Money Rehab with Nicole Lapin - Are NFTs Scams?

Episode Date: July 7, 2022

Around a year ago, NFTs were all the rage… but are they even cool anymore? And, perhaps more importantly, are they even valuable anymore? All your NFT Q's and more, brought to you by Nicole and today's guest, Jason Feifer, editor in chief of Entrepreneur magazine and host of the podcasts Build for Tomorrow and Problem Solvers. You can find more of Jason's work here: https://www.jasonfeifer.com 

One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that

I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details.

Hey guys, are you ready for some money rehab? Wall Street has been completely upended by an unlikely player game stop and should i have a 401k because you don't do it no i know you think the whole world revolves around you and your money well it doesn't charge for wasting our time i will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. Yesterday, we had an episode all about crypto.

But as we know, crypto isn't the only digital investment that has the internet in a frenzy. On the show, I've also talked about digital real estate, the metaverse, and NFTs. And today, we're going to double click on NFTs, or non-fungible tokens. About a year ago, NFTs were all the rage. But are they even cool anymore? Famously, Jack Dorsey's first ever tweet as an NFT was bought for $2.9 million last year. The buyer then listed the NFT for sale again at $48 million in April. The top bid? $280. Not $100,000, not a million dollars, just dollars, period. To take a temperature check on NFTs, I'm bringing back my work hubs, Money Rehab fan favorite and editor-in-chief of Entrepreneur Magazine, Jason Pfeiffer. Jason, it's always a pleasure to say, welcome to Money Rehab.

It's always a pleasure to say, thanks for having me on Money Rehab. So you and I agree on very little. Yes, it's true. We had a whole show where we debated everything and we didn't really need to fake it we just yeah we just showed up and there was a topic on the table and then we uh we had different sides it was a very predictable that's right but we actually agree on one subject and it is nfts um who knew nfts would bring us together. And they have. And you know what? When we were doing Hush Money, NFTs weren't a thing. So we didn't even know that there could possibly be

a shaded part of our opinion bed diagram. But alas, you and I were discussing my hot take on NFTs where I thought the art-based NFTs were a front for money laundering. And I was so surprised to hear you say, I agree. Yes, I agree. Now, wait, I'm going to caveat with something which maybe is going to make this more colored, which is that I have met a lot of people who genuinely believe in NFTs. I don't think that every single person who is engaged in the NFT space is trying to rip you off. But I do think that if you are just the average person and you're looking to make money or participate in NFTs, and it showed that the top 10% of traders have traded 97% of NFTs, which actually puts some meat on the bones of the hypothesis that a lot of NFT trades are wash sales, which we can define intended to artificially boost prices, which often happens in the traditional art world. You're propping up your own art and ultimately wash trading is the practice that has long been speculated as key to the NFT market's steep rise

to an estimated $44 billion of sales last year. And it's basically where you are buying and selling your own. Is it like getting high off your own supply? Yeah. You know what? I haven't consumed enough marijuana to know if that is an accurate analogy. But what I can tell you is that what people are doing is posting... I'm not going to use the proper NFT language. Come at me, NFT people. I'm not going to speak your language. That's fine by me. You're going to post, you're going to sell an NFT, you're going to put it on the market. And then you or a friend are going to bid super high for it as a way to show that there's demand, quote unquote, for this thing. And maybe even create a whole fake bidding war for it so that

eventually somebody comes along who cocky investors would call dumb money, right? The dumb money comes along and jumps at it and then they're stuck holding the hot potato because they purchased this thing that had been artificially inflated. It would be like putting your home on the market and then bidding for your own home. On the market for a million bucks. And then in some secret entity, you bought that same home for one and a half million bucks. Then you're driving up the value of your house. So the next buyer, legit buyer would, in theory, pay more than $1.5 million. That's exactly right. And that's a major problem because what it means is that ultimately,

there is a class of assets out there, NFTs, which we should kind of briefly explain for people who have heard NFT over and over again, but don't really know what it is. So in the most dumb, basic way, again, NFT people come at. So in the most dumb, basic way, again, NFT people come at me. In the most dumb, basic way, what we're talking about is ownership of the rights to a file. You don't even actually own the file itself. You own the controlling rights to this file. So let's say it's an image of a poorly drawn deer. And you now can trade this poorly drawn deer on the open marketplace, whatever the market has decided the value of that deer is, is what you pay for it or what other people will pay for it. And this is an asset class. And the problem is

