A $10 million loss. Ouch. The lede story is capturing everyone’s attention! Here’s a look at cryptoPunk NFT #3100, which recently sold for $4 million, far below its original sale price. They purchased it for 4,500 ETH (approximately $15.79 million) and sold it for 4,000 ETH (~$6.06 million). Blame is being thrown around, fingers are pointed, but let's cut to the chase: This isn't a tragedy. It's a teachable moment.
High Risk, High Reward Gamble
Make no mistake, nobody made this guy purchase a JPEG for over $60 million. The real siren song of NFTs — and CryptoPunks specifically — was the promise of wild, life-changing, even surreal returns. This trader, just like so many others, realized the profit potential in flipping a digital asset and walking away with a small fortune. Keep in mind that that purchase was the second-highest CryptoPunk sale of all time at the moment of that purchase. The potential upside was huge.
You see a similar story every day in traditional finance: a risky biotech stock soars, making early investors rich. A calculated real estate bet pays off handsomely. The excitement of the bet, the possibility of a fortune – that’s what fuels these markets. The flip side of that coin? Danger. Plain and simple. The trader had clearly bought at the height of the hype, when ETH was at the top of its bull run. The market shifted. ETH’s value as a currency drastically reduced, washing the value of the NFT down the drain right with it. It’s a painful lesson, but an inevitable one.
Is the Free Market Really to Blame?
Now enters the regulation establishment with their usual call for someone, for something, to do something to protect clueless investors from themselves. This is where I draw the line. A true free market provides an unparalleled aesthetic wonder and potential. People should be free to make their own choices and own the calculated risks they take for themselves, including the rewards and punishments.
I mean come on, do you want the federal government determining for you which investments are “safe” enough to make. Would you want some bureaucrat telling you which digital assets you may or may not purchase? That’s a fast march down a slippery slope toward stifling innovation and encroaching on individual freedom. Picture if government had stepped in to “protect” early investors in Amazon, or Google, or Tesla? We might not have those companies today. Regulation is needed at times, but can create unintended consequences and is not the solution to every challenge.
Personal Responsibility Always Matters
The NFT market isn’t the problem either. The worst part is the lack of serious due diligence or grasp of the risks they come with. It’s hard not to be carried along by the excitement. All of a sudden, you read stories about the latest overnight millionaire and think, “I can do that, too. Investing in anything—stocks, real estate, NFTs, even your kids’ baseball cards—requires serious due diligence. You should have a clear grasp of the trade-offs inherent in the market and a sober self-assessment of your risk tolerance.
Instead of calling for more government regulation, let’s work to build the financial literacy of our collective communities. Let’s equip Americans with the tools to research investments, understand and navigate market volatility, and make long-term financial decisions with a full understanding of any implications. Together, let’s equip Americans to be active participants in their financial futures. We need to stop viewing them as kids who need to be coddled and protected from all possible dangers.
So while this CryptoPunk loss is indeed a punishing lesson, it is a lesson better learned in practice. It reinforces the valuable lessons that free markets and individual responsibility are always the best way forward. We should not insulate individuals from their own poor decision-making. Instead, we need to give them the ability to make smarter decisions going forward. For as in any free society, their freedom to succeed is matched by their freedom to fail. Occasionally, a $10 million failure is the cost of that freedom. Consider it a high-priced tuition to the University of Hard Knocks.
