What similarities exist between the 2024 cryptocurrency craze and the 17th-century Dutch tulip mania? We examine the commonalities in the history of dangerous speculation and mania.

Why Abnormal Currents Appear in the Market

For those unfamiliar with the ‘Greater Fool Theory,’ every day is April Fools’ Day.

I’ve been reading a lot of books on investing lately and came across an interesting episode about the ‘Tulip Bubble.’ Tulips have always been deeply loved by people for their beautiful colors and fragrance. But 300 years ago, a single tulip bulb was said to be worth more than gold. Back then in the Netherlands, a massive tulip investment craze swept through society, affecting everyone from the poor to the wealthy, regardless of social class.
Tulips became the very center of financial speculation. It’s even called the first speculative bubble in world economic history? How could people become so obsessed with a single plant? People emptied their pockets to buy tulips, but when the bubble finally burst, tens of thousands lost their fortunes and went bankrupt.
It’s truly bizarre. Aren’t tulips just ordinary flowers? How could so many people pour their entire wealth into buying them?

The Tulip Mania that Swept 17th-Century Europe

In the first half of the 17th century, the Netherlands held a very special position in Europe. While other European nations were still reeling from the aftermath of the Thirty Years’ War, the Netherlands was already enjoying its golden age.
At that time, the Netherlands was governed not by a royal monarchy but by a system jointly administered by a council of citizens and nobles. The source of the Netherlands’ wealth—the first nation in Europe to develop a modern economy and the wealthiest state—was ‘trade’. The Netherlands was the first country to establish direct trade relations with East Asia and conduct large-scale trade. Most luxury goods in Europe at the time came from East Asia. Through this trade, the Dutch gradually accumulated wealth and grew increasingly prosperous. Although wealth was concentrated in the hands of a few, the overall standard of living was among the highest in Europe at the time.
Although they experienced the Reformation in the 16th century, the Dutch during this period were effectively immersed in a relatively extreme form of Calvinism, which fostered a strong aversion to outward displays of wealth. Calvinism refers to the Christian theology of John Calvin, the 16th-century French religious reformer. It emphasized God’s absolute authority, advocated predestination, and held an activist tendency in religious life, viewing oneself as an instrument for God’s glory. Consequently, only Dutch merchants openly flaunted their wealth, praising God in various ways. For instance, they would plant beautiful trees or flowers in their gardens, ostensibly to glorify God while displaying their wealth. At this time, tulips were not yet present in the Netherlands.
Early tulips were produced in China’s Xinjiang Uygur region, along the northern and southern shores of the Mediterranean, in Central Asia and Iran, and in Turkey and Kazakhstan. They later traveled along the Silk Road to Central Asia and eventually spread through Central Asia to Europe and other parts of the world.
Later, a botanist professor from Vienna brought tulips cultivated in Türkiye to Leiden, Netherlands. The tulips he bloomed using his exceptional horticultural skills were exceptionally beautiful, becoming a sensation among Leiden’s upper class.
The Dutch, who had always loved decorating their gardens and yards, immediately fell in love with tulips and began advocating for them to be designated the national flower. They argued that tulips should be counted among the Netherlands’ ‘Four Great National Treasures,’ alongside windmills, cheese, and clogs.
Countless ministers and members of the royal family were captivated by the beauty of the tulips cultivated by the professor. However, whenever they expressed interest in buying tulips, the professor firmly refused.
But soon after, while the professor was briefly away, thieves broke in and stole the tulip bulbs, selling them off. Upon hearing this news, shrewd speculators began hoarding tulip bulbs in large quantities, causing prices to skyrocket. Public opinion fueled the frenzy, intensifying people’s craving for tulips. A bizarre phenomenon even emerged where those unable to obtain them developed ‘tulip fever’ from envy and jealousy. Anyone who acquired and cultivated tulips gained immense prestige, and they soon became a symbol of wealth. From this point, people lost their reason and began buying tulips like mad.
