Beeple’s NFT Sells for $69 Million – Should You Get In? | Brandon Averill, Justin Dyer | AWM Insights #54
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Episode Summary
In this episode, Brandon and Justin discuss the week in finance and investment news including the $1.9 trillion stimulus that recently started getting divvied out, a “status quo” Fed meeting, and new inflation worries riding on the tails of a slight interest rate jump.
However, the big news this past week – and our main discussion for the episode – is of the digital artist Beeple selling his work The First 5,000 Days as an NFT (non-fungible token) at Christie’s for $69.3 million. Christie’s reported 64% of the bidders for this digital piece of art were under the age of 40.
The NFT excitement has hit new highs and we’ve had clients asking about whether they should incorporate them into their portfolios. Justin and Brandon discuss what exactly an NFT is, the arguments from crypto maximalists, and the biggest questions to consider before getting into NFTs, Bitcoin, and other cryptocurrency.
Episode Highlights
(2:13) How are we helping our clients implement their desire to be in the NFT space?
HBO’s Last Week Tonight’s John Oliver describes NFTs as “Everything you don’t understand about money combined with everything you don’t understand about computers.”
(3:17) What is an NFT?
(4:13) Beeple’s NFT The First 5000 Days sells for $69 million
(5:31) Should you be a crypto maximalist?
(7:02) The valuation formula
(9:13) The two reactions to Beeple’s NFT sale
(9:56) Questions to consider before getting into NFTs and cryptocurrency
(13:24) Should you just stick your head in the sand?
(15:11) Bitcoin’s fork
(18:14) Getting your priorities in place
Stay Connected
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Brandon Averill: LinkedIn
Justin Dyer: LinkedIn
+ Read the Transcript
Brandon Averill (00:00): Hey, everyone. Welcome to AWM Insights. It's your power three, two CPWAs and a CFA. We are Erik, Brandon and Justin. Well, actually it's just Brandon and Justin today, we dropped the dead weight of Erik this week. So hopefully you guys don't hit stop on the audio right now. We promise to make it interesting.
Brandon Averill (00:21): As you know, each week we cut through the noise and the news and what Wall Street is selling. And we're here to bring you what you actually need to know to invest like a pro. Here at AWM we're not loyal to Wall Street. We're loyal to you. You worked hard for your money, and we're here to help you capture the returns that you actually deserve. But as we always do, let's recap what's going on in the market before we jump into our topic today, which is going to excite everybody, the NFTs, the Bitcoin craze. We got digital arts selling for 69 million dollars. There's all kinds of good stuff going on.
Brandon Averill (00:54): But first, stimulus is flowing. We've got the 1.9 trillion coming into the system. The U S and China are in a fiery exchange at the start of the Alaska meeting coming up. Markets have just taken another volatile week this week. We saw tech stocks get drilled a little bit with this interest rate jump. We had a big fed meeting, pretty much status quo, strong growth upgrade. But interest rates did jump a little bit on some inflation worries, and we're definitely going to get into inflation in the next few weeks. It's becoming a hot topic.
Brandon Averill (01:31): But turning to the world of sports. We see LeBron takes a stake in the stocks, which is fascinating on so many levels. The lifelong quote, unquote Yankee fan turning the tide, maybe he's getting back at Babe Ruth. And then the NFL inks its 11-year media rights deal for on average, 10 billion dollars a year. Topping the estimates that they'd get to 8 billion. Just truly, truly amazing deal that I think is confidence that sports are not going away. They are recession proof, even if we don't have fans in the stands. So I'd love to hear our owners out there make sense of this and cry poor a little bit more.
Brandon Averill (02:13): But anyways, we're going to jump into the fun topic today. I know this is something you've been passionate about, Justin. The ideas have been flowing on your side, and I think you're looking at it the right way. But it's NFTs. It's the NFTs. It's the crypto. This is still a topic that we are dealing with every week and I think it would be fun to talk about today. Not only what's going on across the market, but also how do we look at it? How are we helping our clients implement their desire to be in this space? And so I think it'd be great place to start with a great quote and then I'm going to turn it over to you, Justin. But HBOs Last Week Tonight with John Oliver, last week he had a fantastic quote that this whole Bitcoin crypto nifty craze that's going on, this is his reference to it - it's everything you don't understand about money combined with everything you don't understand about computers. And I think, Justin, you're probably going to add something to that.