that it has no inherent value. And therefore, it is just worth whatever people agree that it's worth. And if you have a ton of people who are artificially inflating the value of that thing, then the market agreed upon value of this squiggly deer drawing is untrustworthy. At which point you put your money in because you think that you've purchased something that's worth something. But actually what you did is you bought something at the height of a hype cycle, and then the value of it is going to disappear. And you're left holding just a stupid squiggly deer picture that's worth nothing. That's what we're looking at, right? It is because essentially, there are a small group of NFT traders, like I mentioned out of that stat, you know, the top 10% of traders trading 97% of NFTs, purposely manipulating the market to inflate it and

then ultimately take advantage of other investors on the other side. Right. Now, can we hit pause on the NFT hate for a second? Because I feel like totally because neither of us are NFT enthusiasts. I want to kind of bring the voice of an NFT enthusiast in because I feel like I can represent them. Also, I will caveat too and say that this is art-based NFT, which in the traditional art world, we've also seen a lot of money laundering around art as an asset. So NFTs are now being used as loyalty programs. We're going to do an episode on that. They're being used by companies, I think, in really smart

ways. We're not talking about that. Right. That's right. Okay. So that is exactly where I was going to go. So I wanted to give the nice, realistic side of a squiggly drawing of a deer because that wasn't actually just a random example that I pulled out of my head. That's something that Gary Vaynerchuk offers because Gary and I put Gary on the positive side of this because he's gone like really all in. Gary Vaynerchuk, he's this celebrity entrepreneur. You and I both know him. He has a number of companies. He's a successful... I knew him when he was winelibrarytv.com. Yeah, that's right.

Something like that. Gary the wine guy. He started with wine. He had taken over his parents' wine shop in New Jersey. He started doing YouTube videos. It kind of blew up. He became a personality. He's grown a lot of businesses.

He's a very smart guy. And he's gotten into the NFT space. And his NFTs are super interesting. And they actually helped me understand what the actual value of an NFT could be. So he has this thing called Dinner Deer. Dinner Deer is an NFT. There are, I believe, 10 of them. And if you buy a Dinner Deer, what you've purchased is the rights to a squiggly deer drawing. But that squiggly deer drawing, if you were the owner of it, gets you into an annual dinner with Gary and the other dinner deer holders. So once a year for three years, if you own this thing, then you can get into that dinner. That is the actual value of this deer. And there are versions of this everywhere. Like you said, there are NFT loyalty programs where

by holding the NFT, you gain access to something that is in the real world that we all might more readily say, this has real value. This is something people want. People want to go to dinner with Gary. And then you can trade it because the thing about the NFT is that it's on a marketplace and there's a secondary marketplace. And you buy an NFT, you can sell an NFT and you can sell it for whatever anybody agrees that it's worth. So you buy this dinner, dear, and it has some value because it's really access to Gary and people want that. And so it has some value. It can be traded. That makes total sense to me. It doesn't seem to only require an NFT. There are totally other ways to do it, but whatever. The point is that I don't think that

in all cases, buying an NFT is completely valueless, but you're right, Nicole, that when we're just talking about something that is produced for the sole purpose of it seeming like it's worth a lot of money, like it has no other inherent value, it has no tie to the real world, then that is very, very open to market manipulation. And I think you're just very likely to lose your money if you spend any money on it. Yeah, it's what Bill Gates, we all know him, billionaire Microsoft co-founder, he described the phenomenon as something that is 100% based on greater fool theory. So that's the idea that overvalued assets will go up in price when there are enough investors willing to pay more for them. And that's essentially what we're seeing, right? Anything is only as valuable as what somebody would pay. If somebody wants to pay more in that house analogy, if they want to pay two million

bucks because they think it's going up so much, then that's ultimately what it's worth in the marketplace if somebody is willing to pay for it. Everything else is a lot of noise. Yeah. Yeah. And it's funny because, Nicole, as you know, I am in the process of buying a house right now. And I am quite sure that I have overpaid for this house, probably substantially so, because I bought in a very hot real estate market. I mean, that market is starting to crash now because interest rates are going up, but I bought, my wife and I bought before the thing really started to dive. And so we bought at a peak and we bought way over the list price because there was a lot of competition for this house

