The crash of the NFT market

These days one does not hear many breathless reports of new NFTs (non-fungible tokens) being sold for huge amounts and being touted by celebrities. There is a reason for this. This site has examined the state of the NFT market and found that they have crashed in value with most of them now worth nothing.

The hype around NFTs peaked in the 2021/22 bull run that saw nearly $2.8 billion in monthly trading volume recorded in August 2021. From this, NFTs captured the collective imagination worldwide with multiple news reports of million-dollar deals for sales of certain NFT assets.

People were excited about this new type of online asset and something of a goldrush appeared to start. Fast forward to today… and the NFT market is starkly different.

Data from the Block reveals a weekly traded value of around $80 million in July 2023, just 3% of its peak back in August 2021.

Using data provided by NFT Scan, we have compiled a comprehensive analysis of over 73 thousand NFT collections (73,257, to be exact) in order to identify key trends, assess the health of the market, determine the factors contributing to successful projects, and hopefully gain insights into the potential future trajectory of the NFT ecosystem.

The results were shocking, to say the least.

Of the 73,257 NFT collections we identified, an eye-watering 69,795 of them have a market cap of 0 Ether (ETH).

This statistic effectively means that 95% of people holding NFT collections are currently holding onto worthless investments. Having looked into those figures, we would estimate that 95% to include over 23 million people who’s investments are now worthless.

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The NFT racket

I was skeptical about cryptocurrency and was utterly baffled by the appeal of NFTs. The former seemed risky and the latter felt very much like a speculative bubble driven by hype in which the underlying entity being bought and sold had no intrinsic value. So I was not surprised by the collapse of various cryptocurrency endeavors like FTX and even less surprised by the recent lawsuit filed against Sotheby’s auction house, accusing them of fraud in inflating the value of the ugly Bored Ape BFT and using celebrities to hype it.
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The rise and fall of neoliberalism

The term ‘neoliberal’ is used quite a lot these days (including by me), usually in a pejorative sense but like all umbrella political and economic labels, its boundaries that determine what falls under the umbrella and what does not, are a little fuzzy. In a review of the new book The Big Myth: How American Business Taught Us to Loathe Government and Love the Free Market by Naomi Oreskes and Erik M. Conway, Louis Menand traces the history of the neoliberal ideology and movement, in an essay that has the same title as this post.

What’s “neo” about neoliberalism is really what’s retro about it. It’s confusing, because in the nineteen-thirties the term “liberal” was appropriated by politicians such as Franklin D. Roosevelt and came to stand for policy packages like the New Deal and, later on, the Great Society. Liberals were people who believed in using government to regulate business and to provide public goods—education, housing, dams and highways, retirement pensions, medical care, welfare, and so on. And they thought collective bargaining would insure that workers could afford the goods the economy was producing.

Those mid-century liberals were not opposed to capitalism and private enterprise. On the contrary, they thought that government programs and strong labor unions made capitalist economies more productive and more equitable. They wanted to save capitalism from its own failures and excesses. Today, we call these people progressives. (Those on the right call them Communists.)

Neoliberalism, in the American context, can be understood as a reaction against mid-century liberalism. Neoliberals think that the state should play a smaller role in managing the economy and meeting public needs, and they oppose obstacles to the free exchange of goods and labor. Their liberalism is, sometimes self-consciously, a throwback to the “classical liberalism” that they associate with Adam Smith and John Stuart Mill: laissez-faire capitalism and individual liberties. Hence, retro-liberalism.
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How the rich avoid taxes

The invaluable ProPublica has come out with another article about how billionaire Harlan Crow, the generous benefactor of justice Clarence Thomas who showered him with vacations on his luxury yacht and private planes, has used the tax law loopholes to avoid paying taxes.

He adopted a well-known tactic by the wealthy, to use so-called ‘business losses’ to reduce their net income. In his case, how this was done was to set up a company for his luxury superyacht that was purportedly a business and then use the ‘losses’ incurred by the company (i.e., the money used to run the yacht for him and his family and friends) to offset his income.
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Debt ceiling raised just in time

The deal to raise the debt ceiling has passed both houses of congress with bipartisan support and will be signed into law by president Biden on Saturday, two days before the projected X-date (June 5th) when treasury secretary Janet Yellen said the government will run out of money to pay its bills. As of Thursday evening, the closing balance in the government’s account was just $22.892 billion, the lowest it has been since the recent crisis started.

The current debt ceiling limit is $31.4 trillion which has already been reached. The deal did not raise the ceiling by a fixed amount. Instead it agreed to suspend the debt ceiling until January 2025, just after the next election. As I understand it, ‘suspension’ means that there is no debt ceiling at the moment so it is possible that the US treasury could, in theory at least, run up the debt by a huge amount by selling off US treasury bills.

But I don’t think they will do that.

Tentative debt ceiling deal reached

House speaker Kevin McCarthy and his Republican negotiators have reached a deal with Joe Biden and Democratic negotiators over a deal that would raise the debt ceiling to carry it over until 2025, i.e. after the next election. There still remains the task of having the deal passed by both houses of congress before the X-date of Monday June 5. It is scheduled for the first vote in the house on Wednesday, May 31.

