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There are now thousands of cryptocurrencies, and every day it seems a new non-fungible token, or NFT, is marketed. But is “digital mania” just another historic bubble bound to burst? Our economics correspondent Paul Solman explores the digital asset boom.
Today, there are thousands of cryptocurrencies.
And, every day, it seems a new non-fungible token, or NFT, is marketed.
Our economics correspondent, Paul Solman, explores the digital asset boom.
Asset inflation gone wild, so-called hard assets like housing up 32 percent since the pandemic began, stocks up 84 percent, at least until Russia invaded Ukraine. But consider digital assets. Bitcoin is up more than 600 percent since the pandemic, Ethereum, the other main cryptocurrency, more than 2000 percent.
What if you could own the virtual world?
And what about unreal estate, the right to occupy and build in virtual worlds known as the metaverse? Prices doubled in the second half of 2021 to $12,000 a parcel.
Finally, famously, the digital artist Beeple sold an NFT, a so-called non-fungible token, of a work of art last year for $69 million.
Craig Palsson, Utah State University:
We need a banana.
Economist Craig Palsson explains the idea behind NFTs with an example from 2019 Art Basel.
When Maurizio Cattelan went to Miami and duct-taped a banana to the wall. And this artist then said the asking price for this piece of art is $120,000.
There were three buyers.
The next day, somebody came by and ate the banana. And yet, that afternoon, the museum had duct-taped another banana to the wall. What these investors were buying was not the banana, which was going to go bad within a week anyway. They were buying a certificate of authenticity.
Which is all an NFT is, an indisputable digital certificate of ownership, stored on a computer network that anyone can verify, but no one can alter.
In the digital world then, a rotting banana can be a digital image, like bat-chomping heavy metal icon Ozzy Osbourne's CryptoBatz.
Jonah Katsenelson, College Student:
And, as crazy as it sounds, all it is, is just a JPEG of what looks like a cartoon bat.
College students Jonah Katsenelson and Rhett Fruitman tried, but failed to get in on the initial release of Ozzy's nearly 10,000 digital images.
A friend hit pay dirt, however, and flipped his a week later.
Rhett Fruitman, College Student, College Student:
For four Ethereum, which is the equivalent of 10,000 U.S. dollars.
More than 30 times his investment, but still just a minor exhibit in the NFT menagerie.
Lin Dai, NFT Entrepreneur:
I have Bored Ape 6176.
NFT entrepreneur Lin Dai bought his Bored Ape in December.
Its a very cool one that looks very rock 'n' roll, reminds me of Keith Richards.
And how much did you pay for it?
At the time, it was probably just under $200,000.
Two hundred thousand dollars?
Two hundred thousand dollars? Its probably worth about $400,000 right now.
Now, I know what you're thinking. This is, well, bananas, like tulipomania in 1630s Holland, when a single bulb went for more than a house.
What goes up…
Not to mention the more recent dot-com debacle…
.. must come down.
… mortgage-backed securities scandal, et cetera.
So is digital mania just another historic bubble bound to burst? Maybe. Maybe not.
Professional stock market investor Vitaliy Katsenelson is a digital asset skeptic, but even he sees why prices have been skyrocketing.
Vitaliy Katsenelson, Investment Management Association, Inc.:
We live in a world that's right now overrun by liquidity.
A lot of money.
A lot of money. A lot of money in the market. And that money is just going to a new level of crazy.
Money being created by governments the world over, to the point investors are scared it will lose its value.
Tonya Evans, Penn State University:
Inflation is always going to be a concern, because you can always print more money.
Law professor Tonya Evans.
You avoid that when you have hard-capped money like Bitcoin, for example.
Because there will never be more than 21 million Bitcoin.
Eric Yakes, Cryptocurrency Investor:
Bitcoin is this form of money that doesn't increase in supply, and you can send it to anywhere in the world.
Crypto investor and author Eric Yakes.
I can send it from my computer to your computer. There's no institution that it has to get checked by and verified by.
Further, says Yakes, it is great for immigrants working abroad.
For the purpose of remittance payments and for the purpose of using it as a store of value, which is a very big issue in some of these low-income economies.
Which may also explain the appeal of digital assets to Black Americans, who feel discriminated against by the financial industry.
Systemic racism has prevented Black Americans from meaningless participating in the banking system. Even with excellent credit and a great job history, if I were pulling out equity in my home, I would have to come up against perhaps redlining. I would come up against predatory lending.
No wonder 23 percent of Black Americans report owning crypto, vs. 11 percent of whites.
As a matter of economic empowerment and generational wealth.
But what about the criminal activity crypto has facilitated, the energy all those blockchain computers gobble? Or is the newfangledness curbing your enthusiasm?
Larry David, Actor:
Edison, you are wasting your time, and it's sad.
Then Larry David's new ad is for fuddy-duddies like you and me.
It's FTX. It is a safe and easy way to get into crypto.
I don't think so.
So, are skeptics making the same mistake about NFTs, especially if an investor's cryptocurrency has exploded in value. How better to spend it?
Matt Stephenson, Columbia University:
There's a certain point in which an additional dollar to somebody who's very, very wealthy buys you very little in terms of a change in your lifestyle.
Economist Matt Stephenson.
But what economists call positional goods, which is your sort of status position relative to someone else, you have newer, cooler, better, new ways to sort of flex your taste, your wealth, your status and so on, NFTs would be would be very useful for that.
So, say you take the plunge for a one-of-a-kind CryptoBat, a historically hip ape, one of the new Donald Trump NFT collection. Couldn't Trump at Mount Rushmore, say, be the next Campbell's Soup can, which, when first exhibited in 1962, was thought of as a joke?
And how much does a Campbell's Soup painting by Andy Warhol go for now?
Alex Glauber, AWG Art Advisory:
Many millions of dollars.
Contemporary art dealer Alex Glauber doesn't sell NFT yet, but he knows that value depends on belief, in dollars, gold, art.
Value is socially constructed, I mean, there's no intrinsic value to art. And it is based on consensus.
And it does not have to be a consensus of a whole lot of people.
No, the reality is a market is only as smart as the people holding the money. And when it comes to art prices, especially at auction, it only takes two competing individuals to drive a price up.
Hey, there are non-aesthetic reasons for NFTs as well, to be part of a community, for example.
So, it is an exclusive membership.
Like the Bored Ape Yacht Club to which Lin Dai belongs, its images coming with commercial rights.
I can actually make T-shirts or hats with my ape design on them.
And, of course, as certificates of authenticity, NFTs can have more practical uses, a deed to your home, a college diploma.
So, investor Katsenelson, still a skeptic?
It is not a serious investment, because you have no idea what it's worth. Think about 1999 dot-com bubble. You were making a lot of money, until you lost it all.
Katsenelson worries most about unsophisticated investors. And, indeed, NFTs have plunged in value of late. And we know how famously volatile crypto prices are.
A lot of times, they're putting their life savings in these investments. At some point, these people will lose most of their net worth, and that's what really pains me.
As an educator and a lawyer, I would never tell anyone to push all of their wealth into this space.
So, too risky, Professor Evans?
I think the risk is it not participating, and that's going to be critically important for a nascent asset class like crypto.
Still too nascent for me, I should confess. But then so it was in 2013, when I first reported on Bitcoin at $130 a coin, today, somewhere around $40,000.
For the "PBS NewsHour," wiser perhaps, but not much richer, Paul Solman.
Watch the Full Episode
Paul Solman has been a business, economics and occasional art correspondent for the PBS NewsHour since 1985.
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