Image Credit: Marco Verch (Flickr)

Severe Punishment for All Things Crypto in China -Who’s Impacted?

 

Who is impacted by the Chinese announcing the crackdown on all things related to cryptocurrency under their jurisdiction? Ten agencies undersigned the announcement, including law enforcement, the central bank, securities and foreign exchange regulators. The impact extends far beyond the speculative crypto investor within the country.

The alternative or virtual currencies have been going through a period of weakness leading up to today’s announcement. But this news had a particularly strong impact causing Bitcoin to be down 4.50%, Ethereum down 7.70%, and Solana down 6.20%. However, the long-term impact on these coins may be positive. Although fewer are allowed to legally buy, hold, and trade cryptocurrencies, new crypto entering the broader market could be reduced considerably if the Chinese agencies’ crackdowns are successful. Determination for success seems high as the National Development and Reform Council (NDRC) said it would launch a nationwide crackdown on cryptocurrency mining as it works to cripple the sector entirely.

This could place upward pressure on currencies such as Bitcoin, where a large percentage was mined in the country. It also comes at a time when there are more long-term holders of digital currency, which reduces currency in circulation. This reduced supply coming onto the market could only play out if China is able to find and prevent mining activity.

 

Distribution of Bitcoin Mining Hashrate from
September 2019 to April 2021, by Country

 

Exchanges and over-the-counter (OTC) services that were still available this week, including Huobi, OKEx and Binance, allowed Chinese users to exchange their fiat yuan into crypto assets to participate in crypto trading activities. These services, whether in China or offshore, are to cease operations. The People’s Bank of China (PBoC) said individuals who live inside China but work for overseas crypto exchanges that making crypto trading available in China are also subject to legal prosecution. It’s clear from the announcement that Huobi, OKEx, and Binance will need to discontinue their OTC services.

Cryptocurrency derivatives such as futures trading are also illegal. This is likely to extend to all other contracts and trust situations such as ETFs created using either derivative contracts or virtual currency.

 

Chinese Crypto Chronicle

The bullet points below are a timeline showing how over eight years the Chinese government moved from allowing cryptocurrencies to trade freely, with no restrictions on participation, to where we are today with a defined no tolerance policy.

• In 2013, the government defined bitcoin as a virtual commodity. Individuals were allowed to freely participate in its online trade.
• Later in 2013that year the PBoC and other financial regulators banned banks and payment companies from providing bitcoin-related services.
• In late 2017, China banned initial coin offerings (ICOs) in order to “protect” investors and curb financial risks.
• Also, late 2017 ICO rules banned cryptocurrency trading platforms from converting legal tender (Yuan) into cryptocurrencies or crypto into yuan.
• During 2017, most crypto exchange platforms shut down or moved offshore.
• By July 2018, 88 digital currency trading platforms and 85 ICO platforms had withdrawn from the Chinese market.

Take-Away

The escalating crackdown on all things related to cryptocurrency seems to have peaked as ten agencies of the country are working to put a lid on non-government-sponsored digital currency. It isn’t clear how those within the country that are currently holding cryptocurrency will be able to cash out if they want to, these assets may be forever taken off the market. Additionally, a reduction in mining in a country that contributed greatly to new Bitcoin being created may have a longer-term bullish impact on the exchange rate of $USDF to BTC. This could impact many other coins as they tend to trade as a group and because Bitcoin isn’t the only currency mined in China.

Suggested Reading:

You Can Own a Piece of r/wallstreetbets

The Future of Cryptocurrency

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Debt Limit Debate’s Impact on Stocks and U.S. Credit Ratings

 

Sources:

https://www.reuters.com/business/bitcoin-slides-below-40000-ether-tumbles-2021-05-19/

https://www.theblockcrypto.com/linked/118581/china-issues-tougher-measures-to-keep-cracking-down-on-crypto-trading

https://www.pymnts.com/cryptocurrency/2021/china-declares-all-cryptocurrency-related-transactions-illegal/

https://www.reuters.com/article/crypto-currency-china-explainer-idUSKBN2GK1FO

https://www.shine.cn/biz/economy/2109245518/

 

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Wall Street Bets Meets Blockchain – Can Diamond Hands Extend to “Rare” Art?

