The lowest-priced, stainless-steel version of the Cosmograph Daytona, the
Rolex model that Paul Newman made famous, carries a suggested retail price of
$14,550. But you are unlikely to snag one so cheap.
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Demand for luxury mechanical wristwatches has far outstripped
supply in the last few years, and the waiting list for the most popular Rolex
models — if you can first convince an authorized dealer that you are worthy of
one — is now said to be several years long. According to WatchCharts, a price
database for watch collectors, a current-model Daytona sells for more than
$40,000 on the secondary market; over the last five years, the Daytona’s
aftermarket price has grown by an average of 20 percent annually, making it a
better investment than the S&P 500 over the same period.
It is not just prices for high-end watches that
soared during the pandemic. For a wide range of collectible goods — among them
fine art, classic cars, luxury handbags, sneakers, comic books and trading
cards — the last few years were bubblier than a bottle of Dom Pérignon (whose
prices for certain vintages have also shot up). Then there was the market for
houses, an admittedly more practical scarce good, where prices also rose to
intolerable new heights in recent years.
So why did so many invest? Because FOMO is a hell of a drug. Because when prices are shooting up and you feel the fear of missing out, you can talk yourself into imagining intrinsic value in anything…
I have been thinking about these asset bubbles a lot
lately, especially as I have been following the crash of Bitcoin, Ethereum,
NFTs and the larger cryptocurrency industry that grew so hot during the
pandemic. Proponents of DeFi — crypto jargon for “decentralized finance”, which
essentially seeks to replicate the financial services industry with
crypto-based systems — argue that the technology will expand access to
financial products and unleash a wave of innovation now hampered by the
overlords of traditional finance, what they derisively call TradFi.
But it is fast becoming clear that crypto was just
another collectible pumped up by the same forces inflating the market for
Yeezys and Birkin bags — a lot of money sloshing around the world, not a lot of
obvious places to put it, and a fear of missing out on something that everyone
else seemed to think would be hot.
Just as a Rolex does not tell time any better than a
regular wristwatch — in fact, electronic watches are far more accurate than
mechanical ones — DeFi seems to do nothing better than TradFi, and in a lot of
practical ways it is worse. As a group of computer scientists and other tech
experts wrote in an open letter to Congress recently, “by its very design,
blockchain technology is poorly suited for just about every purpose currently
touted as a present or potential source of public benefit”.
So why did so many invest? Because the fear of
missing out (FOMO) is a hell of a drug. Because when prices are shooting up and
you feel the fear of missing out, you can talk yourself into imagining
intrinsic value in anything: A mechanical wristwatch is a marvel of miniature
engineering, almost a piece of art in its intricate complexity. Or: An
algorithmic stablecoin is a marvel of fintech engineering, a way of replicating
old-fashioned banks and payment networks on the blockchain to create an open
financial infrastructure.
Wait, what? No, I do not know what that means either
— but look how cool it is! And, more important, look how cool other people
think it is!
The wrinkle in my analogy, of course, is that the
sort of hotshot who can drop 40 grand on a Rollie probably is not going to feel
much of a hit if Daytonas suddenly become uncool. (In fact, resale prices of
Rolexes and other luxury wristwatches have been falling in the last couple of
months. The sneaker resale market is also softening.)
Crypto, on the other hand, was pitched to everyone,
rich and poor. On social media, on financial TV networks and on celeb-studded
Super Bowl ads, these complex, volatile, crash-prone, unregulated financial
products were sold to the masses as cannot-miss opportunities.
For millions of people, crypto, like real estate and dot-coms before it, offered a way out of what has otherwise been a dead-end economy. They were simply trying to get ahead in just about the only way one can these days: Put your money into something hot and hope it goes big. It is the American way.
“Fortune favors the brave,” Matt Damon promised,
while Larry David starred in an ad whose tagline invoked FOMO explicitly:
“Don’t miss out on crypto.”
Crypto was also just the latest in a string of
unsustainable asset bubbles that have rocked American life over the last two
decades. At the turn of the century, people were trying to make it big
investing in money-losing dot-coms. The mid- to late 2000s was dominated by the
housing boom that led to the Great Recession. And since 2010, we have had a
series of boom-and-bust cycles in crypto; before this latest run-up, Bitcoin
rose and fell in 2011, then from 2013 to 2015, and then again from 2017 to
2018.
I have seen much schadenfreude online recently —
lots of people who sat out the crypto boom mocking those who went all-in, which
is perhaps only fair after years of crypto bros telling skeptics to “have fun
staying poor”.
But can you blame them? Surveys suggest that people
under 40 have been much more willing than older people to put their money into
crypto. This makes sense when you consider that much of their adult lives has
been dominated by these boom-bust cycles and persistently low growth in real
wages.
For millions of people, crypto, like real estate and
dot-coms before it, offered a way out of what has otherwise been a dead-end
economy. They were simply trying to get ahead in just about the only way one
can these days: Put your money into something hot and hope it goes big. It is the
American way.
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