There is a new investment grabbing everyone’s attention called: Non-Fungible Tokens (NFTs). It’s made with the same technology that cryptocurrencies are made with, but it’s not currency. It’s a token and it can be attached to any piece of art, video, or tweet. It turns almost anything on the internet into a collectable that can be tracked and resold. Just this week someone paid $69 million for a piece of digital art. Today, Paul and his team talk about this new craze and why millions of people are buying, selling, and creating NFTs. For more information about what we do or how we can help you, schedule a 15-minute call with us here: paulwinkler.com/call.
Transcript
Paul Winkler: And welcome to The Investor Coaching Show, Paul Winkler talking about the world of money and in investing. Oh my goodness. What a week.
Stock Trends
You know, electronic stocks. You could have just about anything. A company could be selling any kind of nonsense. And as long as they put tronics on the end of their stock name, you know, it was good for another 10% on the stock price or something like that. It was just silly. People would pay more for it and just shows you how people are driven by perception. And then, you know, the 1970s and you get into oil.
And then all of a sudden people were investing in that. And then night early 1980s, you know, you get into bonds and late 1980s biotech in the nineties, it was technology stocks. And, and then it was real estate and in value stocks, then it was gold. And it was, you know, at the end it was emerging markets and international. And then you get back in the US stocks, large stocks are all the rage right now, again, then you’ve got all these other things, cause younger people are starting to invest in other things. And they’re starting to invest in Bitcoin and, you know, you fierce millennials are kind of investing in stuff, but it’s all ages.
There is this interview, this guy talks a little bit about what he is investing in. And you just gotta hear this, you know, just play that segment for me.
Non-Fungible Tokens
NFT CLIP: We, we sort of, we can’t deny the effect of the stimulus checks having some, some impact, but if I’m really thinking about what’s shaping this, it’s the fact that we’re, we’re in a, either negative or near zero interest rates where there’s a new generation of investor looking for places to put their wealth that, you know, frankly are getting democratized now, right? If we alternative assets as an investment, whether it was art or watches or collectibles have been available, but they’ve only been available for a select few for the very wealthy, because, because of the nature of the asset and, and because of the barriers to entry and, and I think what we’re seeing technology do just like it’s done across every other industry is democratize access.
And as that user experience gets better, yeah. The average person is way more informed about the opportunities and they see what the one percenters have access to. And they say, well, I want that too. And I think that shift is, is, is full steam ahead. And, and there’s a new generation that has just more skepticism about a lot of the traditional institutions and are very fluid with technology. And you put those two things together and present something that’s growing. I mean, treating cards, a loan of outpace the S&P 500 in the last decade in terms of growth. And, and, and you, you see those numbers. And I think only going to see more momentum as more investors say, you know what? I want to do it a little differently. Our portfolios are going to look a lot different than our parents and our grandparents, just because we have access to more, more and more things we can invest in that.
Paul Winkler: So this guy is talking about something called NFT, and you may have heard about this non-fungible tokens. So you’re like, what on earth is that? So what is fungible, first of all? So let’s say if I have, Oh, let’s say if I have 10 one dollar bills, and I had my ten one dollar bills, and I say, well, that’s fungible. I can replace it with a $10 bill and I’m indifferent between the two. Okay. So that’s the idea of fungibility.Non fungible, it means that it can’t be replaced with these tokens. So literally what you have is these people investing in this.
Actually, let me just hit some of what’s going on here, because you’re like going, what are they investing in? Investment mania is about this past week’s trading card, featuring quarterback, Tom Brady sold for a record, $1.3 million. The total value of the cryptocurrency Bitcoin hit 1 trillion and Christy sold digital artwork by an artist known as “people” for $69.3 million after bids started at just a hundred dollars. Okay. So people are blowing a lot of money in this, right?