 

In an amusing press release, it was announced yesterday the founder of WallStreetBets, in conjunction with a newly formed partnership, would be offering “Diamond Hands” non-fungible tokens. The subreddit forum, r/wallstreetbets, is known for its ability to leverage its following to communicate and mobilize that strength.  Its collective market-moving power has been able to upend large institutional investors and traders.  For example, as a group, the subreddit is credited with successfully creating the short squeeze in GameStop (GME) and AMC (AMC) stocks early this year.

WSB founder, Jaime Rogozinski is now in a strategic partnership forming a new entity called WSBDapp or Wall Street Bets Dapp. The thought process and NFT offerings was described in the release this way:

“The WallStreetBets community has been giving out memes for free for too long; Apple should be paying everyone royalties for rocket and diamond emojis at this point. That’s why we brought together a global team of artists, builders, DeFi pioneers, and blockchain fanatics to develop an NFT experience that combines the culture and creativity the community has shown over the last year,” said Jaime Rogozinski, founder of WSB and strategic partner of the WSBDApp project. “We’re proud to introduce the Diamond Hands Pass NFT collection as we enter new frontiers in DeFi and create offerings that can help regular people own their financial futures. And cool art.”

The WallStreetBets genesis Diamond Hands NFT unlocks a suite of benefits and utility into the future. And as the name suggests, the longer you hold, the greater you benefit. There are 15,000 handcrafted genesis NFTs up for grabs, each with unique qualities and some with desirable rarities. In the interest of fairness, WSB is introducing a 30,000 raffle ticket system that allows participants to mint up to five raffle tickets per wallet. Once all tickets have been sold or the minting window closes, the draw will be chosen randomly by a computerized selection process. All non-winning raffle tickets will be refunded.

WSB NFT Stats:

• 30,000 NFT raffle tickets
• 15,000 Diamond Hands Pass NFTs
• 153 unique artwork traits
• 40,600,560 unique possibilities

 

Each Diamond Hands NFT is a piece of handcrafted generative art, with traits of varying rarity and uniqueness. In addition to becoming a purveyor of the fine arts, Diamond Hands Pass owners will gain access to a members-only Discord room, voting privileges, exclusive events and opportunities to connect with like-minded individuals. Other benefits may include WSB merchandise, exclusive access to upcoming launches, rare metaverse wearables, enhanced yield farming rewards on BSC, and premium access to WallStreetBets events.

Diamond Hands Passes will also claim all generative collections for free, plus gas, indefinitely. This includes all three upcoming generative avatar drops: bulls, bears and apes. Collect and hold these three NFTs along with your Diamond Hands Pass to complete the Master Challenge. This will unlock exclusive rewards, including farming rewards at yields that boomers will say are impossibly lucrative.

 

Take-Away

Wall Street Bets was founded in 2012 to take on the big guys on Wall Street. It became so big that the founder, businessman, and author became uncomfortable that it lost its way toward the original goal. He separated himself years ago as his original intent was to work against those that “abuse” power.

Still, Jaime Rogozinski, at 39, likes to stay active in new technology and challenges. Also, he is not opposed to making money while providing value. Thus, he is a key part of the partnership forming WSBDapp-Diamond Hands. For more information on the WallStreetBets NFT collection and how to enter the raffle to achieve a Diamond Hands Pass, visit wsbcollectibles.io.

 

Suggested Reading:

Facebook’s “Supreme Court” to Rule on Favoritism of Elite Users

Is Coinbase Planning to “School” the SEC on Cryptocurrencies?

Tickets and Concessions Using Your Cryptocurrency Wallet at AMC Theaters

Understanding the Robinhood Class Action Lawsuit

 

Sources:

https://www.businesswire.com/news/home/20210922005352/en/WallStreetBets-Launches-NFT-Collection

https://millionsofcelebs.com/jaime-rogozinski-net-worth-age-height-weight-early-life-career-dating-bio-facts/

https://www.kitco.com/news/video/show/Market-Analysis/3584/2021-08-27/A-WallStreetBets-portfolio-Founder-Jaime-Rogozinski-launches-fund-where-investors-pick-the-stocks

https://twitter.com/wallstreetbets/status/1437883202962661376/photo/1

 

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Wall Street Bets Meets Blockchain – Can Diamond Hands Extend to “Rare” Art?

 

In an amusing press release, it was announced yesterday the founder of WallStreetBets, in conjunction with a newly formed partnership, would be offering “Diamond Hands” non-fungible tokens. The subreddit forum, r/wallstreetbets, is known for its ability to leverage its following to communicate and mobilize that strength.  Its collective market-moving power has been able to upend large institutional investors and traders.  For example, as a group, the subreddit is credited with successfully creating the short squeeze in GameStop (GME) and AMC (AMC) stocks early this year.

