An Even More Playful Turn in the Crypto Revolution

A different cue from this powerful quote... Every element of the human saga requires this... Playing with a brand-new financial medium today... An even more playful turn in the crypto revolution... A full-blown mania... Finding value for these archaic processes?... Efficiency isn't everything...

In today's Digest, I (Dan Ferris) want to talk about our undying love for beautiful things once again...

Two weeks ago, we discussed humans' inherent love for unproductive objects like gold, art, and other "baubles." I contrasted my own view on this topic with thoughts from legendary investor Warren Buffett...

In his 2011 letter to Berkshire Hathaway (BRK-B) shareholders, Buffett declared that gold is no better than tulips. The only reason to own either of them, in Buffett's mind, is to hope you can sell them to somebody else at a higher price.

That's the "greater fool theory"... Fools buy solely in hopes of offloading to a greater fool at a profit at some point in the future.

But in that Digest, I shared why I believe Buffett is wrong...

I explained that he misunderstands both gold and human nature. And furthermore, I said that gold's unproductive nature coupled with its immutable esthetic beauty is precisely why it has been an excellent store of value for 5,000 years.

Life without irresistibly beautiful, unproductive objects would barely be a life at all. And to make my point, I quoted longshoreman philosopher Eric Hoffer. Here it is again...

Man is a luxury-loving animal. Take away play, fancies, and luxuries, and you will turn man into a dull, sluggish creature, barely energetic enough to obtain a bare subsistence. A society becomes stagnant when its people are too rational or too serious to be tempted by baubles.

In other words, gold is a long-recognized store of value not merely because it's chemically inert and divisible... It's an ideal store of value because it's irresistibly beautiful and desirable to humans.

It is as much about human nature as it is about gold's nature.

This week, let's take a different cue from Hoffer's quote...

It's one that will lead us to the most unprecedented moment in modern auction history... the three best ways to preserve wealth for centuries... and other unexpected places.

In the quote above, note how Hoffer mentions "play" in the same breath with "fancies and luxuries" and later "baubles."

Like our desire for those tangible items, we also have an innate desire for "play" that's as old as humanity itself. As Dutch historian Johan Huizinga said in his 1938 book, Homo Ludens (which is Latin for "Man the Player")...

Play is older than culture... human civilization has added no essential feature to the general idea of play.

Being "older than culture"... one might say that means play is deeper and more fundamental to our nature than culture. Play is who and what we are at our core.

For example, I bet prehistoric humans fondled, played with, and admired gold they found (perhaps in riverbeds) before they ever started digging it up and making things with it or using it as currency or a store of value.

And even after we figure out practical uses for the objects of our play, we still play with them. I suspect we'll always play with gold to some degree... And we may even find new uses for it as a result (or not – but after 5,000 years, I'm not sure it matters).

After all, gold is ideally suited for play... It's highly malleable and ductile, and it can take on virtually any shape.

And did you know that a single ounce of gold can be pounded into a translucent sheet of nearly 100 square feet... or stretched into a wire that's five microns thick (human hair is around 70 microns thick) and 50 miles long?

And regardless of whether it predates culture or not, play is fundamental to our lives...

Without it, we wouldn't have progressed throughout history. As author Diane Ackerman wrote in her 1999 book, Deep Play...

Every element of the human saga requires play. We evolved through play. Our culture thrives on play.

Play continues to touch the financial element of the human saga in other forms right up to the present moment...

You see, today, we're at play with a brand-new financial medium...

It could potentially become an enduring store of value – and possibly a new form of money. And its original designer purposely imbued it with the divisibility and scarcity of gold.

Of course, regular readers know that I'm talking about bitcoin.

It's the most well-known, valuable, and widely held cryptocurrency in the world. It was created by the anonymous Satoshi Nakamoto in January 2009.

About 18.6 million bitcoin exist in the world today... There will never be more than 21 million... And it will take until 2140 for us to reach that number (unlike the trillions of new U.S. dollars printed over the past year).

Buffett considers bitcoin an unproductive asset. And similar to what he said about gold (and tulips), Buffett said in February 2020 of bitcoin and cryptocurrencies...

You can't do anything with it except sell it to somebody else.

But maybe bitcoin isn't the financial mistake Buffett makes it out to be...

