The lowest-priced stainless steel version of the Cosmograph Daytona, the Rolex model made famous by Paul Newman, has a suggested retail price of $14,550. But you are unlikely to get one that cheap.
Demand for luxury mechanical wristwatches has far outstripped supply in recent years, and now the waiting list for the most popular Rolex models is said to be, if you can first convince an authorized dealer you’re worthy of one. , is several years. 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 past five years, Daytona’s secondary market 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’s not just the prices of high-end watches that have skyrocketed during the pandemic. For a wide range of collectibles, including fine art, classic cars, luxury handbags, sneakers, comics and trading cards, the past few years have been bubblier than a bottle of Dom Pérignon (whose prices for certain vintages have also skyrocketed). Then there is the housing market, an admittedly more practical scarce commodity, where prices have also risen to intolerable new heights in recent years.
I’ve been thinking about these asset bubbles a lot lately, especially as I’ve been following the decline of Bitcoin, Ethereum, NFT, and the larger cryptocurrency industry that grew so much 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 now-stymied wave of innovation. by the overlords of traditional finance, what they derisively call TradFi.
But it is quickly becoming clear that cryptocurrency was just another collectible propelled by the same forces that inflated the market for Yeezys and Birkin bags: lots of money floating around the world, not many obvious places to put it, and fear of losing it. into something that everyone else seemed to think would be hot.
Just as a Rolex doesn’t tell time any better than a regular wristwatch (in fact, electronic watches are much more accurate than mechanical ones), DeFi seems to do no better than TradFi, and in many practical ways it’s worse. As a group of computer scientists and other technology experts recently wrote in an open letter to Congress: “By its very design, blockchain technology is ill-suited for almost all purposes that are currently touted as an actual or potential source of public benefit.” “.
So why did so many invest? Because FOMO is an incredible drug. Because when prices skyrocket and you’re afraid of missing out, you can convince yourself to imagine the intrinsic value of anything: a mechanical wristwatch is an engineering marvel in miniature, almost a work of art in its intricate complexity. Or: An algorithmic stablecoin is a marvel of fintech engineering, a way to replicate antiquated banks and payment networks on the blockchain to create an open financial infrastructure.
Hope for? No, I don’t know what that means either, but look how cool it is! And more importantly, check out how cool other people think it is!
The catch in my analogy, of course, is that the kind of big shot who can spend $40,000 on a Rollie probably won’t feel much success if the Daytona suddenly stops being cool. (In fact, resale prices for Rolex and other luxury wristwatches have been falling in recent months. The sneaker resale market is also weakening.)
Crypto, on the other hand, was thrown at everyone, rich and poor. On social media, on financial television networks, and in celebrity-studded Super Bowl ads, these unregulated, complex, volatile, and crash-prone financial products were sold to the masses as can’t-miss opportunities. “Fortune favors the brave,” promised Matt Damon, while Larry David starred in an ad whose tagline explicitly invoked FOMO: “Don’t miss out on crypto.”
Crypto was also just the latest in a series of unsustainable asset bubbles that have rocked American life over the past two decades. At the turn of the century, people were trying to make it big by investing in dot-coms that were losing money. The 2000s were 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 surge, Bitcoin rose and fell in 2011, then from 2013 to 2015, and then again from 2017 to 2018.
I’ve seen a lot of schadenfreude online recently: a lot of people who were left out of the crypto boom making fun of the gamblers, which is perhaps just after years of crypto bros telling skeptics to “have fun being poor.”
But can you blame them? Surveys suggest that people under the age of 40 have been much more willing than older people to invest their money in cryptocurrencies. This makes sense considering that much of their adult life has been dominated by these boom-and-bust cycles and persistently low growth in real wages.
For millions of people, cryptocurrencies, like real estate and dotcoms before it, offered a way out of what had otherwise been a dead-end economy. They were just trying to get by the only way you can do these days: put your money into something cool and hope it’s big. It is the American style.
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