WSB founder, Jaime Rogozinski is now in a strategic partnership forming a new entity called WSBDapp or Wall Street Bets Dapp. The thought process and NFT offerings was described in the release this way:

“The WallStreetBets community has been giving out memes for free for too long; Apple should be paying everyone royalties for rocket and diamond emojis at this point. That’s why we brought together a global team of artists, builders, DeFi pioneers, and blockchain fanatics to develop an NFT experience that combines the culture and creativity the community has shown over the last year,” said Jaime Rogozinski, founder of WSB and strategic partner of the WSBDApp project. “We’re proud to introduce the Diamond Hands Pass NFT collection as we enter new frontiers in DeFi and create offerings that can help regular people own their financial futures. And cool art.”

The WallStreetBets genesis Diamond Hands NFT unlocks a suite of benefits and utility into the future. And as the name suggests, the longer you hold, the greater you benefit. There are 15,000 handcrafted genesis NFTs up for grabs, each with unique qualities and some with desirable rarities. In the interest of fairness, WSB is introducing a 30,000 raffle ticket system that allows participants to mint up to five raffle tickets per wallet. Once all tickets have been sold or the minting window closes, the draw will be chosen randomly by a computerized selection process. All non-winning raffle tickets will be refunded.

WSB NFT Stats:

• 30,000 NFT raffle tickets
• 15,000 Diamond Hands Pass NFTs
• 153 unique artwork traits
• 40,600,560 unique possibilities

 

Each Diamond Hands NFT is a piece of handcrafted generative art, with traits of varying rarity and uniqueness. In addition to becoming a purveyor of the fine arts, Diamond Hands Pass owners will gain access to a members-only Discord room, voting privileges, exclusive events and opportunities to connect with like-minded individuals. Other benefits may include WSB merchandise, exclusive access to upcoming launches, rare metaverse wearables, enhanced yield farming rewards on BSC, and premium access to WallStreetBets events.

Diamond Hands Passes will also claim all generative collections for free, plus gas, indefinitely. This includes all three upcoming generative avatar drops: bulls, bears and apes. Collect and hold these three NFTs along with your Diamond Hands Pass to complete the Master Challenge. This will unlock exclusive rewards, including farming rewards at yields that boomers will say are impossibly lucrative.

 

Take-Away

Wall Street Bets was founded in 2012 to take on the big guys on Wall Street. It became so big that the founder, businessman, and author became uncomfortable that it lost its way toward the original goal. He separated himself years ago as his original intent was to work against those that “abuse” power.

Still, Jaime Rogozinski, at 39, likes to stay active in new technology and challenges. Also, he is not opposed to making money while providing value. Thus, he is a key part of the partnership forming WSBDapp-Diamond Hands. For more information on the WallStreetBets NFT collection and how to enter the raffle to achieve a Diamond Hands Pass, visit wsbcollectibles.io.

 

Suggested Reading:

Facebook’s “Supreme Court” to Rule on Favoritism of Elite Users

Is Coinbase Planning to “School” the SEC on Cryptocurrencies?

Tickets and Concessions Using Your Cryptocurrency Wallet at AMC Theaters

Understanding the Robinhood Class Action Lawsuit

 

Sources:

https://www.businesswire.com/news/home/20210922005352/en/WallStreetBets-Launches-NFT-Collection

https://millionsofcelebs.com/jaime-rogozinski-net-worth-age-height-weight-early-life-career-dating-bio-facts/

https://www.kitco.com/news/video/show/Market-Analysis/3584/2021-08-27/A-WallStreetBets-portfolio-Founder-Jaime-Rogozinski-launches-fund-where-investors-pick-the-stocks

https://twitter.com/wallstreetbets/status/1437883202962661376/photo/1

 

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	Image Credit: Alesia Kozik (Pexels)

Is Coinbase Planning to “School” the SEC on Cryptocurrencies?

