Digital art is the ultimate "Use Case" for cryptocurrencies

Digital art is the ultimate "Use Case" for cryptocurrencies

01 September 2021 from Mikael Syding

The financial market is not what it used to be. It's different this time, just as it always is. That is the thing about the future, it is not like the past. The market consists of people (and systems created by humans) that interact with each other. It creates a so-called reflexivity that tends to move prices away from economically justified equilibrium levels rather than towards them.

Traditional economic and financial theory is based on the opposite of this reflexive irrationality, ie that if an asset produces a total cash flow of about 100, the price will mostly be pulled towards about 100 as if it were a magnet, albeit with some uncertainty and small movements on the road. Today's market participants have become accustomed to zero interest rates, huge government budget deficits and constant bond purchases by the world's central banks.

This means an above investment environment for older and experienced investors. It would be easy for an old financial fox like me to shake his head at new phenomena such as cryptocurrencies and digital collectibles* basically just because they did not exist before (*NFTs, non-fungible tokens, eg low-resolution images of funny figures that have certificates of authenticity cryptographically embedded in a blockchain). But now, as I said, I think it's different now. Again. As always.

The future is becoming increasingly digital. At an accelerating pace, value creation moves into the metaverse. Or do you really think that less computer games will be played, less software will be sold and used, fewer meetings will be held online in less ornate virtual environments? And do you think the human drive to reach as high in the socio-economic hierarchy as possible in some magical way would slow down in an environment where only the imagination sets the limit? It is more likely that the less physical our existence becomes, the more important it becomes to assert itself with startling consumption and other signs of status and success. When energy-intensive sports cars, both internal combustion engines and electric cars, become embarrassing or illegal, an authenticity-certified NFT can fulfill the same function. As the "bull with a fly" said on Twitter the other day, all retail companies will be forced to engage in the market for digital objects or risk becoming obsolete and irrelevant.

NFTs right now are the most curious and a bit of a cryptocurrency class clown. It is still only Bitcoin and to some extent Ether that have gained wider knowledge. In the middle, the decentralized finance “DeFi” movement is waging a successful but somewhat lame guerrilla war against the entire financial sector. Banks, fund managers, stock exchanges, insurance companies and financial advisers pat the fintech sector patronizingly on its metaphorical head, without understanding that the real threat does not come from centralized peer-to-peer lending solutions or fund selection software. No, it is autonomous decentralized exchanges, loan algorithms and self-governing, self-owned companies and more that with hidden exponential power are on their way to working their way up from grassroots level to challenge the obsolete sequoia trees in old finance.

The Covid pandemic and its countermeasures have given both an impetus to inflation and an extra push into the digital future. It has benefited both the crypto world and companies with mainly digital business models. Strangely enough, it is still mainly the stock market that sets record after record, while Bitcoin and Ether are still selling out well below the peak levels this spring. Shares are much more expensive than ever before in terms of historically functional key figures such as price per GDP or price per sales krone, as well as close to their old record from the top of the year 2000 bubble measured as Shiller P / E (price / earnings ratio). This is despite the fact that most of the listed companies are rooted in physical reality, and those with digital business models are traded at high valuation multiples which usually react negatively to rising inflation. At the same time, the classic inflation hedge is gold and hesitates around 15% below last year's peak.

Source: www.multpl.com/shiller-pe (01.09.2021)

Yes, it's really different now, it's like both high and low inflation in the air at the same time. Both high and low interest rates, both threats of hawkish central banks and more powerful central bankers than ever before. Both a perfect environment for gold and prospects for a digital future where the physical played its role at the same time. And what is really new is the blockchain and its various applications with decentralized currencies such as counting units and storage warehouses for digital collectibles, as well as security solutions for the emerging bank-free financial solutions.

The big companies VISA and Budweiser showed forward-thinking spirit over the past week with high-profile NFT purchases, and perhaps even more offensively, Budweiser's purchase of the address beer.eth. Furthermore, Coca cola sold a handful of NFTs, Arizona Iced Tea bought a so-called "Bored Ape", and Shopify have introduced the ability for users to sell NFTs.

One cannot seriously claim that this is a useless bubble more than one can say it about all art. It's not about actual physically intrinsic value, but about the human drive to “be someone”. And if you cannot create yourself and gain social recognition that way, then you can rise in the hierarchy by buying the created and thus tattoo your value in your digital forehead.

In short, this is at least now a trend that all product companies are forced to follow, and then they must get hold of the transaction currencies Bitcoin and Ether. This is another use case for crypto, and an unusually large and legitimate one. So perhaps the debate can be angled a bit away from the fact that cryptocurrencies are only used for illegalities. Now it's just a matter of having time to buy enough yourself, to "stack up", before all Fortune 500 companies try to vacuum the market at the same time.

@Mikael Syding

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This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capital protected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

06/12/2021 00:01:49

 

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