Merchants who initially bought tulip bulbs intended only to hoard them, planning to sell at a profit when prices rose. However, as speculation intensified, crowds of people eager to buy tulips began flocking in, and in no time, tulips were assigned absurdly high values, causing prices to skyrocket. The higher the price climbed, the more buyers appeared. Speculators from across Europe flocked to the Netherlands, intensifying this bizarre phenomenon.
By 1636, the price of a single tulip bulb had risen to the point where it could buy a carriage and four horses. Even tulip bulbs still underground, invisible to the naked eye, were traded through multiple hands.
In 1637, the price of a single bulb named ‘Switser’ rose 485% in just one month. Over the course of a year, tulip prices soared by a staggering 5,900%. The most expensive tulip at the time was the ‘Semper Augustus’, a top-grade variety characterized by its virus-induced mottled pattern. The price of a single bulb was enough to purchase an entire chapel built in the busiest district of the Netherlands.
Although almost no one had actually seen Semper Augustus in bloom, this did little to dampen the tulip speculation frenzy. People weren’t truly interested in growing or appreciating tulips; they were driven by the prospect of making a fortune from them.
Rumors of amassing immense wealth quickly through tulips spread even to artisans and peasants, who gradually entered the market. Commoners without capital started with bulbs they could afford. Even those varieties saw prices rise, and speculators profiting from resale proliferated. This brought significant changes to the market: year-round trading and the associated futures trading system were introduced.
These transactions took place not in formal stock exchanges but in taverns. Cash or physical roots were unnecessary for the trades. Contracts stating “Payment due next April” or “Roots delivered then” sufficed, and sales could be made with a modest down payment. Even these down payments weren’t limited to cash; anything convertible to cash, like livestock or furniture, was accepted. As these promissory notes circulated through multiple transactions, it eventually reached a point where neither the creditor nor the debtor knew who or where the other party was. This futures trading system allowed even those without capital to participate in speculation. As ordinary people like bakers and farmers joined the tulip market, demand ballooned rapidly, and even cheaper varieties saw their prices skyrocket.
What finally quelled this tulip speculation frenzy, which seemed to cause endless economic chaos, was a single, absurd incident. This, in turn, suggests that every speculative bubble eventually bursts.
According to records, a young boatman from a neighboring country, completely unaware of the tulip mania in the Netherlands, had a tulip bulb cling to his clothes as he disembarked after work. That bulb was the ‘Semper Augustus’.
The shipowner had paid 3,000 guilders (equivalent to $30,000 to $50,000 today) to purchase that tulip at the Amsterdam exchange. Upon realizing the bulb was missing, the frantic shipowner went searching for the sailor. After much searching, he found the boatman eating smoked fish at a restaurant. The boatman was putting the tulip bulb, which had been on the table, into his mouth along with the fish. Completely unaware of the tulip’s value, he thought the bulb was just an onion served as a garnish with the fish and had eaten it with relish.
That a tulip bulb bought for thousands of gold coins looked like an onion to someone’s eyes—was it the boatman’s fault, or was it the Dutch people’s fault?
This accidental incident became the trigger, causing tremendous ripples at the Amsterdam Exchange. Prudent speculators began to question the bizarre phenomenon and developed fundamental doubts about the value of tulip bulbs. A tiny minority realized something was terribly wrong and started selling their bulbs at low prices. As some sensitive individuals observed this and immediately followed suit, more and more people dumped tulips at rock-bottom prices, and finally, the storm hit.
In an instant, tulip bulb prices plummeted to pitifully low levels, and now no one in the market wanted to buy tulip bulbs. Tulip prices crashed overnight.
Within just one week, tulips were being traded for mere pennies. Those who had engaged in speculation paid the price. The Netherlands’ economic prosperity also began a steep decline. Within Europe, the Netherlands’ position gradually came under threat from Britain, and the center of European prosperity gradually shifted to the English Channel. Tulips were still tulips, but the Netherlands was no longer the Netherlands it once was.

