From NFTs to Fine Wine, We're Entering a Golden Age for Modern Collectors
With a few clicks of a button, you can invest in vintage comic books, fine wine and blue-chip artwork. It hasn't always been that way. Here's how we got here and what the future might have in store.
Collectibles have been around since the dawn of civilization. They exist because of the laws of supply and demand. When something is rare or popular, it makes an item valuable. The item doesn't even need to have “traditional” value to be worth a lot of money. It’s why someone paid $1.3 million for a picture of a clipart rock in August.
Many early collectibles were marketing ploys. Companies used them as incentives, such as cigarette cards in cigarette packs. Popular items could spark a secondary market with coveted items creating a collectible frenzy.
Companies also encouraged collecting with lineups of limited-edition items. Think baseball cards with different players on them or the endless variety of Beanie Babies. Ardent collectors would try to collect a complete set.
While collecting Beanie Babies seems like carefree activity, there's some serious cash to be made. (If you have $600,000 lying around, you can buy Large Wallace and his Squad.) Collectibles also carry some serious risks. Imagine trying to sell Large Wallace and his Squad before the internet. The highly illiquid asset would be borderline impossible to unload for a profit. Other historical barriers to entry included prohibitive costs, limited access, limited information and geography.
That all changed with the advent of the internet and a couple of legislative tweaks.
How did we get here?
Limited access has been one of the highest barriers to entry. That’s because the government established Regulation D in 1982, which said who was qualified to invest. The term for these individuals was accredited investors.
Accredited investors had to meet certain criteria. That meant 1) having an annual income of $200,000 (or $300,000 in joint income) for two consecutive years or 2) having a net worth of $1 million, not including the home. Remember, these numbers were created in 1982 and were never adjusted for inflation. Still, there were only 12 million accredited investor households as of 2016. That represents roughly 10.6% of households.
In 2016, regulation crowdfunding became legal. Anyone over 18 could purchase securities from a private company. Small companies and startups could now raise money from regular fans or customers instead of being beholden to accredited investors. The legalization also let everyday investors put their money into products they cared about or wanted to support.
The internet has made everything available at our fingertips. You can go purchase NFTs (non-fungible tokens) at Rarible or Air Jordan 1s at Stock X. Without this interconnected network, collectors would have highly restricted access to items and information.
A prime example of digitization is Vinovest. Historically, investing in fine wine has been a game for the ultra-wealthy. You had to know someone who knew someone to secure great vintages of wine and attend auctions. If you didn't have the money, you didn’t have a chance to invest.
Vinovest has democratized fine wine. It created a central hub online where anyone can buy and sell first-class wine. You don’t have to someone who knows someone. You don’t need to be an expert in fine wine. You don’t need a specialty wine cellar or security guards either. As long as you make a qualifying deposit, you have access to the best wines worldwide.
Narrowing of expertise
You can think of the internet as everyone’s favorite public library. For collectors, that means the ability to learn about an asset and the market before investing. Information was significantly harder to come by a few decades ago. You had to trust word-of-mouth stories and whatever physical literature you could get your hands on.
Take this NBA Top Shot of LeBron James posterizing Nemanja Bjelica. The internet makes it a snap to become an expert on this NFT. For instance, we know that are only 32 versions of it. The average sale price is around $30,000, and the top sale price is $99,999. If you have these insights, you can make a better judgment of its value. Pre-internet, though, you would have to rely on your gut instinct and what limited research you had.
Reasons to collect alternative assets
It’s no secret that alternative assets are hot commodities. Experts expect the industry to reach $14 trillion in value by 2023. That’s a 59% increased from its current asset valuation.
So, why are collectibles so collectible? Here are a few reasons:
- Portfolio diversification. Stocks and bonds rise and fall closely with the stock market. Alternative assets don’t. The loose correlation makes them an excellent portfolio diversifier.
- Higher ROIs. To be clear, higher returns on investment are not a guarantee. However, if you invest your money wisely, you can beat the stock market.
- Hedge against inflation. People invest in gold to hedge their money against inflation. Today, you have many more options, including Bitcoin and Ethereum.
- Recession resistance. Brace for the worst if the economy crashes and you have a portfolio of stocks and bonds. You can likely preserve more of your wealth with recession-resistant assets.
- Own a tangible object. You only own stocks, bonds and mutual funds on paper. That’s not the case with collectibles. You can place your Honus Wagner card in your mantle until you’re ready to sell.
- Collect with passion. I will go out on a limb and say few people are passionate about investing in AT&T or Wells Fargo. If you're an oenophile, why not own a bottle of Château Margaux? You can let the value appreciate over time or, in the worst-case scenario, drink it.
What’s the future of collectibles?
The collectibles industry is well-poised to grow year after year. According to a survey from NerdWallet, 59% of adults are considering investing in alternative assets. The question is, what does the future have in store?
Americans devote a lot of time to screens. The average adult spends seven hours and 50 minutes looking at their phones, desktops and tablets. Since we’re already online a lot, it makes sense for collectibles to be digital too.
We’re starting to see this Matrix-esque shift with the advent of NFTs. A person can have a wallet or portfolio that other people can see but not alter. This system lets an individual showcase rare pieces of artwork or in-game items online, in the same way someone might put a painting in his or her living room.
Here’s the best part: Digital collectibles don’t wear out. You never have to worry about fading, breakage or burglary. Digital assets maintain their condition in a way that physical collectibles never can.
Robo-advisors at companies are expanding the investing marketplace. They allow people with low net worth's to get personalized financial advice without spending a fortune. Young investors can also rely on expertly designed algorithms to guide their decision-making.
The future promises a seamless blend of portfolio managers and AI-based investing tools. A person can’t account for all the data we generate daily, but a robo-advisor can. Expect humans to lean on AI to process data and drive decisions instead of relying on statistically inferred reasoning.
The invention of blockchain technology was a watershed moment, not just for collectibles but digital technology. If you’re unfamiliar with blockchain, it functions as an anonymous and decentralized public ledger. Everyone can see the transactions, but no one can change the information. It’s the reason why we know the top sale price for the NFT of LeBron James dunking on Nemanja Bjelica and who owns it.
If the future of collectibles is digital, blockchain technology will serve as a cornerstone. It’s immutable, traceable, trustworthy and secure. Collectors can have more control than in a centralized system.
If it can be collected, it will be
Let’s use NFTs as a barometer for the collectibles industry. The first NFTs were made in 2012. A meaningful amount of people didn't buy and sell them in 2020. Today, according to cryptoart.io/data, crypto art is worth more than $100 million.
On the one hand, $100 million is a colossal number. On the other hand, it only represents a fraction of the current collectibles market and what NFTs might become. As more people join the marketplace, we should continue to see more assets, which generates more sales, encourages more people to join, and so forth.
At a certain point, we will hit a critical mass. If something can be collected, it will be. Whether that's a 25-year-old bottle of whiskey sitting untouched in your grandma's closet or a piece of art you made, there will be a niche for your item.
Technology has made collecting easier than ever. The democratization has lowered the barriers to entry so that almost anyone can participate. Whether you want to invest in Pokémon cards, classic cars or fine wine, the process is approachable and accessible. With more people investing in alternative assets each day, the golden age for collectors may just be beginning.
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