and we really wanted it. But I'm okay with that because I know that the market is going to go up and down. I bought it at a high. It's going to go down. It's likely going to come back up. And even if, when we're ready to sell this house in anywhere between five and 40 years, even if I didn't end up making a ton of money on it, the value of the house didn't appreciate so substantially, I know that the value of the house will not disappear because the value of the house wasn't made up. It is a house. It is in a city that people want to live in. And so I'm not worried that the whole value of the thing was made up, but I am worried that the whole value of an NFT is made up because if the entire thing is valuable just because a whole bunch of people decided that for this period of time, it will be valuable until we all move on and it's not valuable anymore, then really the only way that you make money on that NFT is if you buy it when it's at a high and you sell it when it's at a high. Because otherwise, the whole thing could become worthless and then there's nobody else to ever

buy it from you. And then you're stuck holding a piece of crap. For the average person to look at the NFT market and just see these news stories about this ridiculous thing going for millions of dollars. We haven't even said the magic words yet, Nicole. Bored ape yacht club. How have we not said those words? Bored ape yacht club. How have we not? Hold on to your wallets, boys and girls. Money rehab will be right back. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid

up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank NA or Stride Bank NA. Members FDIC.

SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. Now for some more money rehab. So Bored Ape Yacht Club. This is the, you could argue, the premier NFT group. There are, I think, 10,000 of them. We should fact check that. But I think there are 10,000 bored apes. What are they?

They're this cartoon illustration of an ape. It looks bored. Each one is slightly different in color. Some of them are wearing hats, whatever. And what is interesting about these is that they were launched at the right time with the right marketing, and they got enough of the right people to buy them. Very famously, Paris Hilton, Jimmy Fallon, there are a whole bunch of celebrities involved. And so it is this club. It is this club of 10,000 people who all have this NFT.

And because the club has access to each other, although I cannot imagine that Jimmy Fallon or Paris Hilton are just chit-chatting on Discord with other Bordet members, but whatever point is, these people feel like they have some inherent value because they are all together. It's exclusive. You have to buy in. There are parties for the Bored Apes. And as a result, these things have some kind of interesting inherent value to them, which is that people want in. And so they're willing to pay money to be part of this club. I think that when the whole NFT world shakes out, the collapse, we're kind of already here. There is a lot of loss in the NFT world. The Bored Apes are not worth what they used to, but they're still worth quite a lot because I

think that there's always going to be some people who feel like, I want to be part of the Cool Kids Club. And for at least this period of time, the Bored Apes are the cool kids club, that there is some value to that that I think is going to go beyond thinking of it as an investment property for you. And meh, okay, cool. So here's the thing that I find interesting about the Bored Ape Yacht Club. So here's the thing that I find interesting about the Bored Ape Yacht Club. It's a group of people who all see value in being part of this club. And that's interesting because people have always wanted to pay for access to a club. And for that reason, I see the Bored Ape Yacht Club thing as something that is interesting.

But here's the point, Nicole. Here's why I'm talking about Bored Ape. Bring it. Can't wait. Because I think that it's really unique. I don't think that it replicates itself across the entire NFT ecosystem. So when you see news about Bored Apes or about other little clubs, I don't want people to think that because there's value over there, there's value everywhere. Because I think that ultimately what happened with Bored Apes is very, very hard to replicate. And even if the prices of those things remain kind of stable, I don't think that that translates to, well, this other random NFT that you bought from some random influencer online is going to retain its value. Don't look at the news about