Two weeks ago, I invoked my friend and Stansberry Research colleague Eric Wade's idea that a stake in bitcoin today can serve as a placeholder... It's a guarantee that you'll have a seat at the table in whatever future might unfold for the cryptocurrency.

However, rather than contemplating alternative technological futures, maybe it's easier to understand it through the lens of Hoffer, Huizinga, and Ackerman's ideas about play...

The crypto world is one giant financial playground today – and that's a good thing... New cryptos come and go all the time. We're exploring and pushing out the boundaries and seeing where it'll take us for its own sake.

It's the old hacker mentality of sitting down in front of a computer for the pure joy of finding out what you can do with it... Play is how we get to know everything from gold to computers, but it's also how we get to know ourselves.

(As a quick aside, Steven Levy's classic book, Hackers, is a must-read account of the original computer hackers from the 1950s through the 1980s... They were mostly very curious, passionate, brilliant young men who wanted to master the new art and science of computing.)

The cryptocurrency revolution has taken an even more playful turn recently...

I'm talking about the surge in interest for non-fungible tokens (NFTs).

NFTs are cryptographic tokens with unique identification codes that distinguish them from other digital objects. They're often used to make digital tokens from tangible items like artwork or even real estate.

Creating unique digital tokens to represent tangible assets allows those assets to be bought and sold efficiently... with the transaction recorded on an anonymous public blockchain ledger. Like with cryptocurrencies, this process establishes ownership and transactional security without the need for a trusted third party.

Before I go any further, I need to be clear... I'm not sure I know enough about NFTs to have any kind of opinion about them. I'd never even heard of them until last week.

But the thing is, I know enough to say one thing today...

Ignorant though I am of exactly what they are, how they work, or how their future will look, I'm still highly confident that we are in the midst of a full-blown NFT mania.

The latest and most insane sign of this full-blown NFT mania happened just yesterday...

A digital artist known as "Beeple" sold one of his works – which again, exists only in digital form – for roughly $69 million in an online Christie's auction. Bidding started at $100 and lasted for two weeks.

The artwork – titled "Everydays – The First 5,000 Days" – is a digital collage of all the images that Beeple (whose real name is Mike Winkelmann) has posted online every day since 2007.

Noah Davis is the specialist who organized the sale for Christie's. As he told Bloomberg yesterday...

The first day of bidding was one of the most magical events in my auction career. I've never seen anything like it.

Twenty bidders took the price of the NFT all the way from $100 to $1 million in the first eight minutes. But not to be outdone, the final bidders were even crazier...

Bloomberg called it "unprecedented in modern auction history." In the last 10 minutes, the price jumped from $14 million to $35 million. And then, in the final seconds, it went to $50 million... $60 million... and finally, $60.25 million (plus an additional $9 million in commission for Christie's).

While this auction was the big kahuna, the momentum has been building for several months...

As of January 2020, Beeple hadn't sold a single work of art.

Then, one of his NFTs sold for $66,000 in October. Another sold for $777,777.777 this past January. And finally, the one that sold in October changed hands again in late February... this time for $6.6 million – a 10-bagger in four months.

That's almost as good as those GameStop (GME) returns.

But Beeple isn't the only one scoring big in the NFT mania...

On February 19, artist Chris Torres sold a digital artwork called "Nyan Cat" for nearly $600,000.

The work is an NFT version of a somewhat crude digital drawing of a cat with a Pop-Tart body, flying with a rainbow behind it. This image has circulated around the Internet and as a "meme" on social media for 10 years.

And another artist known as Grimes – Tesla (TSLA) founder Elon Musk's girlfriend – sold $6 million worth of digital art on February 28.

Plus, this NFT craze is about more than just digital art...

The band Kings of Leon released its latest album on March 3 as an NFT. It's offering three types of tokens that come with perks – like front-row concert seats for life and a limited-edition vinyl.

And Michael Levy, a 31-year-old financial analyst, has bought $175,000 worth of digital sports trading cards over the past six months. Today, these digital cards are reportedly now worth... sit down before you read this... $20 million.

Levy bought these cards at one of the top NFT trading sites – NBA Top Shot. It's a site that sells officially licensed digital collectibles to pro basketball fans. (If you're curious, you can search "NFT art" or "NFT exchange" on the Internet to explore this brave new world.)