 

The largest cryptocurrency exchange in the U.S. is going on the offensive. Earlier this month, Coinbase was notified by the SEC it would sue the crypto exchange if it moved forward with a plan to provide users interest on crypto assets. Coinbase ($COIN) is now preparing to propose a regulatory framework for digital currency oversight to federal officials. It is likely to contain definitions as to where various coins fall in the spectrum of whether a coin-based asset is a security, currency, or something else. This is after Coinbase’s Chief Legal Officer, Paul Grewal, and CEO, Brian Armstrong, said the SEC had sent a Wells Notice to the exchange. The notice received in early September said it had concluded an investigation on the company and would sue Coinbase if it were to go forward with its plans.

 

SEC
Specific Findings

In determining whether or not Coinbase’s Lend program would violate securities laws, the SEC referred to two U.S Supreme Court precedents. The Howey case and the Reves case were the two cited.  The full contents of the Wells Notice have not been made public, but it’s believed the SEC views cryptocurrency as securities, making the Lend program akin to securities lending much like stock lending or bond lending. Both stocks and bonds fall under the definition of securities and the lending and rebates rates are regulated transactions.

Coinbase History

Coinbase was a founding member of the Crypto Rating Council (CRC), which was created in 2019 to create a shared understanding of how closely any given cryptocurrency resembled a security. This framework was designed to standardize how exchanges approach crypto listings and products within the U.S. The Crypto Rating Council rated each coin from 1 to 5. A score of 1 referred to a currency that is not a security. A score of 5 indicated that a crypto-coin is a security. The CRC has not given a 5 rating to any coins.

This ratings initiative and scorecard were designed to be used by developers for future projects for evaluation and design. Coinbase published as open-source the technical framework for crypto developers last year. The idea was that projects that adopted the framework could ensure their cryptocurrencies would be technically suitable for Coinbase trading if approved for the platform.

SEC Crypto History

The U.S. Securities and Exchange Commission has been reviewing cryptocurrencies in order to develop a framework that protects investors and promotes fairness for those transacting in securities. Many still question whether cryptocurrency should be under its umbrella at all. The SEC Chair, Gary Gensler taught courses at MIT related to cryptocurrencies. In a YouTube video class from the Fall of 2018, Professor Gensler can be heard defining currency as having the following characteristics: Durable, Portable, Divisible, and Uniform/Fungible. Perhaps this class given at a prestigious school by the now SEC head will be included in the “schooling” Coinbase uses to propose regulatory standards.

Take-Away

Coinbase promoted its Lend as a means for investors to earn interest on their crypto holdings. Before implementation, the Securities and Exchange Commission warned that it would sue Coinbase if it went ahead with the plan. Coinbase is taking a proactive stance in laying out what it believes the appropriate regulatory framework would look like. This is expected to be released shortly. In the interim, cryptocurrencies and those active in the asset class are faced with much uncertainty.

One investor of innovation, Cathie Wood purchased 65,612 shares of Coinbase on Tuesday (September 21) for the
ARK
Innovation ETF (ARKK) she oversees. ARKK holds 4,254,756 shares of Coinbase in its portfolio with a market value of more than $1.01 billion.

 

 

 

Suggested Reading:

The Wells Notice to Coinbase May be the Tip of the Iceberg

Is Interest Paid on Crypto Holdings and SEC Violation?

AMC Theaters Now Accepts 4 Cryptocurrencies

What’s the Timeline for a U.S. Digital Currency?

 

Sources:

https://www.barrons.com/articles/coinbase-coin-crypto-regulatory-framework-51632305877?mod=hp_DAY_3

https://twitter.com/brian_armstrong/status/1435439291715358721?lang=en

https://www.banklesstimes.com/2021/09/22/coinbase-to-propose-crypto-regulations-to-u-s-officials/

 

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Canadian Bitcoin ETFs May Be Cathie Wood’s Solution

 

For every problem, there is a solution, and it looks like Cathie Wood may have finally found her answer. Here’s the problem. Wood, who is the founder of ARK Invest and the high-profile Chief Investment Officer of the company that has as its tagline: We Invest Solely In Disruptive
Innovation would like to more readily be able to gain exposure to Bitcoin through ETFs. The problem is, the U.S. Securities and Exchange Commission has not approved Cryptocurrency ETFs, so there are none in existence among the investment companies overseen by the SEC.

 

ARK BTC.X History

Over the past eight years, the SEC has rejected or delayed more than a dozen Bitcoin Exchange Traded Fund applications. The reasons given are concerns over sharp volatilities and potential risks of market manipulation. Back in June of this year, along with the company Swiss-based 21Shares, ARK Invest filed to create a Bitcoin ETF of their own to be called ARK 21Shares Bitcoin ETF. The joint filing is one of the delayed decisions.