Manias Are Gripping the Financial World
The seemingly singular events were all connected. Part of a series of manias that have gripped the financial world for months, professional and everyday investors have pushed up the prices of stocks and real estate. Now, the frenzy has spilled over into the riskiest and some kind of thing, some cases, the wackiest assets, including digital ephemera and media cryptocurrencies, collectibles, trading cars, even sneakers. The surge has been driven by a unique set of conditions. Even as millions were laid off in the pandemic, many people’s banks, bank accounts, flourished with stimulus checks and government cash infusions into the economy. But while people accumulated more money, traditional investments like stocks and bonds became less attractive.
So this is basically where stimulus money or your government money at work right here is we can basically look at this. Some, you know, some people speculate with them, but most are gonna end up losing it and it will end up in a few lucky people’s hands, because what they’re doing is they’re buying these, these tokens. And what are these tokens? Exactly. Well, you’re familiar with Bitcoin, you know, you’ve heard about blockchain technology and it’s the way to basically say something is definitely yours. Definitely yours. It has a digital signature on it, so to speak, right. Is that how you would describe an Arlene digital barcode?
Yeah. It’s basically a barcode, definitely yours. So you’ll have these pictures. Maybe you’ll have a video snip clip. Right. You might have LeBron dunking a basketball in a game that they lost.
You can get the same video clip, but why is it that the one with a digital signature that is definitely yours is worth more and, you know, the only answer and I found that is bragging rights. It’s the equivalent of saying, you know, I got a picture of the Mona Lisa and, you know, I took a picture. I went into the art museum and they had a tour going around and the Mona Lisa was in the art museum and I took a picture of it and I had a really good camera. So it was, you know, a very, very high quality picture, you know, great. As far as, you know, I can blow this thing up and you’d never know the difference, except for the fact that you don’t have to paint marks, you know, you can, it’s not your Mona Lisa.
And that is really, it is, is a, you just don’t have the actual real one. Now what’s happening is people are producing these works of art, so to speak, and it may be a little meme. It may be the very first tweet. And so they actually have a, and this is the very, very first one. And we know it’s the very first tweet that ever went out and you can buy this thing, and this is exactly what’s going on. So you’ll have, you know, like you said, a LeBron James dunking the ball and, and you know, an athlete’s trading cards.
And the thing is, this is the risk. What if the hype dies down? I mean, something like this is only worth what somebody’s willing to pay for it. And if nobody’s willing to pay for this doggone thing, you know, they’re not willing, you know, they have this open sale.
You know what? The sales were last month, $86.3 million. That’s what people spent. You know what it was a year ago, $1.5. This is like mania just absolutely gone nuts. So you have this unique token and it’s, you know, token ID and what was fascinating. I saw this one, it was a podcast. And I checked out this one, Pat podcasts, these people were talking about this, and this lady is talking about it. She goes like, yeah, you got this thing, like the mirror world. And he’s like, what’s the mirror world. Well, she said, you can own something like a physical painting for example.
And you have the mirror image of it, which is the divot digital image on the internet. Right. And the digital image on the internet is the physical art with a Bluetooth in it. And what happens is these people actually can game-ify your artwork. They game-ify it. And they can interact with it and I’m going, yeah. That stuff it’ll be really interesting until it’s not anymore. I mean, you know, we played pong when we were kids. And that was great for a while, until we got bored. But you remember that game pong Arley. Yep. So it’s like the first game that you had on the internet.
It’s fascinating that people will spend that much money on this thing and this guy goes so, so here’s what it is. He says, he says, you have the ability to create another world and you literally own property in this world. So to speak even, and it’s unique, yeah. And you have this property and you can be anything you want to. And I thought the psychological implications of this are mind boggling.
Looking for Wealth
How many people are out there that want to be something different than who they are. And there may be demand for that. Now, now that doesn’t make this a good investment, because, you know, you can create your own, your own digital world. And, and I don’t know if that would be worth anything to anybody else, but that was just another aspect of this. And this guy’s basically talking about, you know, these interest rates are near zero, and we’re not going to invest the way your mom and dad did and all of this in. And I’m thinking as he’s talking about this, we’re not going to invest in, you know, stocks and those types of things like your mom and dad did. And, and all I could think of is that, you know what, there are companies that come up with this stuff, and it just reminded me way too much of what happened in the 1800s, you know, with the gold rush, gosh, you know, we have this gold rush and we’re looking for gold.