None of the technology or trading of sports cards or artworks digitally sounds crazy at all.

The part that makes it a true mania is the crazy prices being paid...

The $69 million sale of Beeple's latest piece makes it the third-most-expensive work by a still-living artist ever sold.

The most expensive is a metal rabbit made in 1986 by Jeff Koons... It sold for $91.1 million in May 2019. And in second place is a 1972 acrylic on canvas painting by David Hockney, which sold for $90.3 million in November 2018.

But Koons' and Hockney's works were sold by collectors... So the artists were paid nothing for these transactions. Beeple put his own piece up for sale at Christie's... So he just got a check for $60.25 million.

Meanwhile, a Van Gogh sold at Sotheby's for $16 million in October. And a Picasso painting sold at a Christie's London auction in June 2019 for $15.6 million.

If only they were NFTs and not merely masterworks by great artists of the past.

I mean, what's sexy about a Van Gogh or a Picasso next to a cat with a Pop-Tart body trailing a rainbow as a digital token? Not much, I guess...

The good news is, fine art of the old-fashioned tangible sort is still in vogue...

It's one of three traditional stores of value favored by "old money" families who have preserved their wealth across centuries. And I doubt it'll go out of style anytime soon.

As hedge-fund manager and author Jim Rickards said in a 2012 U.S. News & World Report article...

When one inquires of family members and representatives as to what it takes to preserve wealth over centuries and not just cycles, the frequent reply is "a third, a third, and a third." This is shorthand for dividing one's wealth into one-third land, one-third gold, and one-third fine art.

And like entrepreneur and philosopher Naval Ravikant once said...

The older the problem, the older the solution.

How to store and preserve economic value over long stretches of time is one of the oldest problems. And gold, land, and art are among this problem's oldest solutions.

Plus, if anything, NFTs could make these pieces of art more attractive...

I've never spent big money on art, but I've bought and sold real estate and physical precious metals. The process is way too clunky for both...

In particular, the need for trusted third parties in real estate transactions – banks and title companies – is a major pain in the neck. And what's with taking a month or more to close a single transaction?

My wife and I sold our house recently in an all-cash deal... and it still took a month to close.

Waiting a month, then sitting at a title company for hours to sign a stack of paper doesn't feel like 2021. It feels like I'm doing business with a medieval monastery... waiting several weeks for a group of monks to finish copying my new Bible by hand... after which I'm required to sign off on every page before I can take it home.

And don't even get me started on the tens of thousands in commission that I just paid.

Digital tokens recorded on cryptographically secure and immutable blockchains seems like a decent way to eliminate at least some of that friction. It could make these old-money stores of value more attractive to modern investors.

Learning what little I know about NFTs has piqued my curiosity about them, but it has also reminded me that fine art has served many wealthy people as a store of value for hundreds of years.

Unfortunately, most people who try to cash in on NFTs with nonsensical applications will fail...

That's how these things go. We humans aren't that efficient as a species. We make things up that fail all the time.

It's fine, though... because efficiency isn't everything, contrary to what many modern-minded folks would have you believe. And remember, we play with stuff like NFTs as much for its own sake – for fun – as to discover anything useful.

But overall, I have little doubt that NFTs have changed the art and real estate worlds permanently... And beyond that, I believe efforts to digitize gold are already changing the way it's traded and held.

(I've written a little bit about this gold angle in a new special report for Extreme Value subscribers. If you're already a subscriber, you can get all the details right here. And if you're not yet, what are you waiting for? Find out how you can claim instant access here.)

So, as newfangled as they seem, maybe NFTs aren't really doing much more than putting old wine in new bottles. By that, I mean making it possible to trade, via digital token, the three old-money assets – land, gold, and art.

And who knows... maybe one day, bitcoin will sport a price tag of more than $1 million and have a value in U.S. dollars roughly as stable as gold over the long term. And then, some new "Oracle of Omaha" (or perhaps "Oracle of Mars" by then) will decry its value as an unproductive asset and say it's "just like gold."

If I'm not still on this Earth, I hope a guy just like me will disagree with him or her.

I'm still confident we're in a massive financial bubble, and I remain bearish overall on both stocks and bonds...

