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Please indulge me as I personalize the early stages of this article more than I normally would. A few months ago, one of my closest friends – someone I've known for 25 years – mentioned something to me about baseball and basketball cards.
Long story short, he tells me he's recently been active in getting some of his cards graded – a seemingly laborious process – to appropriately value his collection and since we're the same age, we get to talking and I figure out that what I though was a worthless heap of cardboard collected by my brother and I when we were kids might actually hold some value. Nothing life-changing, but more value than we previously led to believe.
Fast-forward a few weeks and I, by pure luck, happened upon NBA Top Shot. I'd never heard of it so I figured I'd ask my aforementioned friend since he's a more advanced collector. He didn't know about, either.
I did my own digging and figured out that Top Shot – I'm probably oversimplifying this – is essentially a marketplace where “packs” of digital cards are sold. The packs contain images, licensed by the NBA, from league games. Many buyers subsequently flip their procured images for prices far higher than what they paid. As of two weeks ago, the blockchain-based platform had north of $230 million in transactions.
That's a sizable number and with all the media attention Top Shot is getting, this is a topic advisors may want to get out in front of.
Fun Conversation, But...
It remains to be seen if Top Shot is comparable to Dutch tulip mania or flipping houses prior to the global financial crisis. What is clear is that the platform is one of the most successful entries in the fast-growing universe of non-fungible tokens.
“Non-fungible tokens or NFTs are cryptographic assets on blockchain with unique identification codes and metadata that distinguish them from each other. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency,” according to Investopedia.
In plain English, an NFT is not Bitcoin, but NFT's are garnering almost as much hype, and in the mainstream media at that, indicating it's not unreasonable that this is a topic advisors may soon be addressing with clients.
I say that because on top of all the Top Shot hoopla, there's more. Much more. A digital artwork was recently sold for $69 million – life-changing for the artist, but the buy thinks the piece is worth hundreds of millions. Tampa Bay Buccaneers tight end Rob Gronkowski sold an NFT of some of his highlights for $1.2 million and, believe it or not, there are NFTs of digital sneakers and there's robust market for that.
Bottom line: These are anecdotes clients hear about and these headlines are undoubtedly interesting to be sure, but the NFT world isn't for everyone and very likely lacks intrinsic value/store of value traits.
Alternatives to Alternatives
At their core, NFTs are an alternative asset class. Advisors are familiar with that vernacular because it's where commodities, real estate and, yes, Bitcoin, among others are classifed.
Traditional alternatives are prized for low correlations to stocks and bonds and for possessing intrinsic or monetary value.
However, for clients that are perhaps a little too enthusiastic about NFTs, advisors can discuss old school “alternatives to alternatives.” What I mean by that is art, watches, wine, sports collectibles and even Birkin bags. Birkin bags are such a good investment that I wish I was married so I'd have occasion to buy one.
Obviously, those types of assets should be just a fraction of properly balanced portfolio, but for investors that want to go down this avenue, advisors can discuss Rally – a platform where investors can buy “shares” of everything from rare sports cards to wine, watches and even old Apple computers. These type of investments shouldn't replace traditional fare, but for many clients, they're more palatable and practical than NFTs.
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