Bitcoin Is Not a Tulip: Insights from ETF Analyst Eric Balchunas

Summary:
Eric Balchunas, an ETF analyst from Bloomberg, argues against comparisons between Bitcoin and the 17th-century tulip craze. He emphasizes Bitcoin’s resilience, substantial growth, and the ongoing demand for cryptocurrency ETFs as indicators of its lasting value.

Key Takeaways

Eric Balchunas refutes the notion that Bitcoin is akin to the tulip mania of 1637.
Bitcoin has exhibited significant durability over its 17-year history, showing resilience through various market challenges.
The cryptocurrency gained 122% in 2024, despite a recent price drop.
Non-productive assets such as Bitcoin can retain value similarly to gold or fine art.
The upcoming Bitcoin halving will tighten supply and could elevate demand further.

Bitcoin ETF analyst Eric Balchunas arguing Bitcoin is no tulip-style speculative bubble.

Bitcoin and Its Resilience

Bloomberg’s ETF analyst Eric Balchunas has taken a stand against analogies that liken Bitcoin to the tulip mania incident of 1637. He argues that Bitcoin's 17 years of existence, marked by recovery from downturns, showcases its strength as an asset class.

In a social media update on December 6, Balchunas highlighted that Bitcoin’s value increased by around 250% over three years and by 122% in 2024, despite a brief decline of about 27% from its high in October. He stated, “Tulips rose and collapsed in a few years, punched once and knocked out. Bitcoin has come back from multiple massive shocks to reach new highs and has survived 17 years,” emphasizing the cryptocurrency's endurance.

Market Challenges and Institutional Support

Balchunas, who monitors spot Bitcoin exchange-traded funds, pointed out Bitcoin’s robust performance despite significant market challenges, including exchange hacks, banking crises, the downturn in initial coin offerings in 2018, pandemic-induced fluctuations, and the failure of prominent projects.

As of early December, Bitcoin ETFs were holding considerable assets, an indication that institutional participation helps stabilize prices during market downturns. Balchunas remarked that “non-productive assets,” such as Bitcoin, gold, and rare artworks, can still hold substantial value even if they don’t generate income. He noted, “Not all assets have to be productive to be valuable,” drawing a parallel with gold and valuable art pieces.

The Nature of Bitcoin's Price Movements

The recent decline in Bitcoin's price was characterized as a correction rather than a fundamental market collapse. “If you think about Bitcoin’s year, all that really happened is it gave up the extreme excess of the prior year,” Balchunas mentioned in a follow-up post.

Financial analysts have observed that assets like gold maintain considerable value based on scarcity and their historical role as stores of value. Bitcoin advocates believe it shares this function and offers additional benefits in areas like remittances and corporate treasury functions.

The anticipated Bitcoin halving will reduce the issuance of new coins, potentially tightening the supply and spurring increased demand, as indicated by blockchain data. On-chain metrics have also revealed significant accumulation by larger investors during recent downturns, with a large amount of Bitcoin supply remaining dormant for over a year.

Market valuation tools like the MVRV Z-Score suggest that Bitcoin has been undervalued in certain phases, especially when compared to historical signals prompting bull markets.

The Difference Between Bitcoin and Tulips

In contrast to the tulip bubble, which lasted only a few years from 1634 to 1637 and crashed after reaching unsustainable price peaks, Bitcoin, which debuted in 2009, has weathered multiple cycles of growth and decline, consistently reaching new heights after each downturn.

Balchunas concluded that the market may be “overanalyzing” short-term price fluctuations, suggesting that periods of consolidation are natural in long-term investment cycles.