I am no federal budget expert but on the surface it seems like a deal that could just as easily have been arrived at without all this brinkmanship. This article outlines what is in it.
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The government will run out of money by June 5th

As of Thursday’s close, the amount of cash in the government’s account was just $38.837 billion, the lowest it has been since the current debt ceiling crisis began. To get a sense of how small that figure is, it is less than the net worth of 31 individuals in the US, even though the size of US economy is of the order of $27 trillion. Or if one wanted to look at it another way, it is also an indicator of the obscene wealth accumulation in the US that allows individuals to have more than the government has in its cash account.

Treasury secretary Janet Yellen warned some months ago that the government would run out of money sometime around June 1. Skeptics accused her of scaremongering and that the so-called X-date would be much later, maybe even in July or August. It is hard to estimate the exact date since revenues and expenditure vary on a day-by-day basis. But it is beginning to look like she was pretty accurate and yesterday she provided a much firmer date, and that it would be June 5th.

“Based on the most recent available data, we now estimate that Treasury will have insufficient resources to satisfy the government’s obligations if Congress has not raised or suspended the debt limit by June 5,” she wrote in a letter to House Speaker Kevin McCarthy.

Yellen’s new estimate contains more specificity than her earlier guidance. “By June 5,” she said in Friday’s letter, whereas her last two letters to Congress suggested a little more uncertainty — “as early as June 1” was the phrasing she used. 

The exact timing of the so-called “X-date,” when the U.S. will not be able to pay its bills, has a degree of uncertainty, as the Treasury Department tracks money coming into and leaving its coffers. 

“We will make more than $130 billion of scheduled payments in the first two days of June, including payments to veterans and Social Security and Medicare recipients. These payments will leave Treasury with an extremely low level of resources,” Yellen wrote.

She noted the Treasury Department is scheduled to make an estimated $92 billion in payments and transfers the week of June 5 and said the government would not have adequate resources to satisfy all of its obligations. 

So here we are, on the brink again.

It is a crazy way to run the economy.

Government cash balance drops below $50 billion

As of the close on Wednesday, the government’s cash on hand had dropped to just $49.473 billion, the lowest value since the current debt ceiling brinkmanship by the Republican congress began.

That should give some urgency to the process of increasing the debt ceiling but there are mixed signals coming from the on again-off again talks between the speaker of the House of Representatives and the White House, with some suggesting progress and others suggesting major obstacles, though the two position are not mutually exclusive.

As details leak about an emerging bipartisan debt deal just days before a possible default, House conservatives are growing increasingly unhappy.

One of the concerned lawmakers was Rep. Ralph Norman (R-S.C.), a member of the conservative Freedom Caucus who has repeatedly stated he didn’t want anything less than what the House GOP passed as their debt plan last month.

McCarthy “doesn’t have the 218 on that unless he gets Democrats,” Norman said of the emerging proposal, noting he saw the list from Burchett. “If he gets Democrats, that’s a telltale sign.”

Rep. Bob Good (R-Va.) echoed Norman, citing concerns about “rumors” of a potential deal that would raise the debt ceiling for more money and more time than Republicans wanted — and “for a whole lot less in return that we need.”

“If that were true, that would absolutely collapse the Republican majority for this debt-ceiling increase,” he said.

These signals should not be taken too seriously since such leaks may be part of the negotiating process, as each side seeks to ramp up the pressure.

One thing I have noticed is that although McCarthy and his allies regularly keep issuing statements thus keeping their point of view in the news cycle, Joe Biden has not been doing the same. This seems like a mistake.

The government’s cash balance drops further

The cash balance in the governments account dropped again on Thursday. It started the day with $68.332 billion, had revenues of $210.781 billion and expenditures of $221.773 billion, ending the day with $57.341 billion.

This number is becoming more significant as news emerges that talks on raising the debt ceiling have reached an impasse and discussions have been suspended. Sex offender Donald Trump is not helping.

Negotiations for a deal to raise the US debt ceiling and thereby avoid a default with potentially catastrophic consequences for the world economy reached a worrying impasse on Friday.

Republican leaders outside the talks sought to apply pressure. Not long before Graves spoke to reporters, Trump said his party should not give ground.

Republicans, the presidential frontrunner wrote on his Truth Social platform, “should not make a deal on the debt ceiling unless they get everything they want (including the ‘kitchen sink’). That’s the way the Democrats have always dealt with us. Do not fold!”

Mitch McConnell, the Republican leader in the Senate, aimed fire at Biden, accusing the president of “wait[ing] months before agreeing to negotiate with Speaker McCarthy on a spending deal.

“They are the only two who can reach an agreement,” McConnell said. “It is past time for the White House to get serious. Time is of the essence.”

Chris Murphy, a Democratic senator from Connecticut, countered: “We are in a crisis, for ONE REASON – House Republicans threat to burn down the entire economy if they don’t get their way.”

This is no way to run the world’s largest economy.

The government’s cash balance dips sharply again

The cash balance in the governments account dropped sharply on Wednesday. It started the day with $94.629 billion, had revenues of only $16.310 billion and expenditures of $42.6226 billion, ending the day with $68.332 billion.

This graph shows the steady decline in the cash balance over the past year.

In May of last year, the balance was close to $800 billion and kept steadily dropping with just a few upticks until it reached the current value, which is less than one-tenth of the starting value.