The SEC has been dragging its feet on any Cryptocurrency ETFs and has not approved any. SEC Chair Gary Gensler says they’re studying all the ramifications and how the underlying coins or futures contracts may provide higher and lower levels of investor protection. Nothing sounds imminent in terms of a decision by the SEC, and it doesn’t even sound certain that there will be an ETF approved that invests directly in Bitcoin or other cryptocurrencies.

One of Wood’s funds, The ARK Next Generation Internet ETF,  already holds a significant amount of Bitcoin through a closed-end Grayscale Bitcoin Trust (GBTC). This trust owns coins that are held at a third-party custodian. The Grayscale Trust doesn’t track Bitcoin’s exchange rate tick-for-tick. Initially, the Grayscale Trust, which currently has $30 billion in assets, outperformed actual bitcoin and traded at as much as a 20% premium. This is because it became the preferred alternative as an asset that can be held more easily in many investment accounts, such as the ARK Next Generation Internet ETF. 

Wood’s ETF currently has 5.5% of its assets——worth about $314 million——in the Grayscale fund, which is its second-largest holding only behind Tesla (TSLA).

 

Current
Solution

Canada and Europe both moved ahead, allowing fund managers to offer Bitcoin and Ethereum in an ETF wrapper. In February, Grayscale began underperforming Bitcoin and underperforming the first Canadian Bitcoin ETF.

 

 

Wood’s asset-management company, ARK Invest, revised the prospectus of the $5.7 billion ARK Next Generation Internet ETF so the fund can hold cryptocurrencies via Canadian ETFs. Given all the uncertainties, it might be wise to diversify crypto holdings through the Canadian ETFs. Others have made similar moves. Recently, the $1.3 billion Amplify Transformational Data Sharing ETF (BLOK), which is actively managed and mainly invests in blockchain-related businesses, also bought shares in three Canadian Bitcoin ETFs.

Take-Away

The diversification Bitcoin offers relative to other “disruptive innovations” is high. The volatility also presents a unique opportunity. As U.S. fund managers like those at ARK Invest seek to provide an above-average return for their investors, they will find workarounds to gain the exposure they believe is best. These workarounds are at times more costly than a direct holding or one that is domestic.

In the case of ETFs, the ease with which they can be bought and sold and if ever approved in the U.S., used in fund management or qualified retirement accounts, may cause them to trade at a premium to the assets they hold. We won’t know this for sure if the SEC continues to hold off on making a decision.

 

Suggested Reading:

Will the SEC Allow ETFs to Own Cryptocurrency?

Coinbase Receives an Enforcement Letter from the SEC

What’s in the Surprise Cryptocurrency Bill

Elon Musk, Jack Dorsey, and Cathie Wood Drop Bombshells at Bitcoin Conference

 

Sources:

https://www.sec.gov/Archives/edgar/data/0001869699/000119312521201955/d165184ds1.htm

https://www.bloomberg.com/news/articles/2021-09-13/cathie-wood-s-ark-grants-itself-power-to-buy-canada-bitcoin-etfs

https://www.barrons.com/articles/cathie-woods-ark-invest-eyes-canadian-crypto-etfs-51631569128?mod=hp_LEAD_1_B_1

 

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	Image Credit: *lingling*, (Flickr)

A New Platform Lets You Buy Shares of Blue-Chip Paintings – But is Art a Wise Investment?

 

In the fall of 2018, a Banksy work, “Love is in the Bin,” sold for US$1.4 million.

Now the original buyer has put the work up for sale, and it’s expected to fetch over $5 million – that would amount to a return of more than 250% on the original investment.

What if, instead of the art market’s being the sole purview of the deep-pocketed, everyday people could buy shares of a pricy piece of art and sell the shares as they please?

That’s exactly what a new platform, Masterworks, seeks to do.

Art investment funds have existed for over a century. Masterworks, however, has put a new twist on an old practice in that the platform allows individuals to buy shares of specific artworks in $20 increments. Investors can then sell these shares in an easy-to-use secondary market or wait until Masterworks sells the piece and receive pro-rata proceeds.

 

This article was republished with permission from  The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Kathryn Graddy Dean, Brandeis International Business School, and Fred and Rita Richman, Distinguished Professor in Economics, Brandeis University.

