Bullion Bulletin: Hard and Soft Assets

Mark Twain once gave a piece of investment advice: “Buy land”, he said. His justification was “they’re not making it anymore”.

Except of course ‘they’ are.

At the end of November last year, DappRadar, a crypto analytics site, reported that people had spent – it feels wrong, somehow, to describe this as ‘invested’ – more than $100 million in one week alone on fake land, land that exists only in the Metaverse, the network of 3D virtual worlds.

The craze to hunt down new assets that might give a better yield (or indeed any yield) has only intensified as inflation has turned more serious (about 60% of advanced economies now have inflation above 5%) and we are still living in a world of real negative interest rates.

The decentralisation of the right to issue ‘money’ (and, further along, the decentralisation of what constitutes ‘value’), which is essentially what cryptocurrency is all about, has brought in its wake a less useful phenomenon – it’s divided the world into believers and doubters.

For the former, of course it make sense to be into cryptocurrency or spend millions on fake land; for the latter, such activities are nothing more than a very clever Ponzi scheme – returns from later investors are the means of profit for earlier investors. An entire universe is being erected on the basis of a business model built on a speculative bubble that drives up prices (value).

Cryptocurrencies, non-fungible tokens (NFTs), and the like may just be for the technical elite. But the revolution that Web3.0 is bringing about has delineated one important matter: it’s questioned an assumption we all share, which is that money is what our governments define as legal tender, fiat currency. In 2022, the status of money has been, is being, thrown into question. This rabbit is never going back into the hat.

Agustín Carstens, general manager of the Bank for International Settlements (BIS), has called bitcoin “a combination of a bubble, a Ponzi scheme and an environmental disaster”. That may be true. But as Bloomberg pointed out on 1 May: “when the pandemic began, you really were well advised to put some money into Bitcoin and Ethereum. Relative to January 2020, your investments are up by factors of, respectively, 21.7 and 5.4. Your gold position is up just 25%”.

What are you buying when you purchase an NFT? According to Samson Mow, Chief Strategy Officer at Blockstream, a Canadian-based blockchain technology company, that “can vary drastically from issuer to issuer. Some… don’t really entitle you to anything — all you can do is look at them inside an app and brag about owning them” – a bit like hanging a painting on a wall in your lounge. With others, you are buying entry into a very select club, with very real benefits. You’re NFT token is your key to unlocking both real world and Metaverse treats and experiences that would otherwise be out of reach.

The Bloomberg writer Matt Levine has a lot of fun writing about NFTs and value. This week he wrote: “An NFT of the first tweet from Twitter Inc. co-founder Jack Dorsey sold in March 2021 for $2.9 million to Sina Estavi, the chief executive of Malaysia-based blockchain company Bridge Oracle.

Earlier this year, Mr. Estavi put the NFT up for auction. He didn’t receive any bids above $14,000, which he didn’t accept… .

‘I will never regret buying it because this NFT is my capital’, he said.

It’s true, 99.5% drops are possible in any market! And yet! In general, when you buy something and its price drops 99.5%, you say things like “oops” or “boy I regret buying that thing”. “I will never regret buying it because this NFT is my capital”! Not anymore it isn’t!”

One of the most popular NFT collections is known as the ‘Bored Ape Yacht Club’. The creator of the Bored Apes, Yuga Labs, on 2 May launched a sale of virtual land deeds for its yet-to-be-released metaverse project called ‘Otherside’. Yuga did very well – it made $320 million selling these so-called ‘Otherdeeds’ in a single weekend. But the blockchain became choked and froze for several hours; a record amount of cryptocurrency was permanently destroyed, and the price of ApeCoin, the cryptocurrency linked to the Bored Ape Yacht Club, collapsed. Buying land that does not exist in the real world seems insane to some but entirely reasonable to others. It depends on how literal you’re being and how open to something’s potential. To each his or her own.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.