Real Assets vs NFT

A foreseeable inflationary scenario is not just pure speculation stemming from deluded crypto-maniacs, but a ramping concern of most players from traditional financial institutions. Bank of America’s chief strategist recommends investing in real assets that would protect retail investors against inflation. Meanwhile, non-fungible tokens, which are fully virtual commodities are the latest trend in the investment arena. Is there real financial value behind “real assets”?

Michael Hartnett, chief strategies at Bank of America wrote in a recent report that inflation is reaching a “secular turning point”. After a long period of deflation, where equity markets have thrived, it is time for a historical reversal characterized by an increase in inflation, nominal interest rates and commodities prices. Equities were considered at some point a hedge against inflation, but equity markets pumped by quantitative easing are not suitable candidates. Inspired by the Oracle of Omaha who was preaching for a long time investment in productive assets, Hartnett recommends ''real assets'' including commodities, real estate, wine and fine art. Moreover, the stock market should enter a slow decay with lower returns compared to the previous decade. If inflation impacts negatively the real economy, and recovery is less than expected, who will care about wine and art?  

The bottom line is that developed countries put less emphasis on the real economy, thereby investing in “real assets” may sound appealing, but not consistent with the current trends.

Non-fungible tokens are the new hot thing in the world of alternative investments. NFTs are cryptocurrency tokens, generally based on Ethereum blockchain used to represent digital assets encompassing digital art, media files or even online content. Elon Musk, the founder of Tesla (a “real asset” company) became an ambassador for this new trend and issued an NFT for one of his tweets.  The token found immediately a buyer that currently owns the tweet. Nevertheless, the owner of an NFT does not automatically have the ownership of the copyright for the underlying digital assets.

The concept has many followers and NFT Investment, a specialised London based company aims to go public through an IPO on a London stock exchange.

Seemingly, investing in tokenized digital artwork is more appealing than buying real estate or agricultural commodities. If Mr Hartnett leaves his highly paid, remote computer-based job and opts to work in an industry employing “real assets” like raising cattle, his investment recommendation would weigh considerably more. Until this happens, retail investors have their eyes on Ethereum.

We believe we are at a secular turning point for both inflation & interest rates. [...]We believe 2020 likely marked a secular low point for inflation and interest rates due to a reversal of deflationary secular factors, fiscal excess, and an explosive cyclical reopening of the global economy creating excess demand for goods, services and labor. Michael Hartnett, Bank of America

Market overview

S&P 500 ended the week at a new high breaking the resistance level of 4,100. Comments from Fed’s repressive reassured the market that inflation is under control and interest rate will remain low in the foreseeable future. Nevertheless, institutional investors are betting on an inflationary scenario that could kick in earlier than expected if the US economy reopens faster due to an aggressive vaccination strategy.
Bitcoin prices remained stable below 60,000 USD, consolidating the gains accumulated over the first quarter.

Focus:

Digital Realty

Digital Realty is a US-based real estate investment trust that invests in data centres, thereby having all the features of a real asset. Nevertheless, despite the ramping development of the digital sector and increase in demand for cloud capacity, Digital Realty’s price did not profit from the bull in tech shares and followed an overall dwindling trend since the pandemic outbreak. The firm is looking for growth opportunities overseas and has recently opened a data center in Singapore trying to secure a significant share in the growing market for data center services in Asia.

Focus:

Ebang

Hindenburg Research published recently a report unravelling serious issues behind Ebang, a China-based leading bitcoin mining machine producer, that went public in 2020, raising over 300 million USD from US investors.

Ebang’s share price dwindled over the past month after going through repeated ups and downs. Hindenburg shorted the position underlining that Ebang’s business model is not backed by evidence. Moreover, Ebang’s listing on the Hong Kong exchange was suspended due to suspicious behaviour of a “pump and dump” scheme.

Cryptocurrencies:

Ethereum

Ethereum surfed on the recent Bitcoin’s bubble and its value multiplied over ten times since May 2020. The expected Etheruem’s 2.0 update is one of the key reasons behind the consistent market support.

Mark Cuban changed his views from a crypto-detractor to a crypto-believer and is one of Ethereum’s main cheerleaders. The new version would allow fast and efficient development of blockchain based smart contracts and smart apps, thereby facilitating the progress of the digital economy.  Ethereum has all chances to surpass Bitcoin and to become the leading cryptocurrency.

Market outlook

The Dow Jones ended the week above 33,800,  showing a robust 2% growth compared to last week. While the central scenario in the short term is a rally fueled by optimism from a global economic recovery, technical sales could push the equity market into a negative territory.

Bitcoin remained below 60,000 USD. If the market optimism remains we could see Bitcoin above 60K. Brent Crude remained in the same tunnel around 64 USD, and the likelihood of a further price progression faded away despite a foreseeable accelerated economic recovery.