The Greater Fool Theory, no different from passing the buck

American economist Peter R. Garber assessed the tulip mania as “a ruthless speculative bubble.” People were all trying to get a piece of the action through the price surge. And in such situations, people often develop the unrealistic belief that prices will keep rising endlessly.
Why do people make this mistake? John Maynard Keynes, considered a highly influential economist in 20th-century modern Western economics, summarized this phenomenon through his own experience.
Determined to focus on academic research, he took on hourly-paid lectures to ease his financial burden. But the income from these lectures had its limits. In August 1919, he invested thousands of pounds in currency speculation and made £10,000 in profit in just four months. That was money he would have needed to lecture for ten years to earn.
Yet the common trait of speculation is that it never ends when you make a profit. Initially, he was thrilled and astonished by his enormous gains. So he invested more money, eventually crossing a point of no return. Three months later, he lost all his interest and principal. But the psychology of gamblers always boils down to one thing: ‘I will definitely win back all the money I lost.’
Seven months later, he tried futures trading related to cotton and achieved great success. Spurred by this, he expanded his portfolio and engaged in speculation. Over the next decade, he made a fortune.
In 1937, Keynes fell ill and withdrew from stock investing, but by then he had amassed enough wealth to last a lifetime. What set him apart from ordinary gamblers, however, was his formulation of the enduring ‘Greater Fool Theory’. This was a product of his speculative activities. What is the ‘Greater Fool Theory’? Keynes explained it with the following example.

A newspaper held a beauty contest. The contest awarded prizes to both the person whose face was voted the most beautiful among 100 photos and the person who correctly guessed it. The winner would be decided by a public vote.

Now, who would you vote for?

Remember: the winner of this contest is determined by a public vote. Therefore, to get the ‘correct’ answer, you must choose not ‘the face you personally think is the most beautiful,’ but ‘the face the majority of people think is beautiful’—even if it doesn’t appear that way to you. Here, you must base your thinking not on your own actual opinion, but on the psychology of the crowd.
Keynes said professional investing can be likened to a ‘beauty contest’ held by a newspaper. In such contests, readers typically select the six most beautiful faces from 100 photos, and then the person who receives the most votes ultimately wins the prize. Therefore, voters must find ‘the face other readers find most attractive,’ not ‘the face I personally find most beautiful.’
This means you might have to vote for someone you personally don’t find beautiful at all, or perhaps someone who isn’t even considered pretty by most people. Ultimately, you have to ‘rack your brains’ to pick a third option—the face the public deems beautiful.
Readers must therefore think strictly from the perspective of other readers. If the beauty of 100 participants is evenly matched, wouldn’t the biggest difference be something like hair color? What if only one among the 100 has red hair? Would you then choose the woman with that hair color? In a situation where readers cannot meet and communicate, what aspects will they actually find common ground on?
Choosing the ‘most beautiful woman’ is far more difficult than picking the thinnest, the reddest-haired, or the one with the most perfectly spaced front teeth. Because without clear criteria for defining ‘beauty,’ anything could win.
Therefore, the key to success for voters is accurately guessing others’ thoughts. If you guess correctly, you win a prize; if you guess wrong, you’re eliminated. The crucial point here isn’t who is pretty or ugly. The key is predicting the psychology of other voters.
This is the core point of the ‘Greater Fool Theory’. The reason people are willing to spend a fortune on something without seeing its true value is the expectation that someone far more foolish than themselves will come along and buy it for even more money. What this theory tells us is that “the scary thing isn’t becoming a fool, but being the last fool standing.”
This theory explains the underlying motivation behind speculative behavior. The core of speculation is judging whether there’s someone “more foolish than me.” The logic is that as long as I’m not the dumbest person, I can still be a ‘winner’. How much you gain or lose isn’t the crucial issue. If no one is willing to pay more than you, then you become the ‘last fool’. In this context, every speculator holds the belief that ‘the biggest fool is someone else, not me’.