 

For nearly 10 years, I’ve taught a course on economics and the arts with art historian Nancy
Scott. In this course, we spend time discussing the history and profitability of art investing, both in theory and in practice.

For those thinking of purchasing art purely for investment purposes, it’s important to understand how art investment funds have traditionally worked, and whether experts believe it’s a good investment.

The French Pool Their Resources

An early art investment fund was called The Skin of the Bear (La Peau de l’Ours), which was based in France during the beginning of the 20th century.

The name comes from a French fable that contains the aphorism “never sell the skin of the bear before you’ve actually killed it” – the French equivalent of “don’t count your chickens before they hatch” – and it alludes to the fact that investing in art can be a risky endeavor.

Partly intended as a means to support emerging post-impressionist artists, such as Picasso, Matisse and Gauguin, the fund was run as a syndicate in which a small number of partners each contributed identical amounts to purchase a collection of paintings. Businessman, art critic and collector Andre Level managed the fund and arranged the paintings’ sale. After the paintings were sold, he received 20% of the sale price for his work. The artists received 20% of the fund’s profits on top of the money they received from the original sale. The investors would then receive the rest in equal proportions.

This concept – returning a proportion of the sale price to the artist – is known as the droit de suite, or artist’s resale right. Versions of this are now law in most parts of the Western world other than the United States.

This first art fund was a success. It created demand for new artworks and supported innovative impressionist and modern artists, while providing a sizable return to its original investors.

Not All Funds are Equal

Another famous investment in art was made by the British Rail Pension Fund.

This fund was established in 1974 to manage a small proportion of the company’s employee retirement holdings, and the objective was to buy works of art over the course of 25 years before selling them off. The fund earned 11.3% in compound returns annually, but because of high inflation during much of that period, the actual gains were much lower.

Other notable art funds ended up as failures. Banque Nationale de Paris’ art fund sold its investment in 1999 at a loss and a fund run by British art dealer Taylor Jardine Ltd. did the same in 2003. Britain’s Department of Trade shut down The Barrington Fleming Art Fund in 2001 after determining it was set up under fraudulent circumstances. And Fernwood Art Investments, founded by former Merrill Lynch manager Bruce Taub, failed to even launch after Taub was found guilty of embezzling his investors’ funds in 2006.

Nonetheless, there are art funds that are still in operation, such as Anthea and The Fine Art Group, and, of course, banks and auction houses have long described investing in art as a suitable diversification strategy for the wealthy.

But what do economists say about art as an investment?

Is it Really a ‘Floating Crap
Game’?

Economic theory suggests that, by definition, investing in art could provide lower returns than investing in stocks. That’s because it’s thought of as a passion investment. Like investing in sports memorabilia, jewelry or coins, part of the return to investing in art ought to be the intrinsic enjoyment of the objects themselves. The total return consists of the monetary return and the enjoyment of ownership.

As stocks do not, for most people, provide this enjoyment value, the monetary returns to investing in these financial instruments should, in theory, be greater than the monetary returns to investing in art.

But it’s important to actually analyze the numbers.

One of the very first papers on the monetary return of art investing was published in 1986 and written by the late eminent economist William Baumol.

The title? “Unnatural Investment: Or Art as a Floating Crap Game.”

Baumol estimated the long-run inflation-adjusted returns to investing in art, over a 300-year period, to be just 0.6%. Some researchers have since estimated higher returns. For example, work by Yale finance professor Will Goetzmann and economists Jiangping Mei and Mike Moses found inflation-adjusted returns of 2% over 250 years and 4.9% over 125 years, respectively. Estimated returns vary based on the time period, sample and methodology.

Furthermore, these studies don’t include transaction fees, which, when it comes to art, can be sizable, thanks to the hefty commissions charged by the auction houses or private dealers for serving as the middlemen. They also don’t take into account sample selection; paintings that plummet in value often can’t be sold at auction.

Both the Goetzmann and the Mei and Moses studies, however, estimate that the performance of the stock market doesn’t seem to be correlated with returns on art investments. So there may be some benefit to investing in art as a way to diversify your portfolio.

Art for All?

Masterworks, however, is a bit different from the traditional art funds discussed above. Investors are buying shares of a single piece of art, rather than investing in a fund that includes multiple works. The price of entry is much lower, and, as long as there are willing buyers for the share of artwork, investors aren’t locked into the fund for a particular time period. Investors can earn a return just by selling shares that go up in value, without waiting for the artwork itself to be sold.

