Hopefully I can convince myself as well.
Those of you who know me, know I’m inconsistent when it comes to my opinions of the crypto and NFT markets. I can switch from bull to bear and back again within a few minutes, sometimes after reading only a single tweet or comment. The fact of the matter is, there’s a lot at stake when dealing in six-figure NFTs, and the correct timing of a buying or selling opportunity can make the difference between making it and not making it.
I don’t believe in strictly adhering to a “hodl” mentality. This is a stance that was forged in the fires of the multi-year bear markets of 2012, 2014-2016, and 2018-2020. Failure to exit at the top meant a 90% loss in equity, which given the tax burden that was likely built during the bull run, could mean bankruptcy in a worst-case scenario.
Sure, if you were the 1% of the 1%, you bought, you hodl’d, and you still hodl to this day, thus avoiding taxes (except for maybe a wealth tax if you live in one of those countries where it applies). You were a perma-bull who wouldn’t stop at anything to assure your spot in the “citadel” when the trad-fi markets inevitably collapsed after fiat currencies were printed into oblivion. If so, good for you. I respect your tenacity and undying loyalty to Satoshi and Vitalik.
The Speculative Early Years of Crypto
Bitcoin was partially created in response to the 2008 financial crisis and the associated bank bailouts. It was an acknowledgement that the global financial system nearly collapsed, and without an extreme amount of money printing, would have. Bitcoin was created as a potential safe-haven should the next collapse not be salvageable.
Between the resolution of the global financial crisis and the pandemic-induced crash of the financial markets in 2020, the utility of cryptocurrencies (and hence the blockchain) was questionable. Aside from being a platform for speculation and gambling, a true “use case” wasn’t really there.
The endless ICOs of 2017 were nothing more than solutions looking for problems. The story was that we were going to have robust supply-chain tracking, transparency in speculation markets, and improved dental healthcare. Invariably, these coins lost 99% of their value, as the value of the coin had no actual correlation with the “solution” that these projects provided. It was a speculative market and a game of musical chairs. By the end of 2018, it was a case of “last one out, turn off the lights.”
The Global Economy gets COVID
Fast-forward to 2020, and the world is blind-sided by a deadly virus that brings all global economic activity to a near stand-still (I still can’t believe this isn’t sci-fi). The stock market collapses once again, taking down cryptocurrencies as well. Ethereum hits $80, from a 2017 high of $1400; Bitcoin is down 80%. Any hope of crypto being a safe-haven is thrown aside as investors race to raise their cash balances as quickly as possible.
I have a distinct memory of my friend calling me, asking if he should accept an offer on his condo that was $10k under asking. “Absolutely, take what you can get,” I responded. Who knew how badly the real estate market would be impacted, I thought.
Well, what do you know! I got fooled again! Once again, the central banks came to the rescue. Interest rates were slashed to zero (or less), and the money printing went into overdrive, as government bonds and shady corporate debt was scooped up by the Fed and the ECB, among others. The stock market reversed and proceeded to embark on one of the greatest bull runs in history. With the cost of borrowing absolutely tanking, the housing market went bonkers, with year-over-year valuations climbing by 30% or more.
From this boom came names like Dave Portnoy, who led the “up-only” brigade. And of course the “wallstreetbets” sub-reddit went from dwelling in a dark corner of the internet into the limelight. Millionaires, and even billionaires were made, as meme-stocks became the flavour of the day. Everyone became an options trader thanks to the RobinHood app; it was the roaring 20’s, a hundred years later.
Gen-Z; Inflation; NGMI
Imagine you’re a 22 year-old, fresh out of university with a bachelor’s degree, or you’ve just finished trade school. You’re ready to find that quality job that you were promised so you can save up for a home of your own, start a family, and hopefully achieve a standard of living as good as or better than what your parents had. But what’s this? An already expensive house is 30% more expensive than it was a year go?! How will you ever be able to afford to buy real estate? Well, maybe if wages rise by an equivalent amount, you’ll be just fine. What’s that? Salaries have barely increased? Well, that’s some bullshit. You’re “not gonna make it” (NGMI). You decide, “to hell with this, I’m just not going to participate.” You move back in with your parents and try to find some other way to make money.
JPEGs, Endless JPEGs
Should we be shocked, given the circumstances, that cryptocurrencies boomed once again? Of course not. In 2020 and 2021, endless money printing spilled into every corner of the markets, notoriously giving rise to the next cryptocurrency boom and a the impetus for a new market in non-fungible tokens, (NFTs).
Cryptopunks, Bored Apes, CoolCats, and Beeple, you probably know them well. From essentially zero to multi-million dollar assets in less than a year. On the shoulders of Ethereum rallying from a COVID-low of $80, to a breathtaking high of $4800, NFTs became the story of 2021. 12 year-olds were releasing projects and earning hundreds of thousands of dollars in just a few days. “Alien” cryptopunks sold for $7 million, and Beeple sold an NFT for $69 million.
The most successful NFT project of the year was the “Bored Ape Yacht Club,” which now fetch a breathtaking minimum of 100 ETH ($300,000 USD) for any one of the 10,000 NFTs that make up the collection. Clearly this was/is a bubble that will correct itself. Or is it?
New Economy, New Culture
People that were too young to acquire assets have also failed to reap the benefits of inflation. Like two giant land masses floating apart, the chasm between the “haves” and the “have-nots” has grown irreparably large; disproportionally affecting Millennials and Gen-Z, but also impacting people across the demographic spectrum. We’ve entered a reality where the existing financial system just doesn’t work for a lot of people. So what are they going to do about it?
*Switches to posh English accent* I hereby postulate that the crypto-economy, made up of cryptocurrencies, decentralized finance protocols, and non-fungible tokens, has become an option of last resort for those that feel like they have missed the traditional financial boat, so to speak. *Switches back to nasal Canadian accent*
Now that there are both currencies and assets upon which in can function, we have a full-blown, thriving digital economy, where people who have become casualties of the old economy can thrive and survive. These are the beginnings of what is being now referred to as “the metaverse,” which is a consequence of the ongoing economic apocalypse.
Are NFTs a Bubble?
Let’s finally address the question at hand. Given the driving forces, described above, are NFTs actually in a bubble?
Yes, there will be pockets of the crypto-economy that behave in a bubbly fashion, but I do not believe that we will see a collapse in cryptocurrencies as we saw in previous market cycles. This time around, the strength of the crypto-economy is a result of people opting out of the old economy, and there’s no going back. Upon the back of this new economy, a culture based around NFTs continues to grow in relevance, and as the number of participants grows, and so will the value of NFTs.
For the first time, I think I have the evidence I need to become one of the hodlers, with at least a decent chunk of my portfolio.
I’ll see you in the citadel.