Everyone hated small-caps Tuesday.
It finally dragged the overall market lower late in the day. We continue to see this de-risking happening in a bidless market, then a reversal with sharp buying days later. I tend to be very picky in days like these because the upside days have been trending. That means you can be a buyer in the morning, even the late morning, and still do well during the day.
That being said, the "easy" days of trading feel very 2020 at this point. I'm talking about the April 2020 through early February 2021 post-market correction honeymoon period. We're still seeing some silly chasing and crazy moves, creating illogical market caps for a handful of small and microcap companies. I'd call them unrealistic except for the fact we're seeing them happen even if they don't maintain those levels for more than a few days or a few weeks. And I applaud management understanding the illogical reality and taking advantage of the moves.
After a lively discussion on Twitter ( TWTR) Monday night, I realize there's a gross misunderstanding of NFTs (non-fungible tokens) that exists in the marketplace. In terms of the stocks running to crazy valuations on the mention of NFTs in a press release, despite a clear path on what it means or how they can profit, well, that actually ties to the paragraph above. However, if we're talking about NFTs as a whole, their potential is being oversimplified.
The problem, or should I say, the challenge, for those in the NFT marketplace is explaining to investors and traders that NFTs are more than NBA Top Shots or Beeple's $69 million JPEG or Jack Dorsey's first tweet. These are first-level NFTs. That doesn't make them bad, but it makes them challenging in terms of value justification as they don't offer any utility. They are collectibles, but whether they are fine art, baseball cards, or Beanie Babies, has yet to be seen.
Unfortunately, it seems most folks stop thinking at that point. They don't realize that NFTs can play a big role in Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. The education industry could use NFTs to share and/or secure transcripts, letters of recommendations, standardized test scores, certifications, and diplomas. The arts industry may turn to NFTs to more easily track licensing and usage of things like music and movies. We could see tickets and seasonal passes transition to NFTs. Real estate titles have already started to make their way into the NFT sector. In short, we could experience practical applications like smart contracts. If someone said smart contracts, people would become interested. People say NFT and immediately we think overpriced digital art or an overpriced GIF.
Be careful not to close your mind off to new technologies or new applications until you fully understand them. What I said above it in no way a full explanation or presentation of all the potential applications but if any of that was new to you then like me, you still have a lot to learn before casting judgement.