But like the traditional art funds, investors in shares of art sold by Masterworks will make money if the price of their artwork goes up, and lose their money if it goes down.

Ultimately, Masterworks seems innovative and fun. The format will likely appeal to a younger generation of investors, many of whom may have started investing small amounts through apps such as Robinhood ($HOOD).

The site is easy to navigate and could provide some enjoyment – even I was tempted to dabble in buying some shares.

But should you hope to get rich from investing in art? Probably not.

Furthermore, unlike Skin of the Bear, it doesn’t necessarily benefit emerging artists. Masterworks focuses on established works with a track record, by artists such as Banksy, Andy Warhol and Claude Monet, to name a few.

That being said, Masterworks could bring investing in art to a mass audience. But, caveat emptor: Art is a risky investment.

 

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Is it Proper to Yell “Market Crash” on a Crowded Message Board?

 

Headlines in the financial news of a coming “market crash” have caused a lot of conversation on message boards, social media investment sites, and even on broadcast media. Below is a “study” I conducted inspired by several posts I’ve come across, including one on WallStreetBets by someone named u/geniusmanchild. I decided to investigate two things. First, is the term “market crash” being searched on the internet more than normal, and second, when “market crash” is running well above average in searches, is it followed by market weakness or a sell-off. This is largely an unscientific study, but I believe the results are very telling when perception is matched against measurable data.

Google Trend is Your Friend

As a quick intro for those unfamiliar, there’s a Google tool called Google Trend.  It allows you to put search terms and date ranges to discover when searches for that term were strongest. For each search, there’s a period identified that represents the peak of searches for the whole date range. A score of 100 is given to this peak period. All of the other periods are ranked against this; for instance, half as many searches would be given a score of 50.

 

Google Trends, Search Term Market Crash

 

Above is the Google Trend representation of user interest in “Market Crash” for the five years ending September 11, 2021. The Google Trend output shows from February 4^th to February 11, 2018, the maximum number of Google users searched for “market crash.”  There have only been six times other than this 100-point period during these five years where the results were above 25.  I’ve compared these periods against the moves (shown below) for the S&P 500, Nasdaq 100, and Russell 2000 one week after.

 

 

For the period November 6- November 12, 2016, the search term scored a 42. This is the first arrow to the left on the chart. The following week the Russell 2000 roared upwards to 9.53%, the S&P 500 was up 3.70%, and the Nasdaq 100 rose .9%. The markets did not crash following this period where a crash was being discussed. The next period was the peak of 100. This occurred from February 4- February 11, 2018. Despite the concerns, the S&P index rose the following seven days by 5.26%, the Russell 2000 gained 5.39% and the Nasdaq 7.43%. The market didn’t retrace to where it was that week for over a year.

The last quarter of 2018 was rough. Google Trends “Market Crash” showed a score of 30 between December 23 and December 29. The height of the chatter seemed to mark the bottom of a sell-off as the indexes didn’t revisit the December 2018 low for years afterward. During the last week in February 2020 and the second and third week in March Google Trend again crossed the 25 mark reaching as high as 69 during March 8- March 14. Here we did see a sell-off in the indexes. The S&P 500 the following week was down 18.98%, The Russell 2000 sunk 14.83%, and the Nasdaq 100 fell by 20.77%. One month later the S&P 500 and Nasdaq were above the beginning of the fall. The Russell 2000 was close to breakeven. They have not revisited these lows since. From January 24, 2021 through January 30, Google Trends was abuzz with people searching “market crash.” The following week the S&P 500 rose by 8.07%, The small-cap Russell 2000 climbed by 13%, and the Nasdaq 100 rose 14.08%. On the week ended February 21^st, there was a lot of clamoring again with people searching. There was never a huge selloff, but the following week the S&P 500 lost 1.44%, the Russell 2000 shaved .49%, and Nasdaq was down 1.46%.

Take-Away

The most recent read on Google Trends is that the search term is at the 10 level. I began by saying this is not a scientific evaluation. However, for this short time period one might surmise that when people begin fearing the crash is near, there is ample room for markets to continue to rise. I’ll have to soon run the same analysis on the search term “Market Rally, ” and report those results.

Paul Hoffman

Managing Editor, Channelchek

 

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Sources:

u/geniusmanchild
Post

https://app.koyfin.com/share/f52864aadb

https://trends.google.com/trends/explore?date=today%205-y&geo=US&q=market%20crash

 

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