Welcome to the Speculation Economy
A future we can bet on
$GME. NFTs. Crypto coins. Meme stocks. We are witnessing the unstoppable rise of the Speculation Economy.
The colossal wave of retail investors diving into equities and alternative assets over the last two years seemingly came out of nowhere, and took the world by storm. Retail investors on stock trading app Robinhood grew by 150% in the last year alone, bringing its total users to 18M with an AUM of $80B. Similarly, we saw an explosive growth in the NFT market — from $13.7M in the first half of 2020 to a whooping $2.5B in the first half of 2021. Crypto trading markets are on the up and up. Trading volume on Binance jumped 74% to reach $789B between July and September 2021. Who are these traders? Most are casual investors hoping to make a quick flip, and/or have some fun along the way.
We have shifted from production to information
The Speculation Economy is fueled by the trading of information rather than goods and services — a huge signal that we have well and truly shifted from the production economy to the information economy. There is a huge premium on knowing what to buy and when to buy, and alpha isn't won through public search (you're hearing about it way too late by the time it's reported on by the media), but flows through private networks and communities.
The NFT market in 2021 is a great example of a market powered by the Speculation Economy. Quick caveat: While I do believe in the long term future and applications of NFTs, from unlocking unique fan experiences or reaping creative dividends, i don't think any project's quite cracked it just yet. In 2021, I would argue that majority of NFT trades were driven by speculation, or the hope that the NFT will eventually fetch a higher price than what was paid (winner's curse, begone!)
So, what's driving the Speculation Economy?
Shift in perspective
We have shifted from the production economy to the information economy — where value is placed on the trading of information rather than goods and services. While this has been the case for a long time in institutional capital markets, we are seeing a new emergent phase in retail capital.
Access to markets
From mobile trading apps to DeFi marketplaces, there are more platforms and protocols enabling global, democratized, 24/7 access to markets and serve traders from everywhere, with any financial status.
Liquidity flywheel
Liquidity begets liquidity — the economic flywheel increases its pace with every trade increasing hype, financial interest, and belief in imagined future value.
Buckle up, this isn't going away anytime soon
We are on the crest of a global, cultural phenomena — and it isn't going away anytime soon. The Speculation Economy, especially those powered by digital currency, is just a hint of a global capital market where money is borderless and markets are open, unbound by geography or personal status.
What types of new assets will emerge beyond equities in companies or projects? The betting on the future of individuals is well on the horizon, where you can buy a stake in anyone with potential cultural capital — be it amateur athletes about to go pro, to social media influencers. Or what if you could bet on the future of a collective? And weave both your social and financial capital with a group of people driven by aligned missions or motivations, united by the same currency, yet not tied through traditional regulatory structures?
Some emergent trends we see on the horizon:
Discovery and curation is become increasingly important — and lucrative.
Valuations ( perceived value) will be driven by community. Aggregating users == aggregating liquidity == increase in trading volume.
For a particular asset type to mature, there needs to be ways to make it easy to re-sell, not just easy to buy. Case in point: NFTs in a collection or a series (those that look similar but are differentiated, e.g. punks, kitties, apes, etc) trade at a much higher frenzy than one-off NFTs that have fewer comparables.
We need and will see more of these:
Asset-agnostic, mobile-first, user-friendly trading platforms and portfolio management tools
New and creative asset types
Social trading platforms with integrated community features
Algorithmic coordination tools for trading swarms based on early sentiment
Global marketplaces for creative assets in entertainment, gaming, social
If you're working on any of the above, I'd love to hear from you — reach out @taratan
The floodgates have been opened and there isn't any turning back. Embrace the Speculation Economy, roll your dices, and play safe.