Justin Dyer (03:17): Yeah. Right. We can add plus everything you don't understand about art to that quote as well. That's our little addendum there. And that really applies to the whole NFT nonfungible token category or subject, if you will. Nonfungible token is something that I guess we can define it, just for those of you who don't know. I'm sure everyone kind of does because it is a big topic of conversation along with Bitcoin and Blockchain overall. But it's a token that gets applied to some creation, some form of art, whether it's a digital image or a baseball card or a video. Whatever it is, it gets attached to that computer code in the internet sphere and follows along with it kind of throughout its life, right, and signifies a unique aspect of it.
Justin Dyer (04:13): As you alluded to there is this artist, Beeple, and he created a piece of art. And he is a big digital artist, he's been around for quite some time. And he created something specific for the auction house, Christie's, that is called The First 5000 Days, slapped an NFT on it. It sold at Christie's auction, what two weeks ago, three weeks ago now? For the equivalent of 69 million dollars. It sold in a cryptocurrency, Ether, and I can't remember what the exact conversion is, but that's a staggering amount of money. And, yeah, this whole topic is absolutely fascinating. I've been trying to wrap my head around it as much as I possibly can. I do think there's quite a bit of speculation going on here. I think there's, I think we will certainly see some elements of Blockchain, and I think we've talked about this before, NFTs as well, continue on and be a lasting thing within our society, our world. Whether they're going to be investment vehicles or they're going to be a vehicle in which you use to invest, I think those are things that are still being worked out.
Justin Dyer (05:31): And there's a pretty important distinction there. And how we think about this is we're not going to take this approach and get all excited and angry and say, Oh no, we're going to be a Bitcoin maximalist as they call it, or a crypto maximalist that says if you're not doing this, you're, what is it? Good luck staying poor? Something like that. Good luck staying poor boomer, right? We're not going to be putting our stake on that extreme side, nor are we going to say this doesn't make any sense whatsoever. I mean, I can list off a couple things that concern me about Bitcoin, or not necessarily concern me about Bitcoin, but there are huge unanswered questions I have with respect to the Bitcoin maximalist using that as an example, right?
Justin Dyer (06:24): And I think a lot of what's happening right now is that there is this craze that's really taking over rational thinking and just pushing momentum to these extremes, right? Either the Bitcoin or crypto maximalist versus the crypto deniers, if you will. And at the end of the day we always take the stance of let's really, really understand something before we kind of make a final conclusion. And then even more so before we ever consider making an investment on behalf of our clients or ourselves personally, right? We always try and eat our cooking, so to speak, on that front.
Justin Dyer (07:02): And there's a lot of things, unanswered questions, I think on this crypto conversation as a whole, that we're still trying to wrestle with. I think that, and then I'll stop here and we can go back and forth on some of this stuff. But I want to go back and underscore how we think about it. When we're thinking about making an investment, it comes down to how we value something, right? An investment is truly something that you're putting money into, you're able to formulate some sort of valuation formula on it. We've talked about that in past podcasts, right? There's a very simple mathematical equation you can put to something, if it's true investing, in my opinion. And we're going to make sure that we understand that and have some level of competence that investment has a positive expected return over the future.
Justin Dyer (07:58): This stuff, on the other hand, crypto NFTs Bitcoin specifically, at the moment, it's really speculation. And that doesn't mean it's a bad thing, it's just not a true investment. And another analogy, and then I truly will stop here, turn over to you, Brandon - there's trading and there's investing. We are truly investors. We're not traders. We're not playing this game of hot potato and who's going to buy this from me tomorrow, right? There's so little confidence in that. And it's hard to truly appreciate that because it seems like everything's going up right now. But you don't want to get caught with the bag, right, in the trading world. And it's just not a game. It's a very low probability game, if you will. When it turns, it turns fast. There's nothing that truly predicts it. Whereas on the investing side, we know where sources of return are coming from. We're comfortable with the risk elements and the probability of success, so on and so forth.
Justin Dyer (08:57): But, again, this topic is fascinating and we'll keep our eyes on it. And like Brandon said, I mean, I have some fascinating thoughts on where this could potentially go as a tool, right? More as a tool than a true investment.
