian countries real estate and stock market bubble 1992 – 1997
9. Surge in foreign investment in Mexico, 1990 – 1993
10. Tech, dot.com bubble 1995 – 2000.
Not included in the list, the U.S. real estate and sub-prime mortgage bubble, 2003 to 2008.
Some Ponzi schemes also wind up as bubbles, Madoff being the latest. Many Ponzi schemes burst because they can longer find fools to fund the ruse, or the law catches up with schemer.
The latest scheme/speculative bubble is the Bitcoin frenzy that has thousands of speculators, investors and tax dodgers dreaming of windfall profits. The amazing thing about Bitcoins is that unlike most Ponzi-Schemes and speculative bubbles is that so much is unknown about who actually launched it.
Accepted by few, Bitcoin is money that has no backing by any country, banking institution and can literally be created out of thin air!
Bitcoins are a virtual currency created by anonymous programmers around 2008, 2009. They are 100% digital. They are not minted in silver, copper, gold, plastic or even printed on paper. They exit entirely in the digital world. They can be used currently to buy a broad range of products -from cupcakes to computers, electronic and even illegal narcotics.