NFTs and see high prices and see a couple of success stories and think, I can have access to this. Definitely, it's worth spending my money on. That's my point. I can have access to this. Definitely, it's worth spending my money on. That's my point. And it's a great point because they may sound same same, but they are way different. Unlike if you're going to buy an ETF, an exchange traded fund at the stock market, or frankly, if you're buying any company within the S&P 500. There are huge parameters around the companies that can be publicly listed or in the S&P 500, which is why I like talking about index funds, because if you suck as a company, you get booted from the S&P 500 and a better one goes in there. And so there's some barrier. I mean, there's a lot of barrier to entry

for the stock market. So if you're thinking, well, Bored Apes is one stock and some other, your mama's NFT is another. No, they're not same, same like that. There's no barrier to entry. That's right. That's totally, totally right. And everyone is trying to create value. And most people will not be able to do it. and most people will not be able to do it. They just won't. And Bored Apes managed to do it, but I think it's going to be rare and I think it's going to be really hard to replicate. And for that reason, I don't think that it's worth spending the money on any of this stuff unless you just have silly money to play with. Yeah. And I find it really interesting that the ones that have been successful or have something special about them that,

you know, you could argue if you, you know, are going to buy it could appreciate and value later on more so than the rest that has this offline component, right? Yeah. It's even out of web three.

It's like when you're3. It's not in the Rediverse. It's like when you're talking about these meetups, they're actual human meetups. Yes. They're people sitting in a room enjoying each other's company, which is something that's been valuable since the beginning of time.

And that's the crazy thing, is that ultimately we have spun this wacky web of technology and it is the most complicated thing you've ever heard of. But in the end, what is valuable? Have we created new value in the world? Not really. All we've done is found some new technological way to monetize old value.

That's right. And so you better look for that old value. old value. That's right. And so you better look for that old value. Don't believe that you're just not understanding whether or not this thing is valuable because you understand because you're a human in the world and you understand what basic value is. And it's either there or it's not. It's human connection and belonging and desire, which is something that people have always wanted. Or frankly, it's a bunch of hype and people looking to make a quick buck, which is also something that has always existed. And these are things that are not going to change just because it's now on a

blockchain. They are not. And isn't Gary doing something too where Gary Vaynerchuk doing something where he's selling an NFT to go to a Jets game with him or something? doing something where he's selling an NFT to like go to a Jets game with him or something? I'm sure he is. I mean, Gary's got a bazillion NFTs. But that's the thing. He's anchoring them to actual value in the world. So if he was like, oh, buy this. What do I have in front of me? Buy this water cap and you can come to the Jets game with me. And you'd be like, cool. Or buy this NFT or buy whatever this golden ticket is. Because really what you want is the in-person experience, not this. That's right. That's totally right. And the only difference, you are literally holding up a bottle cap right now, just to be clear so people can visualize this. You're holding up a bottle

cap. So you're holding this bottle cap and this bottle cap is worth nothing, Nicole, right now, until you say that the owner of this bottle cap gets to go to dinner with Nicole Lappin, at which point it is worth something. But the thing is, it doesn't have to be on the blockchain to have gained that value. The only reason that it would be on the blockchain is because it makes it easier to resell. This is basically it. Yes. And so that's fine. That's fine. It's good to be able it easier to resell. This is basically it. Yes. And so that's fine. That's fine. It's good to be able to more easily resell something because somebody could buy that

bottle cap and say, you know what? What I don't want is to go to dinner with Nicole Laban. Is to have dinner with Nicole Laban. I get it. I mean, they would be in a very large club. A lot of men in particular. They could all have dinner together. But what they might want to do-

But they could sell it on eBay or StubHub or whatever. But there's not a designated marketplace for bottle caps for dinner with Nicole Lappin. That's exactly right. But they could sell it to somebody else. They could be flipping this thing. They could say, I got this bottle cap and I don't want to have dinner with Nicole Lappin. That sounds like a terrible time. But I bet there's somebody out there who really does want to have dinner with her. So I'm going to sell it to them and maybe they'll make some

more money off of it. Now that is interesting. That makes sense. That makes sense to me. That exists in a logical marketplace. But if it's just the bottle cap minus Nicole Lappin, and it's just, this is a bottle cap. It's a beautiful piece of art. You don't even get to own the bottle cap. What you actually get to own is a picture of the bottle cap. And actually, you don't even get to own that. You just get to own these transferable rights to the picture, which just live somewhere else. And that's basically it. Then at that point, I feel like we're talking about a giant, giant game of hot potato. And it's a game of hot potato. And you're going to pass it along to somebody else. And they're going to pass it along to

somebody else. And at some point, somebody's stuck holding the hot potato. And now it's worth nothing. And that's NFTs. And that's all I got. Thanks for playing, Jason. For today's tip, you can take straight to the bank. Don't buy NFTs. That's all.

Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering,

and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.