st performance is no guarantee of future results. You’d have thought that few people would understand this better than Michael Owen. The former Liverpool and England striker shot to prominence as a teenage sensation – thanks to wonder-goals like the one he scored against Argentina in the 1998 World Cup – only to then struggle with injuries and never quite fulfil his early promise.
Now he has become the latest famous name to launch his own range of non-fungible tokens, or NFTs, a type of digital asset based on the block chain technology that underpins cryptocurrencies including Bitcoin.
It would be hard to think of a better example of how frothy the whole crypto sector has become (although the soon-to-be launched Mr Bean NFTs come a close second).
Lucky fans will soon be able to buy unique digital clips of Owen’s goals with commentary from the man himself. Owen claims his NFTs, issued in partnership with a company called Oceidon, “can’t lose their initial value”. Needless to say, that’s a bold claim.
Indeed it’s one that’s somewhat contradicted by Oceidon’s T&Cs: “We do not make any representations of any kind that the value of any products or assets … bought or sold on Oceidon ecosystem … will retain the value of its original purchase price or attain any future value.”
A closer look at Owen’s scheme suggests it simply won’t allow the NFTs to be sold for a price below the initial sale price. But not allowing people to sell at a loss is not the same thing as guaranteeing an asset can’t fall in value. In fact, such an arrangement could exacerbate the downside. If you buy an asset for, say, £10,000 and its value starts to fall, you may want to cut your losses and sell at £9,000. If you can’t, the value of your investment may fall to precisely £0.
When the authorities in emerging markets sometimes suspend trading on their stock exchange in periods of extreme market volatility they are habitually accused of locking the doors on a burning building and trapping investors inside. Owen is ushering investors into a shiny new construction and making a virtue of the fact its doors only open from the outside.
And he is doing so while the rest of the neighbourhood goes up in flames. Last week, Terra USD, a so-called “algorithmic stablecoin” collapsed, prompting a multibillion-dollar sell-off across crypto markets. Stablecoins are intended to maintain a fixed value, which is typically $1 a coin. Some are backed by genuine, honest-to-goodness assets. But others are “algorithmic”, which means their price is maintained through a promise to either create more of the currency or withdraw it in order to match supply and demand. However, this approach can – and last week did – lead to a “death spiral” if investors lose confidence.
The failure of Terra’s peg has sent shocks through the decentralised finance sector,” warned Fitch Ratings with impressive understatement. Bitcoin is also having another of its periodic nightmares.
