By Jesse Robitaille
This column originally appeared in Canadian Stamp News (Vol. 47 #2) in May 2022.
A possibly overpriced collectible comes up for auction, and you want in on the hype.
What could go wrong?
I guess it depends on the stakes, and in today’s sometimes non-sensical world, the stakes can be quite high.
In December 2020, at the height of the pandemic’s second wave in Canada, Twitter co-founder and former CEO Jack Dorsey created a non-fungible token (NFT) of his first tweet.
Posted on March 21, 2006, Dorsey’s foray into tweeting can be seen by anyone on Twitter; however, the NFT – a digital file stored on and verified by a blockchain – is technically unique in the non-fungible sense. That’s to say NFTs aren’t all interchangeable for the same value as with bitcoin: and their non-fungible nature creates scarcity with an ensuing demand from the many people who are seemingly hardwired to collect items of interest.
Last March, as the total value of global NFT transactions jumped 21,350 per cent to more than $17 billion US (about $21.25 billion Cdn.), the NFT of the Dorsey tweet sold for a whopping $2.9 million US (about $3.625 million Cdn.).
Nobly, Dorsey donated his proceeds from the auction to the GiveDirectly Africa Response fund, which sends money “directly to the world’s poorest households,” according to the non-profit organization behind the program.
On the other side of things, the winning bidder – Sina Estavi, the Iranian-born CEO of tech firm Bridge Oracle – received a digital certificate of the tweet, signed and verified by its creator using cryptography.
Let’s not judge the bidder’s interests too harshly as I’m sure we all have our so-called “guilty pleasures” – and besides, he learned a valuable lesson in short-term bubble economics.
At the aforementioned height of the pandemic, investors turned at least in part to the high-end collectibles market – everything from stamps to coins and NFTs – as a safe haven from all the chaos and uncertainty.
This April, as the health crisis turned a corner, Estavi put his NFT up for auction, promising to donate half of his proceeds, which he thought would near $50 million US.
Unfortunately, the highest bid was $280 US (and no, I didn’t forget to type “million”). While that bid understandably failed to meet Estavi’s expectations, he told CoinDesk if he receives “a good offer, I might accept it,” but he also said he “might never sell it.”
The sale arguably couldn’t have come at a worse time.
DappRadar, which tracks NFT sales, found transactions on OpenSea, the world’s largest NFT-buying and -selling platform, dropped by 67 per cent from March to April. While sales neared $5 billion US in January – up from $8 million US a year earlier – they have since fallen back down to about $825 million US.
It’s a modern-day “tulip mania,” with the Dutch’s spendthrift fascination for brightly coloured flowers replaced by a crypto entrepreneur’s desire to capitalize on what seemed like a sure thing.
All astute stamp collectors will also notice a similarity to the philatelic market in the final decades of the 20th century. The market generally followed an upward trend from the late 1940s through the 1970s, and philately’s surrounding ecosystem, including dealers, auction houses and publications like CSN, rose at an accelerating rate during the economic boom of the latter decade.
By the late 1970s, “as high levels of inflation eroded the value of personal savings … many investors turned to collectible goods as a hedge against the inflation,” U.S. economics professor Michael Stoller wrote in the June 1984 Journal of Cultural Economics.
“Collectors, most of whom collect primarily for pleasure, watched with mixed feelings as investors drove the prices of their hobby’s collectibles to unheard of heights only to have them come tumbling down again in the early 1980s, victims of high interest rates, recession and a change in the tax laws.”
Stoller described the early 1980s price declines for “standardized collectibles,” including stamps, coins and earlier baseball cards, as a “severe” correction, but since then – even though a multi-year pandemic – prices have largely stabilized.
The 2021 handbook Financial and Economic Systems: Transformations and New Challenges reports philatelic collectors spend upwards of $10 billion a year on their hobby. Using a market index from the Stanley Gibbons firm, the authors also found the annualized return on British stamps from 1900-2012 was 7.6 per cent (or 3.5 per cent “in real terms,” or adjusted for inflation).
“These returns underperformed those of equities but were slightly higher than those of bonds,” the handbook’s authors wrote. “Stamp returns are influenced by equity market movements, but the systematic risk of stamps remains low. The volatility of stamp prices is similar to that of equities.”
Most of today’s collectors and even dealers warn against stamps as a general investment, but because most material remains reasonably priced, you’re much less likely to fall victim to a philatelic tulip mania any time soon. As we’ve learned from both our European ancestors and crypto contemporaries alike, a stable market is a good one, and we’re all better for it.
Yorumlar