The madness of people and Beeple

We find ourselves in a time of easy money and wild spending on the ideology of disruptive technology.

Four years ago, Bitcoin was trading at around $1,000. It seems surreal looking back on it. Of course, hindsight is always perfect – we all wish we had bought or at least bought more!

The Bitcoin price will move wildly just in the time it takes to write this article, yet the fact remains that Bitcoin is over 55x higher now than it was in March 2017. The classic “HODL” strategy of Bitcoiners has certainly been rewarded – pop culture trading slang for holding through all the dips and believing in the long-term value.

2017 was the year that Bitcoin really came onto the radar of those with a strong risk appetite and a desire to get rich quickly. It started the year at $900 and ended at over $16,700 – a monumental return.

Of course, it all evaporated after that and the Bitcoin pundits went quiet. Many left with their tails between their legs, having watched the price drop all the way back down to under $3,500 by January 2019.

Since September 2020, Bitcoin has demonstrated a “parabolic” chart pattern, characterised by a vertical rise in price and incredible support for every pullback as investors “buy the dip”.

Interestingly, Tesla has exhibited a similar price pattern.

The fundamental drivers behind these assets are completely different. Bitcoin is put forward as the digital alternative to gold, a store of value that represents the sheer power of the modern world. Tesla is a technology play too, with the obvious drivers being a demand for electric vehicles and whether Tesla can deliver autonomous driving technology to the world.

The link between the assets was cemented by Tesla investing $1.5bn in Bitcoin and Musk announcing that Teslas can now be paid for with Bitcoin. However, there was a link long before that in terms of common investors.

There is no question that the American stimulus programme has been the biggest driver of the so-called “meme stocks” like Tesla that have gained cult-like status among younger investors. As they use their stimulus payments to have a punt at the markets, we can be sure that we are living in historic times in the market.

These days, a sensible offshore investment strategy focused on single stocks would at least consider some kind of sentiment gauge on platforms like Reddit, where a veritable army of young traders share ideas and literally move the markets.

Their approach is to buy call options in a “YOLO” (You Only Live Once) strategy that risks an option premium in exchange for limitless upside. The logic is that the government stimulus package was easy money anyway, so why not risk it?

In a classic case of behavioural finance meeting the traditional markets, retail trade volumes have now matched institutional and hedge fund volumes in the US. Drunk with power and their own success, you ignore the Reddit army at your own peril.

Now, there’s a new asset class that has earned the attention of the young and upwardly mobile in the markets.

Putting the fun in non-fungible tokens

The blockchain has become a cult. Its early believers are now fabulously wealthy after the meteoric rise in the value of Bitcoin and other coins like Ethereum. They are constantly seeking new ways to keep their chosen technology in the news headlines.

The latest craze to raise eyebrows is the concept of buying digital art and even basketball video moments (yes, really!) as non-fungible tokens (NFTs). Simply put, everyone from traders through to art and sports enthusiasts can buy assets on the blockchain that reflect ownership of a particular digital artwork or other creation.

The world has had a taste of this before. After the first Bitcoin craze in 2017, Cryptokitties emerged as collectable digital cats on the Ethereum blockchain. In reality, this was the first mainstream use case for the Ethereum technology and helped to uncover its weaknesses, as the digital felines attracted over $6 million in “investment” from eager crypto traders and clogged the network in the process.

Ethereum has gone on to become the go-to protocol for decentralised finance (DeFI) and “smart contracts” which replicate traditional financial services on the blockchain. For example, there are lending pools on the Ethereum network that lend money out just like a bank, charging a particular yield and seeking strong returns.

The lesson to learn from this is that the frontier of technology may look incredibly strange to anyone old enough to remember watching Friends on TV. The newest generation of investors is a digital population that will drive incredible growth in gaming, blockchain and related technologies over the next decade.

The challenge is putting your money in the right place.

Enter the Beeple

Believing in the blockchain is one thing, but “investing” in arbitrary digital assets is an incredibly speculative strategy. Mike Winkelmann, or Beeple as he is more famously known, sold his opus Everydays – The First 5,000 days for an eye-watering $69 million, the third most expensive artwork of any living artist.

If you have a strong stomach and feel ready to be offended anyway, then Google the individual images in the artwork. At best, it probably won’t age well. At worst, it could cause riots. So naturally, I made it the screensaver on my phone for the last couple of weeks, to remind me of the madness of crowds.

Yet, it holds its place in history, just like the Cryptokitties. We find ourselves in a time of easy money and wild spending on the ideology of disruptive technology.

Proceed with caution and keep your head about you. There is an opportunity in the new world, but it is fraught with danger…

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