Photo by Wayne Low on Unsplash

Black Lotus For $300,000 Anyone?

The Frenzy For Collectibles Has Hit An Insane Level

Back when I was a kid, I played the card game Magic The Gathering for a while. I begged and clamored for cards for Christmas and birthdays and was able to collect a few rare ones from the older sets like beta and unlimited. A few years ago, I gifted my entire collection to my cousin without thinking too much about it. I figured I was giving away at most a card collection worth $700 or so.

Boy was I wrong. I was listening to a podcast today on the speculative fervor that’s taken hold of the collectibles market today and out of curiosity Googled the price of one of my old cards:

Mox Jet to the moon! (Source: https://www.mtgprice.com/sets/Beta/Mox_Jet)

And I also gifted away two of these:

Sigh… (Source: https://www.mtgprice.com/sets/Arabian_Nights/Juzam_Djinn)

At least I never owned a Black Lotus. Near mint versions of the legendary card have been regularly auctioning for several hundred thousand dollars lately. Gifting away $10,000-$15,000 stings, gifting away a house would be another thing entirely.

I’m currently trying to talk my cousin into selling our old collection — if he does, hopefully he splits some of the proceeds with me ha.

Crazy For Collectibles

Magic cards aren’t the only things going for exorbitant prices, the surge in prices has extended to classic cars, wine, basketball cards (and shoes), and anything else that could be regarded as scarce. As one of the podcast hosts put it, there seems to be an over-abundance of scarcity these days.

The latest craze is NBA Top Shots, which are more or less Bitcoin meets NBA highlights. For a price, you can buy a blockchain powered non-fungible (meaning impossible to copy) highlight of your favorite NBA player. The more expensive NBA Top Shots are limited to just 25 or 50 copies. Of course, these highlights can be watched for free on YouTube. But that hasn’t stopped collectors for paying Ferrari-like prices for the equivalent of a short video:

A GIF for $208K! (Source: Twitter)

This has left many, including myself, scratching our heads. Why buy a freely available video? It’s not like owning the video prevents others from watching it — plus LeBron dunks on other players pretty regularly (so new highlights are being constantly produced). But I guess you could make that argument for any other artificially scarce good such as luxury goods or Magic Cards — they are all bought and sold for far more than the cost of production due to artificial scarcity.

Some combination of limited supply plus surging interest plus novelty plus the chance to make some serious money almost always creates an intoxicating cocktail of speculation.

The Bubble For Things That “Can’t Be Printed”

Although there are many factors at play, there is one thing that links all these various bubbles together. The extreme desire for stuff that cannot be printed (stocks are the exception because companies can definitely issue more shares and dilute existing equity holders if they felt like it).

If there’s one thing that everyone can agree on right now, it’s that there’s a ton of money printing going on — QE, zero rates, fiscal stimulus, etc. This strong and widespread belief has caused massive interest in things that are scarce (whose supply is fixed). And as the prices of those things increase, it creates a feedback loop of even higher interest and even higher prices and so on.

Thus everything from crypto to collectibles are increasingly seen as better stores of value than cash. In a way, crypto is to the masses what gold and jewelry are to the wealthy. And collectibles are to the masses what vintage wine, fine art, and exotic sports cars are to the wealthy.

A Relatively Harmless Bubble

It’s also important to note that this bubble can burst with no impact on pretty much everything else. This is not the same as a bubble in stocks.

When a stock or a housing bubble bursts, there’s a negative wealth effect caused by the large and widespread declines in net worth. This can easily kick off an economic recession.

If the market for Magic cards or NBA Top Shots crashes, there will be some very disappointed individuals. But it’s a relatively small market — most people will not have even realized that there was a collectibles bubble and crash.

And the fellow who bought the LeBron Top Shot for $208,000? If he can shell out that kind of dough for a GIF, then I am reasonably confident that he can afford the loss.

Data Science @Solovis, Doing my Best to Explain Data Science and Finance in Plain English. Follow my publication at: https://medium.com/alpha-beta-blog

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