Updated: Apr 6
Are Illusions Becoming Reality?
Is a digital drawing of a rock really worth $3.8 million? Well, digital pet rocks, called EtherRocks, are. They fall within the realm of non-fungible tokens (NFTs), one of the biggest trends in crypto right now.
And, they are also representative of the disconnect between the markets and the real economy.
This disconnect is to blame for many of the higher prices being seen throughout the markets. But, with the right tools, anyone can profit from it.
Let’s examine how distortion can be an advantage in the crypto world.
For the first time ever, cryptos, alone, without calculating other digital assets/ the NFTs, came in above $3 trillion last November. NFTs have become very popular;
many pieces of digital art are bringing in millions. JPMorgan says the NFT market is worth over $7 billion.
Although there’s a recognizable disconnect, we must acknowledge NFTs /digital assets can increase in value over time. This example simply shows the massive disconnect between the real economy and what goes on in asset markets.
There’s good reason for turning to digital assets at this time:
In an effort to stimulate the economy in 2020, the Fed printed $2.3 trillion; putting out $55 billion daily from mid-March to the end of April. So, the money supply went from $15.41 trillion in January 2020 to $21.19 trillion in October 2021, which was unprecedented. The Fed did something similar in 2008; it printed $1.2 trillion, which caused a disastrous financial bubble.
This time, the extreme monetary distortions from the Fed may cause a larger bubble in all asset classes. Therefore, there’s no doubt why those concerned about inflation are getting into cryptos and NFTs. Yes, EtherRock owners believe their gems will increase in value over time; and, they, just, may be right. After all, Facebook’s name change due to metaverse proves anything is possible in the worlds of crypto and the internet.
Corporate America is jumping on board the Crypto bandwagon too; recently, Visa has put out an all crypto credit/debit card, and billionaire hedge fund managers like Mike Novogratz and Mark Yusko have put some of their capital in bitcoin. Bitcoin is also being used as a cash reserve asset and store of value.
MicroStrategy, a business intelligence firm, became famous in 2020 when it added bitcoin to its balance sheet; now, its bitcoin holdings are worth $7 billion or 95% of MicroStrategy’s overall market capitalization. Square has also added $220 million in bitcoin to its balance sheet.
But, that still leaves under 2% of the world’s population owning bitcoin today.
Pew Research says that while most American adults know about bitcoin, only 16% have invested in or used it, and this doesn’t even compare to the 56% that own stocks.
The price of bitcoin would skyrocket if another 40% or 100 million Americans invested in it. Thus, those buying bitcoin today may reap high rewards. Even though cryptocurrencies are still speculative, the Fed has prompted rampant inflation, which, in turn, is making plenty of room for alternative assets.