The dangerous belief that I am not the last fool

Why are we so certain we won’t be the last fool?
British historian Mike Dash stated, “The human brain and consciousness refuse to believe the truth about bubbles.” Most people fail to properly understand the real information related to a speculative bubble before participating in its overheated frenzy. The Tulip Mania was a prime example that starkly revealed people’s blind speculative behavior.
Buyers and sellers were well aware they were essentially ‘gambling’ at unrealistic prices, yet they couldn’t resist the temptation of potentially huge profits. This is why blind herd behavior occurs.
Yet such bizarre phenomena still occur today. When prices rise for items like herbal medicines touted as healthful or everyday necessities like salt and vinegar, people go on a frenzied buying spree.
This hoarding phenomenon becomes especially pronounced when people lack a clear understanding of the actual value of the goods. Then, when no one wants to buy anymore, prices suddenly plummet, and items are sold off at rock-bottom prices. This phenomenon is called a ‘speculative bubble’.
In fact, the strategies people adopt in futures and stock markets are identical. People don’t look at the true value of an object or asset. They focus solely on items they can buy at a high price. This stems from the expectation that someone else will definitely buy it from them at a much higher price than they paid.
For example, why would someone insist on paying $4 for Stock A even if they don’t fully understand its true value? It’s because they believe someone will definitely buy it from them later for even more money than they paid now.
When analyzing stock theory from the perspective of crowd psychology, the ‘Greater Fool Theory’ is a well-utilized concept. According to this theory, some investors have no interest in a stock’s theoretical price or intrinsic value. They buy because they believe someone will inevitably come along in the future willing to pay even more for their ‘hot potato’. This theory holds sway because investors’ predictions about the future often diverge wildly. When news breaks, some react with excessive optimism while others lean toward pessimism. Some act immediately, while others proceed cautiously. These differences in judgment lead to divergent collective actions, disrupting market order and giving rise to the Greater Fool Theory.
This theory can be applied to two distinct groups: the ‘emotional fool’ and the ‘rational fool’. The former fail to recognize they’ve already joined the ‘greater fool’ game when investing, unable to predict its rules or inevitable outcomes. The latter accurately understand the game’s rules but proceed with investments, believing more fools will join the ranks under current conditions.
The prerequisite for the ‘rational fool’ to profit is that more fools join the ranks. And this is precisely the universal psychology of the masses. Retail investors tend to firmly believe that prices will rise further in the future when forecasting the market, even though current prices are already high.

How to Avoid Becoming the ‘Greater Fool’

Speculation in the stock market is a constant phenomenon, differing only in degree. However, a significant number of speculators exhibit irrational behavior, sometimes gambling as if possessed. For amateur investors, profiting by applying the ‘greater fool’ theory is difficult. Yet, professional investors sometimes leverage this market sentiment, investing a fixed percentage of their capital to become ‘rational fools’.
How can one avoid becoming the ‘greater fool’? There’s a saying in the stock market: “Be the greater fool, but never be the last fool.” While it sounds simple, applying it in practice proves far from easy.
‘Greater fools’ are sensitive to news circulating around them. For instance, suppose a particular stock is showing strength. Even without any official announcements, it keeps rising day after day, boosting returns. Investors who haven’t bought it start fretting and eventually buy in at a high price. The more this happens, the higher the stock price climbs, and the more buyers enter. Soon enough, the market naturally fills with numerous positive news stories about this stock, and phenomena supporting the irrational rise start appearing one after another.
That’s why market participants often say, “Trends determine news, rather than news determining trends.” Stocks with a strong trend attract investors, which in turn generates more positive news. So, those who adopt the ‘greater fool’ strategy argue that instead of studying stock knowledge or theory, one only needs to observe the stock’s trend and trading volume. The idea is that simply grasping the ups and downs allows one to see through the stock’s trajectory. So, in a way, the core of the ‘greater fool’ theory might be naturally conforming to the trend.
People recognize that enormous risks lie behind the ‘greater fool’ theory. Yet, why don’t they stop investing? It’s because of human psychology, which is never satisfied. It’s human nature to complain that too much gold is too heavy to carry, yet grumble when given too little.
Even investment genius Warren Buffett said, “Investing should be done with your head, not your body.” The head analyzes a company’s future management and shifts in public sentiment. The body merely moves driven by instinct. Of course, some argue that within the bounds of one’s knowledge, becoming a certain degree of ‘rational fool’ is sufficient. They claim it’s a kind of strategy for surviving in an irrational market. But while that sounds easy, it’s actually incredibly difficult. We understand it intellectually, but when blinded by greed, we lose our senses and repeatedly abandon reason—that’s human nature.

