Calm in the Market of Chaos
I have heard lots of "complaints" over the last couple weeks about the price of this and that, especially concerning HIVE. For example, "the HIVE price has dropped 50% in three weeks!" as if that those peaks were going to move sideways from there.
As humans, we tend to get pretty accustomed to conditions fast, especially good conditions where we are benefiting a lot. In crypto, this skews our views of the world and what is an acceptable ROI on our various investments.
For instance, I was talking with some Splinterlands players and investors in a chat a little earlier about the value of cards in packs, the change in rental returns, the significant drops in prices of many Chaos Legion cards on the market and other points around this topic. Now, we weren't complaining, but just looking at the meta view and the potential for the future.
With the release of Chaos Legion, a flood of cards has entered the market which increases supply flow and will naturally drop the demand on average across cards. This means everyone's investment value will likely decrease, as pretty much everyone holds at least some cards that have gone down in value. However, this essentially has to happen for the game to grow so that all of the cards can again go up in value.
This will of course affect the rental markets heavily too, which means the ROI on a lot of people's packs are going to decrease significantly in comparison to recent times. As said, people get quickly accustomed to conditions and conditions have been very good of late. This is *especially true for earlier investors.
In the chat it was mentioned that by this rate, the rental market yROA will likely be closer to 10% on average by January - which is significantly lower than it was. But, there are some interesting things to consider in my opinion. For example, my holdings are currently worth around 55K dollars, which is about 80% less than they were only a few days ago and considering the success of Splinterlands in the last few months, only about 40% up on my investment over the last 6 months.
I have read quite a few complaints around this around the platform.
@slobberchops in the chat was comparing his pack openings to Untamed days, and mentioned an interesting story where he "felt bad" after convincing @goblinknackers to buy 500 UNTAMED packs back in the day, only to have them worth less than he paid. However, how has that advice held up over time?
I don't know what he has bought since but I don't think that much and I don't think he plays at all, so I am going to use him as an example here and if he wants to add detail later, he can.
Has the Goblin been knackered?
500 UNTAMED = $1000 investment.
UNTAMED only holdings.
Two things to notice first up.
The first is, DEC of the total is only 30,000 apart from the UNTAMED, meaning there is only 30,000 more collection power outside UNTAMED cards ~15% - but there is less than a 10% drop in value between the two. The second is that none of his CL cards are rented, but he doesn't have that many, at least not combined.
But what we are going to look at is the "dismal" yearly ROA on his holdings of just under 14% - which Slobber tells me is not managed so actively anyway. What we need to remember here is, yROA is "Yearly return on Asset" and it has a calculation - For instance:
This means that it is affected by "low card price" not average card price. It is for the sale of the lowest price of BCX, not the individual price of a single card. This is quite different, Since a combined card will generally have a lower BCX price than a single card, as it is already combined. But, a combined card can be highly valuable still - especially when there aren't many singles on the market. The market price can actually be high for that single, but if there aren't enough of them to combine into a higher level, price goes up, not down.
However, that is not the only interesting thing here, as we can see that on this particular card, there is a 50% yearly return, making it 4% a month - what does your bank offer you?
But there is more to it than that also, because this doesn't tell the whole story on the return on the investment because remember, @goblinknackers (afaik) paid 1000 dollars for his UNTAMED investment and since he didn't play, he also doesn't have any reward cards in that mix. This means that from his initial investment, his UNTAMED cards are up about 1680% since he purchased the packs - which is huge of course.
But, the important thing to remember for those early investors in regards to rentals is, it is this price that informs the yROA - not the purchase price. This means that while Goblinknackers is getting a "measly 14%" on the value of his UNTAMED cards, that works out to 2350 dollars a year or, 235% ROI on his initial investment of 1000 dollars yearly. That is an *incredible pull on a game that he doesn't even play - and @slobberchops is definitely no longer feeling as bad about convincing him to buy.
Now, it is very possible and perhaps likely, that the lower value of the cards will decrease further, affecting the total values, but the ROA is not a "real calculation" based on the value of the cards held, as it is taking it as selling an individual card. Not only that, the UNTAMED cards (especially the better ones) are holding up quite well considering the new cards, as they will never be available other than on a secondary market, but CL still have the major release to come.
This is important, as a lot of people are still selling their UNTAMED and other cards because they see the price going down.
But if you remember from my post about buying my first maxed gold card, a Gold Pelacor Conjurer a couple months back and then, my second maxed gold, a Sand Worm - we can see something interesting perhaps.
The Pelacor Conjurer is a current rewards card and cost me $215 dollars nd currently it is available for:
The maxed Sand worm cost me $1461 and is currently:
but those slices aren't enough to really get a good understanding, so lets look at the different levels of the cards:
Do you see what I see?
Okay, so because there is an increasing supply of Conjurer cards as the emissions hasn't finished yet - the difference in the "per card" value and the maxed version is very close. However, on the Sand worm that has a supply that will never increase again, the per card value increases rapidly from 26 for an individual gold, to 72 for a maxed version, because people aren't selling maxed (I was lucky to get one already maxed "cheap"), they are selling individual cards.
The low price affects the yROA value reading and at the moment for example, my Gold Sandworm would rent for 349 DEC, which is 79% yROA. But that is not the "real value" it is actually much less than 79%. The reason is that the calculation of that DECx365 is 127,000 DEC in the year or, about 500 HIVE or about 700 dollars worth. But to buy a similar card on the market today, it is going to cost someone 2,743 dollars.
However, when looking at the rental market and the "to buy" price, it looks at single card values to calculate, even if there aren't enough cards on the market to combine into a max. We can see that here:
26 is the low buy, 26x38 = 988. Essentially, the "quote price" is giving it a 70% discount.
My point of this is to remind everyone that all of these numbers have to be taken in consideration to a whole range of other factors and then also, applied across time and all the changes that are to come.
But, because we get so used to "good conditions" so fast, we feel like we might be losing, even though we are well up on our investments to the point that it is "wildest dreams" percentages, especially for the earlier investors. The yearly returns on these assets are incredibly good for some people from a rental perspective, but then when the appreciation of card value against acquisition cost is applied, it gets insane.
In the coming months, more cards from Chaos Legion are going to flood the market and in total, that is going to be 75 million more cards - which sound like a very high amount of card inflation. However, if there is significant interest to play, those cards start to get absorbed very rapidly into player decks and combined into higher levels, very quickly whittling the supply market down to near nothing so that there are calls for a new release to take its place, because there just aren't enough cards for the newbies.
At that point, all of this happens again, but the difference will be, DICE cards will maintain higher values and Chaos will drop, but still hold up against the new cards on offer for sale.
While each match in Splinterlands doesn't last for long, the economy of Splinterlands is a far more complex game and can only really be appreciated over time, which means like all investments, patience is needed to realize value. In the case of these card releases, the total values are going down rapidly, but that is needed to expand the attention the game gets, bring in new players and build into the future.
It is like Inception, there are games within games, within games.
Those who are willing to take some risks and wear short term losses are often the ones who realize the largest long term rewards. There are no guarantees on this though - play at your own risk.
[ Gen1: Hive ]
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