Brandon Averill (09:13): Yeah, no, I think those are all fantastic points, Justin. I think when we look at this, I think Ben Carlson from A Wealth of Common Sense, had a great way of putting it. There's two kind of standard reactions to a story like this about Beeple's The First 5000 Days. And it's this is ridiculous, it's a JPEG that you can just basically right click and copy and throw it on any computer. And then the other reaction is this is amazing. It's a whole new market for artists. And I think it is polarizing. It's almost like politics, either you're a crypto person or you're not, right? And I think you're making a great point that it doesn't have to be an either or, it's just framing the whole conversation.
Brandon Averill (09:56): So are we looking at this and saying, how does this fit into our client portfolios? Well, there's certainly a couple of different considerations. One, how is your overall financial structure? Have you already basically set yourself up with the high degree of certainty from returns that you just mentioned that we can source to achieve all your priorities? If the answer is yes, then if this really interests you, there's some pretty neat, like you said, applications to it. I think taking a very small percentage, and I underscore this because I think it was misunderstood in a previous couple of podcasts. But if you're going to invest in this space, a small percentage of your liquid assets, one, two percent could make sense, only after you've achieved security of your priorities. So, if you've got $50,000 in the bank, don't take $500 and go to the crypto markets.
Brandon Averill (10:53): And I think this a really tough thing to understand because this psychology around it. It's why the lottery exists, right? For the most part, ultra wealthy people don't go invest in the lottery because we all know it's just a tax on the poor. It's this sentiment of, hey, this is the only way I'm going to dig myself out. And I think we get some element of that, too, on the Bitcoin. We keep picking on Bitcoin, but any of the cryptocurrencies or any of these NFTs, right? It's hey I can flip this really quick and it could change my life scenario and that just often doesn't work. So, I think when you're looking at it, and nobody's susceptible or nobody's immune from falling into this trap.
Brandon Averill (11:37): I heard a fascinating story this week. Very, very smart guy, he's actually a CFA. He works at a large fund company and they're not allowed to trade individual equities without pre-clearance or funds et cetera, et cetera. So, the vast majority of his wealth is tied up in his company, his company's products, et cetera. However, when it comes to crypto, the company kind of turns its head and says we just don't want to know about it. This isn't really an investment. As you said, Justin, it's speculation. So he threw just enough money into it so that it would sting if he did lose it all. But he bought in, whichever coin it was, I don't recall. But he bought in at like 25 cents and within a couple of days, it shot up to 75 cents. He thinks he's a genius, the next Bill Gross for bonds. This is him on the crypto side.
Brandon Averill (12:38): He takes his winnings off the table, smartly. I'll go ahead and harvest this so he takes it off the table. Coin drops down to 50 cents a share. And he's like, Holy cow, gap trade, let's get the money back in. So he dumps it all back in and a couple days later it shoots to 90. He goes back in and he's all pumped now, he thinks he's got this whole crypto thing figured out, right? And this is a smart guy who believes in efficient markets and all this kind of stuff, right? And he goes in to log into his account - zero. His coin was delisted by the exchange that he was using. And now he's got some 14 page document on trying to move this coin and he's sitting with 35,000 coins that are essentially worthless at this point.
Brandon Averill (13:24): So, I tell that story just because, it's exciting, this is an exciting space. It's a cool technology. We're not advocating to just like stick your head in the sand and run away from it. I mean, we've taken advantage of the theme, right? So the theme being, this is all happening, who might come out on a winner? Do you want to be exchanging these coins and speculating what the price is going to be? Or do you want to own the picks and the axes? Do you want to own the coin base. Or more recently one of our clients created one of these NFTs and sold it for $2500 bucks or $4500, I don't know what the equivalent was. But that's a way to actually get wealthy. You're creating the product, you're cashing in, you're bringing that in. You have really very little to lose on that side. So anyways, I rambled now for a little bit, Justin, but I think you made some really good points. A lot of great applications. But think about it in the context of your overall picture.
