SAN FRANCISCO — This past week, a trading card featuring the quarterback Tom Brady sold for a record $1.3 million. The total value of the cryptocurrency Bitcoin hit $1 trillion. And Christie’s sold a digital artwork by an artist known as Beeple for $69.3 million after bids started at just $100.
These seemingly singular events were all connected, part of a series of manias that have gripped the financial world. For months, professional and everyday investors have pushed up the prices of stocks and real estate. Now the frenzy has spilled over into the riskiest — and in some cases, wackiest — assets, including digital ephemera and media, cryptocurrencies, collectibles like trading cards and even sneakers.
The surges have been driven by a unique set of conditions. Even as millions were laid off in the pandemic, many people’s bank accounts flourished, flush from stimulus checks and government cash infusions into the economy. But while people accumulated more money, traditional investments like stocks and bonds became less attractive.
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So many got creative and, bored in the pandemic, took on more risk. Often, they were egged on by online communities on Reddit and Discord, where the next big investments were hotly debated. They also turned to tech tools like the trading app Robinhood and the cryptocurrency platform Coinbase, which allowed them to buy and trade different items with the click of a button.
That has now led to mini-bubbles across a wide variety of esoteric categories, making once-obscure acronyms like SPACs and NFTs practically as ubiquitous as the S&P. It has also fed ferocious demand for this week’s public listings of companies like the gaming site Roblox and the South Korean e-commerce company Coupang, as well as for shares of the video game retailer GameStop and other so-called “meme” stocks.
“It’s just a pent-up cycle where the money has nowhere to go, so it’s doing stupid things, ” said Howard Lindzon, an investor, entrepreneur and market commentator.
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The manias, which have erupted at a time of deep economic pain, have introduced a large amount of risk to many investors. Some people have already racked up staggering losses on Robinhood, which has been accused of encouraging gambling-like behavior. Other assets, like Bitcoin, are volatile, while sneakers and NFTs are so new and hyped-up that it is difficult to know what they will be worth over time.
For now, the bubble-upon-bubble behavior does not appear to pose a systemic risk to the broader financial system. But some investors said they were uneasy.
“Most people are cheering, but at the same time, shaking their heads and going, when is the bust coming?” said Jane Leung, the chief investment officer at SVB Private Bank.
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Listen to ‘The Daily’: Cryptocurrency’s Newest FrontierThe craze for digital artworks known as NFTs exploded in the past year. Why are some people shelling out millions of dollars for them?
Listen to ‘The Daily’: Cryptocurrency’s Newest FrontierHosted by Sabrina Tavernise; produced by Stella Tan, Rachelle Bonja and Neena Pathak; edited by Paige Cowett and Rachel Quester; and engineered by Chris Wood.The craze for digital artworks known as NFTs exploded in the past year. Why are some people shelling out millions of dollars for them?
Now to the latest trend that’s sweeping the internet, the skyrocketing prices for digital art sold as NFTs. NFT, and that stands for nonfungible token.
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My colleague Sabrina Tavernise speaks with columnist Kevin Roose about digital currencies newest frontier, his unexpected role in it, and why it actually matters.
So Kevin, I realized how little I understood about your world when I saw this headline of yours in the paper. And I’m going to read it to you right now. So it says, why did someone pay $560, 000 for a picture of my column? So tell me about that.
Well, actually, that is a little outdated because the exchange rates have fluctuated since I published that column. So someone actually paid $725, 000 for a picture of my column.
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Yeah, I mean, I would like to think that all my columns are worth at least $725, 000. But that might have been an anomaly. But that is the world of NFTs for you.
So the story of NFTs really starts with the story of cryptocurrencies and, in particular, with Bitcoin, which began all the way back in 2008. During the financial crisis, there was a mortgage meltdown. The Federal Reserve was bailing out banks and printing all this money, trying to stabilize the economy. And in the middle of all this, this mysterious paper appeared on a cryptography email listserv. And it was written by someone calling themselves Satoshi Nakamoto. And it proposed this new form of digital money called Bitcoin. And the technology that sort of powered Bitcoin, the infrastructure that allows Bitcoin to work becomes known as the blockchain.
OK, you know how money, regular money, is controlled by a central bank. The Federal Reserve manages the United States dollar. And the Federal Reserve basically has free reign to do whatever it wants with the dollar. It can decide how many dollars there should be, like whether we should print more money or not, based on how much they think the dollar should be worth. So it’s this very centralized system where the government, politicians and institutions have a lot of control over money, this thing that affects all of us. So what Satoshi Nakamoto proposed was a totally decentralized system. And in this system, there are a finite number of units. There will only ever be 21 million bitcoins, and no more can ever be created. So everyone knows exactly how many there are, how many there will be. And people can just buy them with regular money and spend them anywhere that accepts Bitcoin. And instead of the supply and the value of bitcoins being controlled by a central bank or a government, Bitcoin is controlled by a piece of software called a blockchain. And at a very simple level, a blockchain is a network of computers all over the world, thousands of them. And they keep track of every Bitcoin transaction ever made. So every time a Bitcoin is bought or sold, that transaction gets recorded in this shared global database, kind of like a Google spreadsheet or something. And anyone with an internet connection can go back and see every change that’s ever been made to this database in a very public, and transparent, and permanent way. So no one person or institution controls this thing. It’s just this permission-less, distributed computer network that people who are into Bitcoin think is actually more trustworthy than banks that can be manipulated by politicians and governments.
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Got it. So this is ultimately about trust and transparency coming off the distrust people developed after the 2008 financial crisis. And that felt like institutions were manipulating things behind the scenes. Whereas here, there’s no wizard behind the curtain, no shadowy figures, no politicians, as you say doing, the manipulating. It’s just a bunch of computers that no one controls.
Yeah. It’s essentially taking this giant financial system that is based on human decisions, and political considerations, and global economies and it’s just replacing it all with computer code.
OK, so Kevin, Nakamoto creates this whole new system of buying and selling and tracking those sales. But so then what happens? What do people do with it?
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Yeah. So this paper appears on this obscure cryptographic listserv. And then Satoshi Nakamoto, whoever he, or she, or they are, disappears. And people sort of take this idea of Bitcoin and they run it.
Early on this is sort of an experimental weird community of people who are really into this new form of money. And they’re just playing around with it. I mean, they’re testing out the technology. And Bitcoin, at the time, is worth basically nothing. I mean, each Bitcoin is worth a tiny fraction of a cent. So they’re doing things like buying pizza.
So there was this programer in Florida who sort of famously bought two pizzas from Papa John’s for 10, 000 Bitcoin, which, at the time, was worth about $25.
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I just told people I wanted a pizza and I want to pay with Bitcoin. I didn’t want a gift card. I didn’t want some weird exchange. I want to give you Bitcoin and you give me pizza.
People start developing new ways to spend Bitcoin. People are sending it to each other instead of sending a Venmo payment or a PayPal payment. Some people are buying clothes with it. Some websites start accepting it as a form of payment. It becomes this viral phenomenon that people are very excited about.
And the reason why the price of Bitcoin keeps going up and up is because there are a finite number of bitcoins, so people are willing to pay more and more to acquire the limited number of them.
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Exactly. And so as that’s happening, people are starting to create other different cryptocurrencies. Some of them are very serious, like Ethereum is a new one that pops up. But there are also joke coins. And people call them shit-coins
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