We’re looking for wealth. We’re looking to, you know, somehow cash in on the latest. It’s crazy. And there are people saying, this is going to be the next Bitcoin and, you know, and, and all of this stuff and, and people are skeptical, well, why are they skeptical? Because they never invested in the stock market in the right way, in the first place. I mean, if you, if you look at the market and how it has delivered wealth over generations, the vast majority of people never gotten anything near what the market has delivered in returns. It’s not even close. I mean, you take a dollar in 1926 is worth $10,000 in large US stocks is $1 worth, $30,000 in small US stocks. And you can’t deny that there’s something there, you know, as far as wealth creation, because why, because I own companies that are creating goods and services and they’re producing products and there’s, and I’m paying for the right to receive their profits.
And I’m, you know, the ingenuity of people around the world coming together to solve problems. That’s what a company is. It’s, it’s a creative career. It created an entity, you know, creative by people to solve the world’s problems. And I look at that, it’s going well, there’s purpose in that, to me, there’s purpose to give people a job and to give people a job. Good point, Arlene. Yeah, yeah, absolutely gives people, you know, a livelihood and here, we got this other thing over here and we’re saying, well, it democratizes the ability to own. He said it was paintings and artwork and all of that stuff.
Well, when has artwork Ben for anything other than bragging rights? I mean, a lot of times it’s really wealthy people. They don’t buy it to invest and make tons of money. Very, very rarely do you have people that go and trade and make a lot of money off of artwork because of the commoditization and just the hope that some, somebody will pay more for it than they did. They typically use it and have it in their homes or having it in their businesses to say, look, I’ve got a Picasso and it’s a bragging right. And if you look at wealthy people, they’re not great investors. Anyway, if they were investing, they’re not that great at it.
Digital Asset Investing
Okay. So now who is doing this type of, you know, who’s doing this type of investing, a lot of younger people thinking that it’s going to be the next big thing.
Right. Well, what do a lot of younger people feel really passionate about? I think the environment might be one of those things. Would you, would you not say that that might be a thing that they might be very passionate about? I thought this was very interesting. How much would you pay to own a piece of art that doesn’t exist in the real world? For some people, the answer is millions, they’re going in there talking about this blockchain and non-fungible token and all of this stuff, and they’re going into what it is, how it works. And we know what they are, they’re a digital asset, essentially tradable digital certificate ownership, certificate, authenticated through blockchain networks that record the underlying data and on blah, blah.
And you know, all of this stuff. And then they say, okay, so blockchain is essentially a digital ledger means that virtual art can be authenticated as one of a kind. So it’s yours. You have bragging rights, right? A limited edition so that they become collectible can be downloaded, reproduced with ease, blah, blah, blah. You know, but that’s the problem with it because anybody can do it. You can, you can, despite the fact you can do it too. Like I said, that’s not true for digital assets. They can be replicated infinitely. They’re talking about original paintings. If you have an original painting, like, like, you know, the Mona Lisa or a Picasso or whatever, that’s an original painting. Yeah. You can take a picture of it, but it’s not anything near.
And he says, but that’s not true for digital assets. They can be downloaded. And they’re not necessarily all that unique. So there’s this one professor they interviewed well, so here’s the problem. NFTs are easily viewable online, and there’s nothing to stop anyone from making a copy. And it says, so what are owners getting? Generally, it’s nothing more than the ability to claim and sell the right of ownership to the work. It boils down to bragging rights. And here’s the thing. So digital artworks, if you buy me, typically hang them in your house. This is just, you know, nothing that you can do anything with. Well, what’s the problem. What’s the controversy and NFT.
My goodness. So it has, I mean, literally its own demise built right into it.
Arlene Brown: But it’s interesting too. It’s interesting to think that there are crazy rich people.
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