Successful investors join the dots and look at where we’re going, not where we are now.
I was sceptical when I first came across Non-fungible Tokens (NFTs).
Before deep diving and researching, I knew I had to have the same open mind I approached Bitcoin with and not listen to what media narratives were saying about the technology.
I also had to ignore large parts of the Bitcoin community. Make my mind up and deal with the results of my decision.
If this is the first time you’ve heard the term NFT, it’s a technology around digital proof of ownership. Something that can’t be replicated or copied.
What NFTs are, are contracts. Think QR code.
You use QR codes for just about everything, plane tickets, access to events, placement on branding, and access to features on your phone.
Instead of some horrible-looking matrix barcode, your NFT is Art and comes as your own digital collectable.
Most mainstream headlines around NFTs were and still are that it’s a fad that’ll wear off. It’s all the same rhetoric playing out like in the early days of Bitcoin, and it’s the same movie repeating.
In the following few chapters, you should take stock of what Raoul Pal says about NFTs. He’s an ex-hedge fund manager and macro investor who’s world-class at understanding human psychology and trends.
It’s worth doing your homework because while 95% of projects are lousy investments, the underlying technology will play a significant part in our lives.
Perhaps even on the same scale or bigger than Bitcoin.
I said it. Crazy, I know.
Based on my interactions with many of you through comments, it’s evident that most of my readers support Bitcoin and Ethereum.
There’s nothing controversial about those two as solid assets to hold well into the future. Unless, of course, you’re a lawmaker working for the government.
While most Bitcoiners deny NFTs, a larger group still deny Bitcoin as a legitimate store of value, which is beyond ridiculous given its growing adoption rate.
You may wonder why we wouldn’t just use QR codes over NFTs and be done with this disruption. Well, NFT technology is better on so many levels.
My aha moment with NFTs was that they’re not just Art. They’re digital contracts that allow the person issuing them the ability to drive value without the need for a middle person.
Instead of holding your QR code in your emails somewhere, with NFTs, you’ll own it like a collectable in a digital wallet and can sell it on the secondary market. The creator earns a royalty every time holders sell, incentivising them to continuously add value to “the contract” (not always).
Collecting is ingrained in us.
People throughout history have displayed collecting behaviours, and the psychology of collecting varies between being beneficial as a hobby or a mental disorder.
NFTs appeal to our collecting instincts and help us socially signal who we are. If you hold a certain NFT or artwork, you’re proud of it. You’re also inclined to share that on your social media.
Maybe you won’t.
Research theories show collecting is the expected behaviour of all of us, and NFTs appeal to the collector in you. Building up your collection is pursuing something less tangible, like an experience, idea or feeling.
These feelings are not money motivated.
What motivates us to keep collecting is the feel-good and internal joy it gives us. Such as having something you’re passionate about, the solidarity you have with your collecting community and the nostalgia the collectable provides you.
Macroeconomic investor Raoul Pal is world-class at reading consumer trends and behaviour and says that because of our human need to be part of communities, collect, and socially signal who we are, we’ll want to own NFTs.
He also says that Picasso and Jackson Pollock were both ridiculed in their Art’s early days, and so was Banksy, the graffiti artist. Everything gets demonised before it becomes ‘the thing’, just like Bitcoin.
Raoul Pal — Source
“Authenticity is something humans like, and NFTs are authenticity guaranteed by the blockchain. People misunderstand NFTs because they see Art and Art is a really subjective thing.
Jackson pollock was ridiculed, and Picasso was ridiculed until they became valuable. Banksy, the graffiti artist, people were saying this is ridiculous.
People are saying the same thing about NFTs. Suddenly they’re like oh my god, well, it’s just a Jpeg.
Well, guess what? Photography has value, too and anything signed by the photographer or has the original digital file can be immensely valuable.”
Raoul Pal says you can own the IP (intellectual property) of franchises like Disney or Star Wars through NFTs, and it’s already happening with people like Gary Vaynerchuk and Ashton Kutcher starting to explore it.
The value of these NFTs will increase with the growth of a community around it because people crave community and connection in the digital space.
Pal says humans are social creatures and want to be part of something and feel unanchored without it.
Raoul Pal — Source
“We all crave community and connection, and NFTs only intensify this need. It’s the essence of being human.
Humans like to fit in and be part of something; if they don’t, they feel unanchored.
During the pandemic, we saw this as people who couldn’t go out felt unanchored because they weren’t part of a community.
People poured online because they crave social interaction and want to be part of something.
We see this with football clubs, sports clubs, and religions, where people are fanatical about their community.
It’s what drives us to have a sense of purpose and be part of something, and it’s all about our interaction.”
Similarly to internet stock in 1999/2000, people thought the internet was a fad. Companies like Pets.com had inflated values of 86 Billion but subsequently went to zero.
98% of internet companies were terrible investments. Most went to zero. No different to this NFT era we’re going through now.
But the internet is still around today, and a handful of companies like Amazon and eBay have come out as absolute juggernauts.
NFTs will be the same. The technology works better and appeals to human instincts to socially signal and be part of communities.
Culture is becoming tokenised.
While I believe Bitcoin is an excellent store of value, NFTs, to me, will be “the thing” that commercialises cryptocurrency to the masses.
And as pal says.
“Successful investors join the dots and look at where we’re going, not where we are now.”