Multicoin: 7 Factors to Consider When Evaluating the Blockchain Collectibles Market
Brand-based BECMs (Blockchain Collectible Markets) are more attractive for venture capital than time-based BECMs.Authors: Vishal Kankani & Eli Qian
Compiled by: Deep Tide TechFlow
The collectibles market is booming. Today, more than one-third of Americans consider themselves collectors, and by 2024, the collectibles market is projected to reach nearly $500 billion. The collectibles industry is thriving—while blockchain is making its way into this space.
An increasing number of collectors are actually traders, whose sole purpose is to buy and sell collectibles worth billions of dollars—from rare whiskies to luxury watches to handbags—with the aim of making a profit. Although online marketplaces have typically evolved from digital classifieds to all-encompassing stores to vertical markets, they have yet to develop in a way that most effectively serves these traders.
To make flipping transactions as efficient as possible, collectibles marketplaces need to provide 1) instant settlement, 2) physical custody, and 3) authentication. Currently, leading collectibles marketplaces like Bring a Trailer, StockX, and Chrono24 do not offer all three. Cash settlement is not a viable option; instead, physical settlement is the default choice, with settlement times often measured in days or weeks. For larger collectibles, such as cars, physical storage quickly becomes a problem (where do you put 20 cars for flipping?). For smaller collectibles, transactions often occur through vertical markets like Facebook groups, where fraud remains a persistent challenge. All these factors make trading collectibles in today’s market extremely inefficient.
We see a tremendous opportunity to create a new market designed specifically for collectibles traders, referred to as “Blockchain-Enabled Collectibles Marketplaces” (BECMs). These marketplaces enable instant transactions through cash settlement, reducing settlement times from weeks to seconds, utilizing stablecoins, and leveraging NFTs as digital representations of physical assets held by trusted custodians or certifiers.
BECMs have the potential to reshape the multi-billion dollar collectibles market because they make the following possible: 1) unifying the market and increasing liquidity (compared to the current fragmented black market), 2) eliminating the need for individual physical storage, thereby encouraging more transactions, 3) increasing trust through authentication, and 4) financializing the collecting behavior by facilitating lending, which was previously impossible. We believe that the results of these efficiencies will significantly expand the total addressable market (TAM) for the entire collectibles market, as more traders, liquidity, inventory, and marketplaces come online.
However, while it is technically possible to build a BECM for any category of collectibles, not all BECMs will be created equal. The remainder of this article will focus on the characteristics that make a BECM investment-worthy. We will break down seven key features along three design axes: the financial axis, the real-world axis, and the emotional axis.
Financial Axis
Lack of Vertical Trading Venues
Currently, most collectibles do not have dedicated markets or exchanges to concentrate liquidity and facilitate public price discovery; instead, they trade across many different platforms—WhatsApp chats, Facebook groups, auction houses, etc.—which disperse liquidity. This indicates a significant opportunity to serve an underserved collectibles market; however, if the existing market structure is already efficient, a BECM will struggle to compete. These markets are not particularly attractive to venture capitalists.
Based on our preliminary assessment of the collectibles market, the markets for wine and spirits, handbags, and watches have the greatest potential for improvement. These collectibles primarily trade in the black market, lacking liquidity and price discovery, leaving the existing market ripe for disruption.
Appropriate Price Points
For a collectibles category to be investment-worthy, the prices of its collectibles should be low enough for collectors to fully own the asset. Partial ownership of an asset is acceptable for financial investment, but as collectors, having a stake in a luxury handbag contradicts the purpose of collecting. Additionally, overly expensive collectibles reduce the overall pool of buyers, diminishing liquidity for these categories. For example, no one would flip a million-dollar Ferrari because there isn’t a 24/7 overlap in demand.
On the other hand, the price of collectibles needs to be high enough to confer a certain social status, providing a sense of exclusivity and emotional satisfaction. If something is too cheap and accessible to everyone, it will fail to attract emotionally and status-driven buyers, thus reducing market liquidity. Furthermore, the price point should be high enough to incentivize potential market makers to invest time in researching the collectibles category. If items are too cheap, they must trade more frequently to make the unit economics viable. However, inexpensive collectibles do not provide sufficient social status to attract collectors to form a liquid market.
We believe that the ideal price range for investment-worthy BECMs is approximately between $1,000 and $100,000. This makes collectibles like sneakers, watches, handbags, and antiques ideal candidates for BECMs. Collectibles like fine art and cars are too expensive for most people, while collectibles like records and stamps may be less suitable for BECMs due to their lower price points.
Figure: The investability of venture capital is our subjective assessment, with bubble sizes corresponding to market size, sources include records, trading cards, stamps, rare books, sneakers, whiskey, handbags, watches, antiques, fine art, and classic cars.
Viewed as Store of Value
Collectors are buyers seeking status. They are often referred to as “strong holders.” Their presence is crucial for maintaining a healthy price floor in the collectibles market. This indicates that a particular collectible is not just a passing fad but has enduring cultural relevance. This is because when enough people believe that an item will retain its cultural relevance for a long time into the future, it has the potential to be viewed as a store of value. Collectibles seen as stores of value appeal across generations and are often resistant to technological changes.
