Veteran captain Josh Abrams decided to dip his toe into the crypto world right around this time last year. With just $200, he got onto the Coinbase app and began watching short earn-to-learn videos that pay viewers in crypto as they learn about the various currencies and investment opportunities.
It seemed like a no-brainer given the crypto credits and the ease of entry, says Abrams. “I didn’t want to miss out on a potentially great investment.”
Abrams, who founded a Facebook group called Crypto Yachties to connect crew interested in investing in mid 2021, is far from alone. Digital investments, such as cryptocurrencies, non-fungible tokens (NFTs), and virtual real estate, have been moving toward becoming mainstream with everyday investors — including yacht crew — jumping aboard the trend.
In 2021, worldwide adoption of cryptocurrency jumped more than 880 percent with the United States ranking eighth in overall usage, according to a report by Chainalysis, a cryptocurrency investigation software.
The NFTs — blockchain-linked digital collectibles, works of art, and music, etc. (more on this later) — market also skyrocketed last year. It became a $27 billion segment of the crypto industry, according to another Chainalysis report. And the NFT art craze was one of the biggest talking points of Miami’s venerable Art Basel in December.
Right now, you might be wondering what this all means and why it’s so hot now.
The Rise of Cryptocurrency
Bitcoin, the world’s first cryptocurrency, launched in January 2009, right on the heels of the 2008 recession. It was created to be an electronic peer-to-peer cash system that could allow individuals to directly exchange assets without banks or any central authority.
It quickly attracted investors who believed it could serve as a store-of-value currency somewhat like gold. But it’s different from gold due to the fact that there is a finite supply of Bitcoin (and many other digital currencies and NFTs), whereas gold is still being mined and brought onto the market.
So why then, 12 years after the launch of this new technology, did the market soar? Like many other everyday investors, Abrams started to take notice of crypto in the wake of Gamestonk.
In January 2021, users on the subreddit r/wallstreetbets plotted to boost the stock price of the (once-popular but at-the-time struggling) video game store GameStop. Their goal was to hurt Wall Street short-sellers who were targeting the failing retailer. The campaign, which was dubbed Gamestonk, was a meme that threw the real world of investors into a frenzy.
GameStop’s stock grew a whopping 69 percent in one day before it blew a circuit breaker, forcing a halt. The following Monday, trading was halted nine times. Short-sellers of the stock lost $1.6 billion in a single day, $3.3 billion overall. This phenomenon paired with an already growing segment of retail investors who rushed into the market during the early days of the COVID-19 pandemic.
Rather than being printed by a government authority, cryptocurrencies are made with cryptographic techniques that allow their holders to buy, sell, or trade them securely.
In 2020, 20 percent of all stock trading was already being conducted by individual investors, up 50 percent from a decade ago. But there were so many newbies jumping into the stock market in 2020, Schwab analysts dubbed these folks “Generation Investor.” Survey data from the company found that more than 50 percent of all new investors are Millennials, 16 percent are Gen Z, and that more than half of this group started investing during the pandemic to build an emergency fund or to create another source of revenue.
All of these trends helped to fuel the rise of cryptocurrency. Bitcoin hit a record high of over $69,000 in November — although it fell 27 percent to $50,464.90 just one month later.
Like many of the retail investors who helped to fuel this growth, Abrams felt like investing in crypto in early 2021 was like getting in at the ground floor. “This was like getting Apple when it was still in Steve Jobs’s garage,” he says. “One captain I know got into crypto super early and is now completely retired and is super wealthy.”
Reddit, the website whose users created Gamestonk, was dominated by talk of crypto in 2021. According to its 2021 Recap, as of December 8, there were 6.6 million mentions of “crypto” across the platform for the year. It was by far the most-popular topic, smashing gaming, sports, weddings, and other topics that dominated in the past.
What is Cryptocurrency?
To understand why digital currency is so popular right now — aside from the rise of Reddit finance bros — it helps to know what exactly it is. A cryptocurrency (or crypto) is a form of money that can be transferred from party to party without the need for a central monetary authority like a government or bank.
While that decentralized finance sounds sketchy, as a potential haven for criminal enterprises, etc., crypto businesses say their services can provide financial stability for customers in countries that have unstable government-issued currencies. That may be why it’s growing so quickly in emerging markets. According to Chainalysis’s report, crypto has been most widely adopted in Vietnam, followed in ranking order by India, Pakistan, Ukraine, Kenya, Nigeria, and Venezuela, then the United States.
Rather than being printed by a government authority, cryptocurrencies are made with cryptographic techniques that allow their holders to buy, sell, or trade them securely. Like regular money, they can be traded for goods and services but, more often than not these days, they are used as investments.
Although many tout crypto as the currency of the future, it is not necessarily ideal for folks seeking stable investments. “We’ve seen loads of crew downloading investment apps and crypto, which is massively volatile,” says Mark Upton, director Crew Family Office. “I don’t know a financial adviser in the world who would say that’s a good idea: it’s like going to a casino; if you’re happy to lose it, have a go.”