So I still like traditional stores of value for a portion of your capital today. That's why I continue to believe that you should own some gold, silver, and at least a little bit of bitcoin.

And it's highly unlikely that you'll catch me making any specific predictions about what technologies will be widely used to do anything whether it's one or 100 years from now...

Technology changes too fast and human nature changes too slow – if at all – for me to believe that we have any understanding of their impact today. That's true of the Internet (even though it's decades old), social media, cryptocurrencies, blockchain, and NFTs.

But being who and what we are as humans, I don't think that it matters...

We'll keep playing with them, having fun with them, and speculating financially with them. And maybe one day, they'll have more value to us than a $600,000 digital Pop-Tart-bodied cat... $20 million for slam-dunk highlights... or $69 million for 5,000 pictures over 14 years.

If we play long enough, we're bound to find some good use for these NFTs one day.

New 52-week highs (as of 3/11/21): ABB (ABB), Liberty Braves Group (BATRA), Brunswick (BC), Bunge (BG), Siren Nasdaq NexGen Economy Fund (BLCN), Blackstone Mortgage Trust (BXMT), CBRE Group (CBRE), Colony Capital (CLNY), Cubic (CUB), Dropbox (DBX), Dow (DOW), Enstar (ESGR), Eagle Materials (EXP), Expeditors International of Washington (EXPD), Formula One Group (FWONA), SPDR S&P Regional Banking Fund (KRE), LGI Homes (LGIH), Cheniere Energy (LNG), Manchester United (MANU), MakeMyTrip (MMYT), MasTec (MTZ), Invesco S&P 500 BuyWrite Fund (PBP), Flutter Entertainment (PDYPY), VanEck Vectors Russia Fund (RSX), Sprott (SII), ProShares Ultra S&P 500 Fund (SSO), Seagate Technology (STX), Suncor Energy (SU), Trip.com (TCOM), Texas Pacific Land Trust (TPL), Ulta Beauty (ULTA), Visa (V), Valmont Industries (VMI), Vanguard S&P 500 Fund (VOO), and Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP).

Our inbox is full of your thoughts on the "American Rescue Plan." We're sharing more of your e-mails today... and we'll keep the discussion going next week. Until then, keep your comments coming – good or bad – to feedback@stansberryresearch.com.

"If they had limited the stimulus to those who have lost income due to the pandemic, then I might be OK with it. They should have done what unemployment does: require you to file for the stimulus/benefit." – Paid-up subscriber Randy J.

"How can it be a rescue? $1,400 won't even pay the back rent for the people that really need help and sending billions of dollars to state governments that are not in need doesn't help either. I do not think that one dollar of this should go to foreign aid. If they really wanted to help, they would encourage the states to get out of the way and let businesses go back to work. It is probably less expensive for us to just send the money out willy-nilly, than to try to weed out the ones that don't need it because that would take another government department that would never go away. You might think I am skeptical but I think of it as being observant." – Paid-up subscriber Doug F.

"This is more like how we sink our country and heritage than how we better ourselves. My grandchildren and great grandchildren will bear the burden of this bill and that is wrong and unfair to them. It is sad when ego and politics get in the way of decency and common sense. God help us all." – Paid-up subscriber Gerald P.

"The whole thing is a shameful attempt by the party in power to make sure they have enough votes to keep the House and the Senate in the upcoming 2022 election. In the meantime, we the people, are left holding the bag.

"The other side of the coin is that the electorate, especially the folks at the receiving end of the never ending 'helicopter money,' are supposed to be the guardians of democracy. Instead, they are the ones keeping the doors wide open to a mind set and ideology on its way to bringing down the most successful economic system ever created." – Paid-up subscriber Frank S.

"I believe we continue to move closer to communism every day!" – Paid-up subscriber D.F.

"I think the rescue plan is ridiculous. My wife and I have had our 2020 return prepared, and we are over the threshold to receive the stimulus checks. We were slightly under the limit based on our 2019 return, so we are now delaying filing our 2020 return until we get our check. We will then send it right back to the government as we owe about $10,000 for 2020. It's crazy, but since it's my money, and all taxpayers' money, that the government is giving away, I might as well get what I can." – Paid-up subscriber Cliff F.