Fine art is a great example. Humans have enjoyed art for thousands of years, and it is reasonable to assume that people will continue to appreciate art for thousands more. The case of vinyl records is more complex. They have broad appeal among older generations, but whether the generation that grew up in the post-iPod era will continue to value vinyl records remains to be seen.
Real-World Axis
Storage Challenges
Collectibles that occupy significant physical space or are prone to degradation are prime candidates for BECMs, representing good investable categories. It is challenging for the average person to store perishable collectibles like wine and art for extended periods without taking environmental precautions (humidity, temperature, light, etc.). Even if you could magically solve these issues, you would quickly encounter space limitations—storing more than 50 pieces of art or 100 bottles of wine in most people's homes is impractical. Even if you could magically eliminate space constraints, you would face insurance challenges.
If the custody of a collectibles category is trivial, establishing a BECM may still be profitable, but the barriers to entry would be much lower, leading to increased competition, dispersed liquidity, and diminished pricing power. NFTs are the best example in this category: they are not affected by environmental factors and do not occupy any physical space, while the transparent provenance on the blockchain makes fraud nearly impossible, making it difficult to establish a defensible NFT market.
Figure: Ethereum NFT market trading volume, source: The Block
We believe that collectibles like wine, whiskey, and cars face the greatest storage challenges, and thus these collectors will benefit the most from BECMs. Wine and whiskey are extremely sensitive to environmental factors and require specialized storage that controls temperature, humidity, light, and other factors (our investment in Baxus is addressing this issue). Cars require large garages—most people struggle to store more than 3 or 4 cars at home. Trading cards, sneakers, watches, and handbags are relatively easy to store—these collectors can still benefit from outsourced storage, but the marginal improvement is smaller.
Trust Issues Exist
In addition to addressing physical custody issues, BECMs must also tackle authenticity issues to attract investors.
Today, collectors face serious trust issues; buyers and sellers in group chats rely on community recommendations and anonymous moderators to vet their trading partners. Fraud is rampant in nearly every collectible, making it difficult for market participants to maintain 100% confidence in their purchases. Establishing market standards and credible authenticators is crucial for attracting collectors, alternative asset investors, and speculators to enhance market liquidity.
There are two methods of authentication:
Internal Authentication: This requires domain expertise and is operationally more complex. If the market misidentifies an item, it will need to compensate the collector. However, this can create a strong moat, especially when collectibles are difficult to authenticate. Markets conducting internal authentication need to manage potential conflicts of interest and require some oversight to maintain buyer trust.
Outsourced Authentication: This is simpler but reduces the profits the market can achieve. Therefore, outsourcing is more reasonable when the collectibles category is easier to authenticate. Another benefit is that outsourced authentication naturally provides a separation between the market and the authenticators, alleviating potential conflicts of interest.
If a BECM can establish trust and offer a refund guarantee, it can create competitive barriers that make it attractive for venture capital. Collectibles like watches, handbags, and wine are rife with counterfeits. BECMs have a great opportunity to increase trust and attract new collectors who are hesitant to collect due to fraud concerns.
Emotional Axis
Provenance of Time and Brand
In the context of collectibles, provenance refers to how an item derives its value. For collectibles, this is often based on time or brand.
Time-based provenance means that an asset appreciates due to its age and historical context. Rare books are an example of this category. Assets with time-based provenance typically only trade in secondary markets—there is no central issuer, and the assets are often unique or one of a few. This characteristic can limit secondary market activity because collectors do not need continuous funding to purchase new releases, while strong-holding collectors suppress the supply available for trading. Constitution DAO is a great example—they bid on a copy of the Constitution that has yet to return to the secondary market. Other collectibles with time-based provenance include antiques, fine art, cars, and firearms.
On the other hand, brand-based provenance refers to a brand that has built a reputation over time, leading the market to view its products as valuable. Watches are a typical example of brand-based provenance. Top luxury watch manufacturers—Rolex, Patek Philippe, Richard Mille, and Audemars Piguet—are able to control nearly half of the luxury watch market due to their brand value. Brand-based collectibles have a central, profit-seeking issuer that continuously releases new items. Unlike time-based provenance collectibles, this type encourages secondary market activity as collectors need funding to purchase new supplies and turn to the secondary market for sales.
Thus, brand-based BECMs are more attractive to venture capital than time-based BECMs.
Existence of a Passionate Collector Base
Venture capitalists want to see strong emotional engagement from people towards a particular collectible; this is a sign of having strong holders. Without them, achieving organic liquidity is challenging. Therefore, a BECM with a weak community will struggle to attract trading volume and lose investment appeal.
The best signal of a thriving community is passion to the point of debate. We want to see car collectors arguing over the best supercars of all time or handbag enthusiasts defending what they believe to be the most underrated brands. A passionate collector base will be active across various corners of the internet—subreddits, forums, and group chats.
The Cambrian Era of Collectibles
The future is not limited to BECMs for watches, handbags, and wine. There are hundreds of other investable categories.
The opportunity for BECMs lies in opening new markets for various collectibles, improving access to new types of alternative investments.
We have long been interested in how crypto touches the real world, having made an initial investment in Helium back in 2019, which pioneered what is now known as DePIN. We have learned a lot from early participation in DePIN and are sharing some insights on the market opportunities within DePIN here.
