There has been a huge craze around card collectible investing recently. Pokemon has been leading the charge with influencers like Gary Vaynerchuk, Logan Paul, and Logic all publicizing their purchases of rare Pokemon cards.
Prices have been skyrocketing with the price of the 1st edition set of English cards increasing ~593% since March. The price for buying a full set of these cards has increased from $73,787 on the 1st of March to $511,798 recently.
After analyzing the Pokemon card market, there are some similarities to Bitcoin. The two are indisputably different but these similarities highlight some of the reasons why Bitcoin has strong upside potential moving forward.
In a world where the winner increasingly takes all, Bitcoin and Pokemon both hold dominant positions. Bitcoin holds over 60% of the market cap of all cryptocurrencies with some estimates putting this figure far higher. Research by MicroStrategy before their $425 million BTC purchase put the dominance percentage at 92%.
This dominant position has important knock-on effects. Let’s consider a few:
- Where will retail capital flow into?
- Where will institutional capital flow into?
- Network of entities contributing to its success.
Where will retail capital flow into? – Bitcoin has the biggest brand. There’s a much higher chance that a random person has heard of Bitcoin as opposed to its competitors. This is important if they reach the point where they want to allocate capital. Their first consideration will be Bitcoin. This will also hold importance because of herding behaviour. If the largest number of retail investors hold their capital in Bitcoin, it is far more likely that new entrants will do the same.
Where will institutional capital flow into? – Any sophisticated investors that want exposure will consider Bitcoin before anything else. It is the cryptocurrency which has gained the most legitimacy. It has the most advanced infrastructure underlying its markets, commerce, and technology. We have already observed several serious investors like Paul Tudor Jones, Raoul Pal, and Stone Ridge Asset Management gain exposure to Bitcoin in recent years. Other cryptocurrencies are far from this stage.
Network of entities contributing to its success – Bitcoin also has the biggest network of entities contributing to its success. The developers, miners, businesses, enthusiasts, buyers, and speculators involved in Bitcoin vastly outnumber those in any other protocol. The list goes on. All play an important role in defining Bitcoin’s future success and the network vastly outsizes any other cryptocurrency.
Similarly, Pokemon is the dominant media franchise. It is the highest-grossing media franchise of all-time with an estimated $100 billion in revenue generated. Pokemon is still regularly producing television shows, games, and all manner of merchandise that serves to further embed its brand into the global consumerist machine.
When it comes to investing in the success of the Pokemon brand, there is a wide variety of merchandise that could be considered by collectors. However, card collecting has been receiving all of the attention with little-to-none being given to other potential purchases.
The whole idea here is that the world is extremely nonlinear. That means that being in first position is not twice as good as being in second position. It might be something closer to four times as good. It also means that being in first position is not ten times as good as being tenth but it could be thousands of times better.
One of the most easily digestible and widely understood reasons for investing in Bitcoin is its supply schedule. In an era of wild monetary policy, many are vying to buy Bitcoin as an alternative to having their wealth devalued through inflation.
From an Economics 101 perspective, the limited supply of Bitcoin fosters favourable dynamics for upside price movements. While demand may increase 10x over the next years, the corresponding increase in supply will be tightly restricted due to the protocol rules which are enforced by 5.5 GW of computing power. For instance, the below graph illustrates the demand-supply changes and resulting impact on value over a market cycle from 2016 to 2019.
A certain set of Pokemon cards also has an element of scarcity to them. Among Pokemon cards, there have been scores of different releases and variations since the first english-version cards were released in 1999. There are several criteria which play into a card’s value:
- What set does the card belong to?
- What edition is the card within a set?
- How rare is the card?
- What condition is the card in?
- Special conditions
What set does the card belong to? – The first set of Pokemon cards released to the Western market was called the Base Set. This set has naturally captured the lion's share of the attention and appreciation in value.
What edition is the card within a set? – There were several prints within the Base Set with each having their own defining characteristics. The most valuable is the “first edition” which is marked with a 1st edition logo on the left-hand side of the card. These cards sold out virtually overnight with no one knowing exactly how much were printed. It is estimated that no more than 10 thousands packs were sold with each pack containing eleven cards.
How rare is the card? – Each pack of Pokemon cards contains seven common cards, three uncommon cards, and one rare card. In every third pack, the rare card will also be holographic. This means that there are four types of cards with each becoming more scarce – common, uncommon, rare, and rare holo.
What condition is the card in? – There are two ratings agencies that rank the condition of cards. PSA is the most widely recognized and ranks cards from one to ten with ten representing pristine quality. While there are 0.5 increments in the PSA rankings, there is no 9.5. The other ratings agency, Becketts, has a similar ranking but also has a 9.5 rating. This means that a card ranked 10 by Becketts demands a significant premium over a card ranked 10 by PSA due to the lack of the 9.5 rating within PSA. PSA 10 cards will demand substantial premiums over PSA 9 cards. Cards quickly become worthless as you drop further down the rankings.
Special conditions – Certain cards within the base set were subject to special conditions which impacted their supply. A number of Pikachu with red cheeks were printed in the 1st edition base set as a number of employees secretly sent them to print despite the lead designer insisting on Pikachu having yellow cheeks. The red cheeks Pikachu only exists in the 1st edition base set and demands a premium over the yellow cheeks Pikachu from the same set. The red cheeks Pikachu recently sold for $10,600 with sellers now demanding ~$13k for this card.
When we add all of these factors together, speculators are focusing their attention on PSA 10 first edition base set Pokemon cards. These are the cards that have been drawing all of the attention and have been significantly increasing in price. The below chart shows the price for the entire set up until the start of October with prices doubling since that point.
First edition base set PSA 10 cards are extremely rare. PSA maintains a database of each card that has been ranked. Many cards have a supply of <200. Similar to Bitcoin, this limited supply helps foster favourable dynamics for upside price movements in times of demand increases.
“We can almost always detect antifragility (and fragility) using a simple test of asymmetry: anything that has more upside than downside from random events (or certain shocks) is antifragile; the reverse is fragile.” Nassim Taleb, Antifragile
Bitcoin and Pokemon could both be described as antifragile in their current state. Bitcoin is approaching a dozen years of existence while Pokemon will have its 25-year anniversary in February next year.
Over their lifetime, both have survived shocks that could have brought their existence to a premature ending. Bitcoin seems to be exiting a 2-year bear market while the Pokemon franchise has weathered several significant financial crises.
Each shock that Bitcoin and Pokemon have survived has served to further solidify their position in the aftermath. In terms of Bitcoin, each shock sustained is a testament to the robustness of the technology. For Pokemon, competing brands were wiped away while Pokemon stood firm.
Both look to be in a particularly strong position to benefit from random events moving forward. Bitcoin is about to breach previous highs which will lead to an onslaught of media publicity, analyst discussion, and fresh capital.
Over the past months, influencers with audiences of millions have advocated the Pokemon brand to their followers. These followers have gone on to preach Pokemon to their circles which may have a further ripple effect. I personally heard about the Pokemon card craze from my friend who watched some Logan Paul videos and am subsequently sharing it to anyone who reads this.
Bitcoin versus Pokemon as an Investment
We draw the line on the comparisons. At their essence, Bitcoin and Pokemon are far more different than they are similar. Pokemon is an interest market that is gaining popularity and it seems likely that the price of 1st edition Base Set cards will continue to rise. However, investing in Pokemon cards comes with the opportunity cost of not holding Bitcoin. With Bitcoin exiting a 2-year downward trend and several sophisticated investors entering the market, would you rather stacking sats or piling pokes?