The Gentle Madness of Value

I first began investing in digital assets in 1977 at the most unlikely of places, the corner liquor store, where a forward-thinking owner had recently installed ‘Asteroids,’ one of the earliest arcade games.

The concept was simple, for a quarter you got three rocket ships and racked up points by shooting at and destroying asteroids - or the occasional flying saucer.

For every 10,000 points, you earned a new ship, but if you got hit by an asteroid, or shot by that annoying saucer, you lost one.

As with all new technology, there are early adopters. The ones who dig in and figure out how things work before the public catches on.

David Sherman was an early adopter, who spent every waking non-school hour standing in front of that faux wood video cabinet, emblazoned with futuristic images of asteroids, alternately circling, and exploding around an alien planet.

He got so good that he could amass a dozen or more ships without even trying. In fact, it became so easy for him that he got bored. But instead of giving up on the game, he turned it into a business.

“I’ve got a whole bunch of ships here,” he’d announce, not unlike a carnival barker. “Who wants to buy them?”

I bought ships off David a few times as did most of my friends, yet not once did we discuss their viability as a form of payment.

Nor did it occur to us that they might be an asset, a challenge to fiat currency, or have some utility outside the liquor store.

We didn’t buy them for their lasting intrinsic value, but because we thought having a dozen ships at one time was a cool flex.

That was their value.

It’s been fun to watch old school investors lose their shit the past few years over the rise of cryptocurrency, NFTs, digital assets, DeFi, and now the coming metaverse.

They can’t understand the demand for these things because they can’t understand how value can exist outside of the narrow way it’s traditionally been defined by Wall Street.

This has been a conscious effort by the financial powers that be, who know – who’ve always known – that outside of extremely rare situations related to survival, the value of almost everything is subjective - and subjectivity can’t be controlled.

This is why they’ve spent two hundred years creating and codifying the dogma of valuation and beating it into generations of accountants, analysts, traders, portfolio managers – the industry as a whole - while encouraging financial media to repeat it like a mantra to the masses.

In the real world, subjective value often feels objective, for example, in the case of the hard currency in your pocket or your bank account.

But in the end, it’s still a numbers game.

For something to have value people have to believe in it, and if enough do, then there’s a tipping point where that belief becomes self-perpetuating and “real” value is created.

Thanks to the ubiquity of technology, over the past decade the public has tacitly participated in the gamification and tradification of almost everything, and in the process, connected as counterparties in ways they never could before.

Now non-traditional assets no longer have to find a market, the market finds them.

And that has caused something to happen that members of the old guard – a judgment on mindset, not chronological age – fail to recognize.

For the first time in history, there are now asset classes that derive a significant portion of their value from being cool - at scale.

Of course, skeptics will say that they’ve seen it before. That this type of value is trendy, faddish, based upon emotions, envy, and irrationality, all factors that guarantee it can’t last.

Perhaps, but there is a precedent that argues otherwise - the “gentle madness.”

It’s a term well-known to book collectors, used in reference to Isaiah Thomas, a revolutionary era printer and philanthropist. At Thomas’s funeral, his grandson said he had been touched early in life by “the gentlest of infirmities, bibliomania.”

Throughout history, bibliomaniacs are known to be rabidly obsessive in their desire to acquire books.

Not just inscribed copies, first editions, and rare imprints, but anything that piques their interest, stirs their emotions, or better yet, has some element of exclusivity attached to it.

They collect books as art, as pieces of history, and for provenance.

Few collect books as an investment, even less for speculation, and almost none as a store of value.

And when a collector acquires these prized possessions what do they do with them?

They put them by the hundreds, sometimes thousands, on dusty shelves, in spare bedrooms, attics, basements, and storage units where they remain hidden away and unopened for decades at a time.

Bibliomaniacs don’t need to display their books, or even see them. They think it’s cool just to own them.

That’s the gentle madness.

That’s their value.

Why is owning a CryptoPunk, a meme stock, or a decentralized token named after a Japanese dog any different?


Weekend Strategy Video: 11-05-2021


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