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002. cultural assets: exploring the shift from niche to norm
& why I'm cooler than you for owning Jordan Banned 1's
On July 31, 2019 I bought myself a pair of Jordan 1 OG Bred 1’s. When Michael Jordan first introduced the ground breaking sneakers to the world in 1985, the NBA fined him $5,000 every time he wore them because they violated league policy. Since then, the shoes have been known in the sneaker community as the “Banned 1’s,” and are widely heralded as one of the best all-around pairs of retro Jordans ever made. If you’re reading this and you’re completely unfamiliar with sneaker culture, just know the Banned 1 is a timeless classic, and one of the biggest basketball shoes in fashion. I purchased my pair from StockX for $435.
On April 19, 2020 ESPN and Netflix co-produced The Last Dance, a miniseries covering Michael Jordan and the Chicago Bulls’ 1997-1998 season. With all of the country trapped inside at the height of the COVID-19 outbreak in the U.S., tens of millions of people were tuning in on Sunday nights to watch each episode, and understandably, retro Chicago Bulls and Michael Jordan memorabilia garnered a new level of nostalgia. By the time the mini series ended in late May, the exact same pair of Banned 1’s I had purchased were listed on StockX for $870 - exactly double what I paid in June. As I write this now, the shoes are going for $970 and other sizes are listed for as much as $1,178. What’s astonishing is that experiences like this are not at all rare in the world of sneakers; in many cases nowadays, sneakers will debut on secondary markets for 3-5x their original retail price.
The growth of sneaker fandom from a cult-like subculture to mainstream is likely the most visible portrayal of the rise of new alternative asset classes that I like to call “cultural assets.” As the name suggests, cultural assets are a new class of alternative assets with high cultural significance or influence that can be securitized or informally invested in. In 2021, cultural assets most commonly include art, cars, collectibles, sneakers, and wine, but the space is rapidly expanding to include NFTs, media royalties, and other digital assets. Over the past few years, startups in the cultural asset space like StockX, Rally, NBA TopShot, and Otis are signaling how much potential the space has, and StockX has already achieved Unicorn status. I firmly believe the trend of investing in cultural assets more broadly, however, is only in its early innings, and warrants exploration as a number of new unicorns will be birthed from the space over the next few years. Let’s dive in.
How did we get here?
Though cultural assets have just recently become a notable space in the tech ecosystem, decades of broader trends have predicted their emergence and ability to carve out their own space. Here’s how we got here:
1️⃣ Birth and evolution of alternative assets
For decades, Real Estate has been the most popular alternative asset, simply because the broader public is most familiar with Real Estate, and it’s tangential to the conventional financial assets, equities and fixed income. With the best returns often limited to accredited investors and HNWI’s, companies like Cadre, Crowdstreet, and Fundrise began popping up through the past decade, marking the first wave of democratization for alternative investments, and providing direct access to real estate investing to the general public.
2️⃣ Growth of retail
This one is fairly simple. I’ll spare the boring details on the history of American consumerism, but over the decades, the broader retail industry has exploded so that entire industries formed around particular cultural assets like sneakers, wine, art, and collectibles (think about Beanie Babies in 1995).
3️⃣ Consequent value appreciation of cultural assets
With the booming popularity and influence of these industries, the value of individual assets appreciated rapidly, with some growth rates dramatically outpacing public equities. Single pieces of art began selling for nearly $100 million, and rare sneaker pairs and bottles of wine crept into the tens of thousands of dollars. In the past ten years alone, the market for rare whiskeys has skyrocketed +564%.
4️⃣ Creation of communities, and secondary markets around cultural assets
As the industries grew and assets appreciated, the assets took on greater cultural influence. Consumers became more active, and knowledgeable participants, with the most passionate consumers creating evangelist communities where enthusiasts might go to extreme lengths for the rarest, and most exclusive assets. Within evangelist communities, participants began exchanging and transacting in these assets between themselves, forming unofficial secondary markets.
More broadly, society experienced a transition to bottom-up culture: the way we ascribes cultural value to assets and items has changed dramatically, with people deciding what’s culturally significant through communities, in real time, from the bottom-up.
5️⃣ Democratization and transformation of investing
The most recent of these trends is the democratization and transformation of investing. Apps like Robinhood and Stash have made investing simple, educational, game-like, and more accessible to all, providing tools for even teenagers to actively participate in stock-trading. Citadel Securities noted, on average, retail investors account for nearly 20% of stock market volume in 2020, and as much as 25% on peak trading days, versus just 10% of market volume in 2019.
