Investing In Alternate Reality

Welcome to the world of non-fungible tokens (NFTs), the tulip bulbs of the digital age.

You are to be forgiven if you’ve not heard of NFTs, a creation of recent times that stretches the bounds of reality, which could be the point.

Allow me to provide a parallel. Tales of speculative excesses often focus on the Tulip Mania, in which residents of Holland, inexplicably enamored by tulips, bid bulbs of the plant to ridiculous levels.

This happened in the 1636-37 time range most agree, when wealthy Hollanders had plenty of money made by trading the world and were looking to spend it.

That seems to me to be analogous to 2021, with the Federal Reserve leveraging the money supply as never before, the federal government handing out stimulus money at unprecedented levels, and people embracing debt at historic rates.

The degree of the Holland tulip bubble – a bubble being an example of speculative or investing excess – has been debated in recent years. But even if we take the toned down version of events from one doubter, this skeptic does admit that some bulbs traded for as much as 5,000 Guilders, enough to purchase a nice house at the time.

Many expensive bulbs saw prices increase 12-fold during the mania.

This supposed bubble-popping researcher found “only” 37 examples of a bulb selling for 300 Guilders. But, for perspective, 300 Guilders was roughly the annual salary of a skilled craftsman at the time.

When a plant’s bulb sells for a year’s salary, even once let alone 37 times, I’m calling it a bubble.

It’s a real-life counterpart to the distorted reality of The Emperor’s Clothes.

Fast-forward to 2021 and we have NFTs, in which blockchain technology, the process that has given us Bitcoin, is used to produce verifiable ownership of an art object. There is no hard copy – it’s all digital.

The use of “fungible” has nothing to do with fungus and simply means something that can be substituted for another just like it, as, for example, one penny for another penny.

Since the tokens are “non-fungible” they are supposed to be one of a kind.

Think of the Mona Lisa on a hard drive. I’d argue it’s not necessarily the same as the actual painting, but then again I didn’t grow up avoiding reality by playing video games as so many younger people have.

You know these people, often failures in school or life, who find comfort in being lords of some imaginary land accessed through their computer or a game console.

On a larger scale, there also are the philosophical navel-gazers who argue our entire existence is merely a computer simulation being run by aliens, or Gods, or some other omnipotent entities.

Earlier this month, Christie’s auction house sold an NFT of a digital collage for $69.3 million. What the buyer got was digital proof of “ownership” of the digital original.

Try hanging that on the wall and impressing visitors.

This strikes me as a takeoff on Bitcoin and other digital cryptocurrencies. They have worth only because people think they do. There is nothing tangible about it.

The symbol for Bitcoin, by the way, looks a lot like a gold coin with a letter B on it with two lines through it – think of the dollar sign ($). To repeat, there is no actual physical Bitcoin, only a digital entry that gobbles up massive amounts of electricity annually to keep the system running.

Bitcoin supposedly has worth due to scarcity. Theoretically there are a limited number of Bitcoin, but there is no limit to the number of similar digital currencies that can be created.

The price of Bitcoin admittedly has skyrocketed. But is that indicative of worth? Or is it more a case of a tulip bulb/NFT-style mania destined to end badly?

I doubt that anyone in Holland can buy a house for one tulip bulb these days.

Some in the conspiracy theory camp see digital exercises like NFTs or Bitcoin as the elites trying to get the masses in a position to speculate wildly and eventually to lose their net worth, making them that much more dependent on government handouts and the strings of control that come with them.

I’m not sure that is the case. What I am reasonably sure of is that down the line historians are going to chronicle this likely ephemeral phenomenon of valuing digital assets over the real thing and question the collective sanity of the masses.

They will add NFTs to the Tulip Mania; just the latest chapter in the book of testimony to mass gullibility.