Justin Dyer (14:24): And I would just add, and I won't try and go on too long on this, but you need to understand what you're owning, right. I mean, and this is a complicated area, right? That quote you said that at the beginning, what was it? Everything you don't understand about money combined with everything you don't understand about computers. I mean, if you really dig into this, if you're interested, it's fascinating what people have created, but it's also incredibly complicated. And if you're just making a speculative investment, I would always caution against that, I guess on its surface. But if you're doing that, maybe you don't feel the need to do this. Again, I would always kind of caution against really not doing the research, if you will.
Justin Dyer (15:11): But do you understand what a fork is? We're going to the more cryptocurrency side here. People think that this whole crypto world is decentralized and it can't be changed or perverted or whatever you want to say about it. And it's really not true. I mean, there are plenty of forces that can change the currency you may be holding. Bitcoin, again going back to that because that is the bright shiny one on the hill, even though they're thousands of these things now, which is another big kind of question to ask. Bitcoin had what's called a fork where the community at large had a disagreement and in a sense, what a fork means is the currency split into two different currencies. And Bitcoin continued on and took advantage of what they call the network effects, where more and more people are adopting it and that's what's contributing to the value. But there's a strong argument still in the community that what was created, called Bitcoin Cash at the time, is the better investment. Or is the better currency equivalent if you want to call it that.
Justin Dyer (16:25): So again, I think it's just really important for you to understand this. Understand what you're getting into. I mean, we're happy to talk about this. Again, I think this is fascinating. I'm super interested to see where it all unfolds and what interesting things are potentially created on it. I completely agree with Brandon your point, the picks and axes are probably where people are going to do the best in this space longterm, but there's still a lot of risk in that, right? And people are actually doing that right now. They're realizing well Coinbase is going to be going public here at some point in the near future and they're throwing around huge valuation numbers, close to a hundred billion or something like that, or somewhere in 70, 80, 90 billion dollar valuation for that company, can't remember off the top of my head.
Justin Dyer (17:18): But again, I think it's just really important to understand what you're buying, why you're buying it. Are you buying it as a store value? Are you only buying it out because this is something that people are throwing about out about in the cyber world, for lack of a better term. Are you just buying an NBA top shop because you think you could flip it around for a quick profit? Again, all these things are just good questions to ask yourself. Take a step back, think through it logically, and then make sure your priorities are taken care of. Your protective reserve is in place. Your overall financial structure is there. And then you're not doing this with an amount that will lead to some sort of harm in protecting your family, protecting your values, protecting yourself and, and putting that all at risk.
Brandon Averill (18:14): Yeah, I think that's a great point, Justin, I think not only harm at putting your priorities at risk, but something that you would regret, that's even a different number I think for a lot of people. I mean $10,000 might cause your family harm, but $1000 might still give you the regret, and you need to be comfortable, right? That it's not going to harm your overall financial structure. And also you're not going to regret it if this goes to zero. And I think you made a great point. It's really interesting, right? The artist, Beeple, that created the painting, I mean, he's got 69 million in his bank account right now. That's a fantastic way to approach the market. Now the person from Singapore that bought this now has to go sell it theoretically for more than 69 million in the future. That's at least tough for me to wrap my head around, right? What gives this piece of art the value to be able to do that?
Brandon Averill (19:12): I think the other thing just to keep in mind here is what might be driving a lot of this stuff. It was reported by Christie's that 64% of the bidders for that piece of art were under the age of 40. And so when we start to look at the growing wealth gap, I mean, just try to peel back and understand what's driving this phenomenon, right? And I would point people, I know Justin, you and I both listened to it, but Tim Ferriss did a great podcast with Vitalik Buterin, who is actually the creator of Ethereum. And if you're going to take that speculative move in this space, you need to go listen to that podcast and then ask yourself the honest question - do I have any idea what he just said? Because those are the guys and gals that you're playing against and if you don't know who the sucker is at the table, chances are you're the sucker.
Brandon Averill (20:04): So anyways, we'll wrap it up for today. We'd love to talk more about this topic. If you guys are interested, just remember why are you actually making the investments that you're making and are you succumbing to that marketing, or FOMO, or whatever it might be at the risk of not achieving your priorities? Just make sure you keep all that in mind because what's ultimately most important to you are the outcomes that you really want to achieve. And so with that for more insights, head on over, sign up for our newsletter at awminsights.com. Shoot us a note. We'd love to hear anything you want to hear from us on a future episode and we appreciate your attention. So with that, stay humble, stay hungry and always be a pro.