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Proprietary Data Insights Financial Pros Top Crypto Searches This Month
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NFT’s Trade Like Stocks Non-Fungible-Tokens (NFTs) represent a unique ownership of some item that cannot be duplicated. It’s like owning a $1 bill that you write your name on and add a GPS tracker to. What’s interesting is that many of these NFTs now trade like a combination of stocks and angel investments. If you go onto sites like Sandbox, you’ll find NFTs that you can buy from listed sellers. Many traders are opening accounts, buying NFTs and then reselling them, attempting to make a profit. Unlike stocks, each NFT is 100% unique. It would be like identifying share 1,233 of Apple’s stock. That means each individual NFT trades independently, even if it’s part of some larger program or brand. When you pull up the individual NFT, you get to review a whitepaper that explains the purpose of the NFT and what you get with it. It’s similar to what you see on Angel Investing where they explain what the company does. Sometimes your NFT is a digital drawing or program. Sometimes it’s basically nothing at all other than a made up token. If you’re interested in learning more about NFT trading, we recommend spending some time on the major sites learning about them and how it works including Sandbox, Decentraland, and Enjin. |
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Crypto |
Home Bubble Like Bets Bloom in Crypto |
Key Takeaways:
Reckless bets on mortgages brought the world economy to its knees. Those risky derivatives just showed up in the crypto space. Derivative Bets The term ‘derivative’ refers to a product that derives its value from another asset. Options contracts and futures are derivatives since the value of those products is derived from the S&P 500 (along with some other items mixed in). While the trading of stocks is highly regulated, derivatives may or may not be. Typical options and futures contracts are tightly controlled. Over-the-counter (OTC) derivatives are not. In fact, they’re minimally regulated. Goldman’s OTC Derivatives It was reported that Goldman Sachs (GS) is close to offering its first OTC cryptocurrency derivative. Goldman traded a ‘non-deliverable’ contract with Galaxy Digital. While many details aren’t known, a non-deliverable product means that the buyer and seller settle up with cash at expiration, similar to index futures. That differs from commodity futures which can require the buyer to take ownership of the asset like oil. Pros & Cons Derivative products help institutions participate in the cryptocurrency market. Large funds may prefer this route because it can provide leverage. Or, if their investment would be large enough to move the actual price of a cryptocurrency, this helps them avoid that. The problem is these products aren’t well regulated. That leaves major gaps in reporting. We saw the problem this can cause back in March of 2021 when Archegos Capital blew up because they obtained too much leverage by exploiting a loophole that let them hide their total exposure from each of their lenders. The Bottom Line: The OTC derivatives market doesn’t get much attention, but it should. More than a decade ago, similar derivatives on mortgages led to the global economic collapse However, when larger funds become involved in cryptocurrency markets, it adds liquidity and tends to reduce price swings, as well as adding legitimacy. For owners of cryptocurrencies, this can help create a price floor during large selloffs. Right now, there are only a few stocks tied to cryptocurrencies. Marathon Digital (MARA), Microstrategy (MSTR), and Riot (RIOT) are traded on major exchanges. The Grayscale Bitcoin Trust (GBTC) trades in OTC markets and owns Bitcoin. There is also the Proshares Bitcoin Strategy ETF BITO which tracks Bitcoin using futures contracts. Still, we’d like to see more options in the ETF world for retail investors. |
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