There are more than 16,600 different cryptocurrencies that are traded publicly, according to CoinMarketCap.com, a market research website. As of mid-January, the total value of cryptocurrencies was around $1.9 trillion, down $1 trillion from an all-time high in late 2021.
While that decentralized finance sounds sketchy, crypto businesses say their services can provide financial stability for customers in countries that have unstable government-issued currencies.
About five percent of Abrams’ total holdings are invested in crypto. In the past 12 months, his average return is close to 120 percent. Shiba Inu went up about 121 percent before taking a dip. Bitcoin has held around 15 percent. Ethereum’s return has been just 30 percent. However, one meme coin (the term for a cryptocurrency that originated from an Internet meme or joke), Loopring, brought in a return of 300 percent. “The dollar per token isn’t huge,” says Abrams of these sort of joke coins that he likens to playing the lottery. “If I invest $100 into Loopring and make $300, I now have $400 — that’s a really nice dinner out with my wife, but that’s not Lamborghini rich.”
Although most financial advisers would not recommend crypto for investors who are seeking stable assets, there are several exchange-traded funds (ETFs) that allow investors to dip their toes into the market while limiting some of the volatility.
Still, some advisers, like Abrams, do recommend incorporating some crypto in a portfolio for diversity with a mix of blockchain-backed Bitcoin and Ethereum, little meme coins and some metaverse NFTs. “That’s going to be one of the big investments for 2022,” says Abrams of the latter. “I’m not saying to go in on something wacky, but to diversify; it’s investing in a technology that’s just on the cusp of being adopted.”
The Growth of NFTs
This brings us back to NFTs, a technology that’s probably more difficult to understand than cryptocurrency (at this point in time at least). Non-fungible tokens are essentially a unique “thing” that can’t be pirated, counterfeited, or replaced by something else because each token is logged on a decentralized ledger like Blockchain, the record-keeping technology for Bitcoin. Every transaction — which can include a wide array of digital objects ranging from drawings and art to music and $25,000 GIFs — is visible to the public like property records.
During Miami’s Art Basel in December, more than a dozen events incorporated NFTs. Collectors and investors could buy NFTs of Tina Turner’s Versace dress, works by “Wolf of Wall Street” Jordan Belfort based on his life, and former Donald Trump fixer Michael Cohen’s prison badge. Armenian artist Narine Arakelian offered her first NFT, a painting titled “Live” that included an embedded contract promising one of her eggs to the buyer. (Dockwalk was unable to confirm whether the Arakelian’s unique work actually found a buyer.)
But NFTs aren’t just about bourgeoisie collections — a lot of the focus relates to online virtual worlds, referred to as metaverses. Similar to video games, these metaverses are a shared space on the Internet where users get together to play, work, and socialize via customized avatars as a virtual representation of themselves — basically a more evolved version of the video game The Sims.
But NFTs aren’t just about bourgeoisie collections — a lot of the focus relates to online virtual worlds, referred to as metaverses.
Only a handful of metaverses exist, and they’ve been increasingly offering users digital experiences that are closer to real-life events — fueled, in part, by the stay-at-home orders of the pandemic. For example, at the height of the COVID-19 shut-downs, Fortnite hosted a virtual concert by rapper Travis Scott that brought in more than 12.3 million simultaneous viewers. And Domino’s even made it possible to buy pizza from a virtual shop in the metaverse Decentraland and have it delivered to a real-world address.
“You can look up metaverse concerts 2022 to see which bands are playing in Decentraland or Sandbox and get tickets to concerts,” says Abrams. “If you have NFTs, you can get discounts or better front-row tickets. I will probably never go to a metaverse concert, but I see where things are going.”
Since the NFT boom hit, values of land parcels in Decentraland have exploded. The digital world gives users a space to create an avatar, interact with one another, and participate in activities, from concerts and art shows to building a home or business on their own plot of virtual land. Like Bitcoin, there is a finite supply of these parcels available to buy — and corporations are beginning to see potential in their ability to market to consumers through these shared spaces. Parcels sold for about $20 apiece when developers listed them for sale back in 2017. Today, the average is going for $5,500.
As the cost of entry has risen, the investment class has responded to the growing technology — which has only been expanding faster since Facebook announced it would focus on creating its own virtual world and rebranded itself as Meta last fall — by giving investors exposure to the space through ETFs that focus on publicly traded companies active in NFTs.
While Abrams and his cohorts are certainly interested in these more futuristic investments, he has decided to take a wait-and-see approach similar to how he felt about cryptocurrency in its early days. “I won’t invest in something I don’t understand,” he says. “To go out and spend $10,000 on an NFT to get into a virtual yacht club or something, it’s something I just don’t understand.”
But, he adds, he would consider an ETF that would balance out some of the volatility while getting the exposure to the growing NFT market.
This feature originally ran in the March 2022 issue of Dockwalk.