"Well-run businesses use key performance measures to what, when, where, and how they do things.

"No doubt, many people are hurting and need help today. And they must get it. But rather than attach spending to subjective time periods, why not tie them to key benchmarks like the unemployment rate?

"Imagine if our political leaders had the fortitude to structure the bill in a way that rewarded Americans for doing the right things. Like creating jobs, learning new skills, or running effective and efficient social programs. Or, better yet, what if the bill called for the consolidation of specific programs to help reduce costs AND provide better service.

"Now that bill would have made me proud to be an American." – Paid-up subscriber Michael E.

"There's a clip from a Cuban newspaper, Havana Times I believe, concerning Venezuela's economy. Minimum wage of 800,000 Bolivars per month, a kilogram of corn flour costs 100,000 Bolivars. To complicate matters more, you can only get a maximum of 10,000 Bolivars per day from the bank.

"That's where we're heading." – Paid-up subscriber G.V.

"It is ridiculous that they could not have put a means test in the free money giveaway plan. Families making $150,000 per year do not need a bailout." – Paid-up subscriber Peter S.

"Unmitigated disaster in the making... just a handout. Who would have ever thought this could happen? It will be great for the economy in the short term. Inflation is finally in the cards. BTC and ETH tell the story as it develops." – Paid-up subscriber Jim V.

"The country needs to be rescued from the fools in D.C." – Paid-up subscriber Marvin F.

"The Russians, Chinese, Iranians, Turks are all counting their gold bricks. Notice these countries have 1,000-plus-year cultures." – Paid-up subscriber Peter P.

"Another well written piece, thanks. My comment is simple – It is unconscionable that any reasonably sentient person could ever think that pouring trillions of dollars into any economy, regardless of whatever justification may be used, is a 'good' thing.

"Socialism is a bad thing if you want independence and freedom (albeit not without challenges).

"Socialism is great if you are naive and want the government to take care of you.

"I prefer and support the former." – Paid-up subscriber Tod L.

"The irony of it all, while the U.S. has been on a path of self-destruction for about as long as I've been alive, history has shown time and again that we are on a 'danger ride' of Biblical proportions. Truth be told, the country is bankrupt, and the puppet clown show we got goin' on is going to be accelerating the divergence of haves and have nots, and setting our once great nation on a trajectory demonstrated by the likes of Argentina, and others.

"It's telling, in my small mind, the choice of label for this pork barrel farce we are witness to in the name of Virus COVID-19. The country is in need of rescue, but sadly, it is not going to happen. I feel it in my heart, and I have intently watched it develop and progress for 50 years, even within my own family, and it pains me to think we have reached the tipping point, and it's just not going to come back.

"As a common man who worked his whole life to tread water, financially, I think we are on the brink. When the government mouthpiece says the priorities are the virus, the climate and extremism, it's my humble opinion that we should be very concerned about what is really going on here." – Paid-up subscriber M.L.

"The rescue plan stinks, this coming from someone on a fixed income who may receive $1,400. The actual people who need it will not get enough to make a difference, and those who will get the lion's share (pet projects in Congress members districts, lobbyists and, other connected people) don't need it at the expense to America of more pilled-on debt." – Paid-up subscriber Pete M.

"The Federal government is spending $5,775 per person ($1.9 trillion divided by 329 million Americans) and 'giving' us $1,400 back. Wow! Such a deal." – Paid-up subscriber Richard F.

"The relief bill is anything but. It's going to bring a lot of pain to a lot of good people." – Paid-up subscriber Sam P.

"Truth is, government has gotten so big it can't look down and see its own weight on the scale! We need to make all the $$$$ we can in what's left of the Melt Up, because the dollar is going to get seriously devalued very suddenly! Let's hope we don't need wheelbarrows to bring cash to the supermarket to buy a loaf of bread!!" – Paid-up subscriber Robert F.

"Great article. There is so much wrong with how 'our' government operates today but I can't help but reflect on one of my life observations that one of the greatest problems with reasonable people is that they expect reasonable behavior from everyone – even those that are unreasonable. That leads me to ask why do we expect thoughtful action from a group of delusional dogmatists? We expect too much." – Paid-up subscriber Jim H.

Good investing,

Dan Ferris
Vancouver, Washington
March 12, 2021