The world of investing continues to transform rapidly. Not only are traditional investing platforms and assets the most accessible they’ve ever been, but the things we consider investments and the ways we invest are constantly being innovated. Although they still remain quite niche relative to traditional financial instruments, cultural assets like art, cars, collectibles, sneakers, and wine make a compelling case for investment, and we’re already seeing consumers invest in them more seriously. I’ll tell you why we’re still in the very early innings of adoption.
Show me a normal person that’s passionate about Berkshire Hathaway and I’ll show you a liar. Perhaps the most enchanting part of investing in cultural assets is the opportunity to invest in assets one is passionate about. Unlike traditional financial assets, you can’t build models or financial statements to value collectibles; you draw on your nostalgia, instincts, and spidey senses to determine its cultural zeitgeist. Investing in cultural assets also affords investors a deeper sense of connection to the groups, subcultures, and communities that exist around particular assets. The sneakerhead that buys a pair of vintage Air Jordan’s and resells them at a profit not only owned a part of sneaker and basketball history and a cultural artifact, but also created wealth from the very object of his passion. With Vinovest, users have full custody of the wine, allowing them to sell their wines or have it shipped to their homes to be consumed and enjoyed.
This one is huge. I would even argue that in many cases, investors of cultural assets believe: Status + Passion > Financial Return. It’s been written and tweeted about plenty of times now, but in Silicon Valley, angel investing is often as much about status nowadays as it is financial return. Prominent investors flaunt their angel investments in their Twitter (& now Clubhouse bios). “Angel: @Notion @Flexport @Airtable @Loom.” Angel investing in startups that grew into unicorns suggests not access to exclusive opportunities more than it suggests investing proficiency. On the contrary, owning a rare cultural asset or one that 10x or 20x’s your investment often requires a genuine understanding of the asset and its cultural significance. The investment shows that your “coolness” or grasp on culture mattered just as much as your intellect. Many cultural assets can be framed, hung in foyers or kept in shoeboxes, ready to be flexed at any moment; the “coolness” conferred by that ownership is something that can be flaunted on dates, at dinner parties, or even on Hinge (use it in your two truths and a lie - thank me later). In a phenomenal episode with Rob Petrozzo of Rally, Zach Anderson Pettet of For Fintech’s Sake, explained this notion perfectly:
“Even if I lose money on every single investment I make inside of Rally, I am going to be the Dos Equis man at every party I go to… ‘Let me tell you about my share in the first edition Great Gatsby. You think you’re cultured, motherfucker? No, I’M cultured.’”
This is simple - we place a higher value on things that are in low supply, or are not readily available. More often than not, cultural assets are created with a defined or limited supply. This phenomenon has been well documented across a number of different verticals here, here, and here.
Diversification is investing 101 and many cultural assets display relatively minimal correlation to U.S. equities or the broader economy. In a Masterworks index of Post-War & Contemporary Art from 1985 to 2019, the art market’s best performing segment posted just a 0.12 correlation to Global Equities, a -0.18 correlation to U.S. corporate bonds, and a 0.03 correlation to Gold. Collectible wines have also demonstrated low correlation to U.S. equities, and have proven a safe-haven during economic downturns.
5️⃣ Strong Returns
Plenty of cultural assets boast impressive historical returns, as well as short-term fluctuations for more tactical investors. Over the past 10 years, investments in fine art, wine, cars, and handbags have yielded between 100 and 200%. And like I mentioned in the case of my Jordan Banned 1’s, a significant cultural moment can drastically shift the value of an asset at any time.
6️⃣ Accreditation Requirements
Cultural assets have incredibly low barriers to entry and require little to no accreditation. Commercial real estate investments on Cadre, one of the most popular real estate crowdfunding platforms and marketplaces, are reserved only for SEC accredited investors looking to invest at least $50,000. Masterworks and Vinovest, investing platforms for art and wine, respectively, both require only a $1,000 minimum; the minimum on Otis, a platform for art, sneakers, collectibles and beyond, is just $25; and the floor for Rally, best known for fractional shares in collectibles, is only $50.
So, what does the space look like now? And where does it go from here? 👀
Stay tuned, my friends ⏳⏳
Also, this is my favorite tweet of 2021 so far. Shoutout Nait Jones.