Scams are also a kind of ‘greater fool’ game

The ‘greater fool’ theory is also applied to certain ‘scam marketing’ schemes like multi-level marketing. While most young people today, thanks to the internet, are well aware of the true nature of these scams, the elderly remain potential targets for this theory. People in the high-interest loan or so-called ‘pyramid’ industries operate on the belief that ‘there will always be someone to buy this.’
This is a case related to multi-level marketing that occurred in a provincial city. The company’s responsible person, already on trial for embezzlement of public funds, orchestrated another scam, claiming, “Since the company has gone public, all future money will go to investors.” Just as elderly grandparents, lured by this, were about to invest their money, fortunately, another victim reported it to the police, bringing the case to a close. This is another case that can be interpreted through the ‘greater fool’ theory.
Recently, the cryptocurrency market has experienced an unprecedented boom. An unimaginable number of cryptocurrencies have emerged. Yet, this too can be seen as a game related to the ‘greater fool’ theory. Let’s consider an example. Ten friends, including myself, are preparing to issue a cryptocurrency. We plan to issue ten million coins, with an initial price set at $1. Each of us has set aside 500,000 coins. With ten people, that’s a total of five million coins. The remaining five million coins will be distributed through mining and other methods.
First, we targeted one hundred ‘retail investors’. What should we do next? If we just offer to buy a $1 coin for $1, no one will be interested. So what’s the solution? We trade among ourselves first.
First, the ten of us each sell 100,000 coins to the outside market for $2 each. Then we buy back 100,000 coins from each other for $2 each. After one full round among the ten of us, the coins circulate equally among everyone.
Now, what has changed? The coin’s value has changed. Because it traded at $2 per coin, this signal was sent to the market, and now the coin’s value is $2. At this point, will there be any ‘retail investors’ whose resolve wavers?
It doesn’t matter. We’re not in a hurry. We just need to trade again using the same method. This time, we raise the price to $5. We don’t even need that much trading volume. Just raising the price of one coin to $10 makes the entire market recognize its value as $10. Now the total value of all coins has already reached $10 million.
Investors started flocking in. People began trading the moment they entered. Among them, cautious ‘retail investors’ advocating ‘long-termism’ are bound to exist. They only buy, never sell. So who should sell? We can sell.
The price keeps climbing. More ‘retail investors’ join in. The value of the coins bought by earlier ‘retail investors’ keeps hitting the upper limit. Naturally, the price rises. Eventually, ‘retail investors’ who can’t hold out any longer appear, wanting to sell their coins. They’re likely the ‘rational fools’. These are the people who realize this is a trap and now want to get out. What should they do?
It doesn’t matter. At this point, the newly arrived ‘retail investors’ naturally take over the coins at high prices. The price will keep going up. We just need to ride the wave and gradually sell off the coins we hold. As long as ‘retail investors’ advocating ‘long-termism’ exist, prices will naturally rebound after dips, so there’s no issue. They won’t sell when prices rise because they’ve seen it happen before, and they’ll bring in even more ‘retail investors’.
As long as ‘retail investors’ keep maintaining this consensus, the coin will continue its upward trend and never crash. Even if the ‘last sucker’ never appears, it doesn’t matter. My friends and I have already sold most of our coins and filled our pockets. This is the sad fate of the ‘retail investors’.
History doesn’t repeat itself, but it does rhyme. Only the protagonists in the story change, and the objects used in the scam change. The rules of the game remain the same. The principle of the scam is actually simple. The common thread is exploiting human weaknesses. Those who become the ‘last fool’ are often habitually led by herd mentality, investing blindly. Blinded by greed, they focus solely on making big profits, hoping someday the ‘last fool’ will appear. Eventually, they lose their rationality. Remember, if you’re not careful, you could become the ‘last fool’ in that game. So, the moment greed arises in your heart, we must reflect on the following verse.

“The last to arrive may become the devil’s prey.”