Market Lab Report / Dr. K's Crypto-Corner
by Dr. Chris Kacher
Can you guess where the following excerpt originates?
Following the aftermath of a rare and transformative event causing societal upheaval and mass unemployment in certain professions, policymakers stepped in with government issued payments to help citizens cope with their liabilities while unemployed. Quickly, however, this “free money” and more idle time produced speculation in bizarre “assets” like collectibles. Soon a mania unfolded in collectibles where particularly rare items fetched increasingly higher and higher prices to the point of madness.
It sounds like a description of helicopter money in the form of stimulus checks, COVID-related lockdowns, spiking unemployment, and collectible NFTs (non-fungible tokens) in today's COVID-stricken planet. Yet it was taken directly from the Japanese Meiji Revolution of which my distant relative Ryoma Sakamoto played a key role as he faught for both personal and economic rights for all. Perhaps not so surprisingly in these trying times, people decided to collect rabbits which resulted in a bunny-based speculative mania. As with any speculative bubble involving collectibles, rabbits with rarer features fetched higher prices. It was the nineteenth century version of cryptokitties. :)
But just as with tulip mania and the forgeries of van Gogh paintings, much sense was cast to the wind. Many ‘rare’ rabbits turned out to be fakes:
“Rabbit selling, popular for the first time since the Bakufu days, has recently reached a level beyond all reason, and industry is being lost. Dishonest merchants ask outrageous prices and ensnare the ignorant in their schemes. The common technique is to use Western paints to disguise the color of a rabbit’s fur, pass it off as a unique species, and sell it to someone from a remote area.”
As such mania tends to swing to extremes, a Japanese newspaper even reported that some wanted to sell their daughters in order to purchase rabbits. Some rabbits were so prized they sold for more than a thousand times the average monthly rent. The bubble blew apart when the government levied a 'rabbit' tax. Rabbit prices plummeted.
People through the centuries have always enjoyed showing off their mansions, their art, their jewels, their watches, their collectibles. It is a sign of status in the eye of many. So the Rolex on one's wrist or the tailored suit from London's Saville Rowe may grant one a certain level of status in the eyes of others.
The recent Beeple auction of one of his pieces of digital art sold for $69 million. So one might ask why should a digital image command such a high price? While one could simply right click and save the image, it is the equivalent of taking a picture of the Mona Lisa. Is such a duplicate image of the Mona Lisa worth anything? Of course not. The same goes for NFTs which grant the owner a limited edition of one as verified by the immutable blockchain. No van Gogh forgeries here. And the ease with which NFTs are created then attached to most anything including physical items is transformational in the world of not just collectibles, but intellectual property among other areas.
Digital gaming items have been around since the personal computer revolution in the 1980s. But such items could be hacked and duplicated. With blockchain technology, such is no longer possible, and has spawned a video gaming industry with revenues expected to surpass $150 billion this year along with the value of digital gaming items alone exceeding $50 billion and growing. NFTs on the blockchain provide a convenient way to identify an item, making it unique. They are digital certificates that authenticate a claim of ownership to an asset. It can then be easily transferred or sold. Jack Dorsey's original Twitter post is looking to fetch at least a few million dollars.One recent addition to the Crypto List is FLOW. It is the blockchain behind NBA Top Shots. One of the highlights from one of the NBA games was tokenized. It carried a selling price of $90,000. This can be done indefinitely and repeatedly.
QE-Induced Negative Yields Drive Cryptos Higher
Part of the mania in NFTs is connected to the big rally in cryptocurrencies. Quite often in the following order, bitcoin first rallies, then ethereum, then the alt coins which include companies focused on NFTs. And where goes bitcoin, so goes the cryptocurrency market.With stimulus on the way at home and abroad, fiat should continue to weaken overall thus pave the way for higher bitcoin and altcoin prices.