Here is this month’s selection of news stories from around the web…
Cultural works sold as non-fungible tokens (NFTs) have swept the news agenda over the past few weeks, posing significant questions about the value of digital assets – and whether the pace of innovation is outstripping financial common sense.
Stemming from the fast-moving world of blockchain technology, NFTs function as certificates of ownership on pieces of virtual or physical merchandise, with that proprietary link recorded as a unit on a distributed ledger. As each NFT is unique, it can be attached to smart contracts and/or other special permissions that will apply only to the listed owner. As such, NFTs have ample potential to acquire the glamorous cachet of status symbols. Some of the highest-profile NFT sellers who have busted blocks in recent weeks are:
Grimes On 28 February, the songwriter, producer and visual artist held an NFT-powered, virtual auction for a collection of her digital artworks – some of which were offered as multiple copies and others on a one-of-a-kind basis. Proceeds from the combined lots came to $5.8m, with a video piece titled Death of the Old, a montage of religious imagery, going for $389,000 alone. Grimes’s auction partner Nifty Gateway, which specialises in NFT art sales, confirmed that the artist would donate a portion of the takings to climate-focused non-profit Carbon180, in recognition of blockchain technology’s high energy consumption.
Kings of Leon On 5 March, the southern-fried rock band broke new commercial ground by issuing copies of its latest album When You See Yourself as NFTs. Taking advantage of the medium’s features as a new type of album format, the band announced that the NFT copies would serve as hooks for future fan offers and enhanced levels of live access that would be provably unique to any individual owners who manage to secure them. After a week on sale, the NFT versions of the album had generated revenues of more than $2m, with the band pledging to donate $500,000 to support live-music professionals through the pandemic.
Beeple However impressive Grimes’s and the Kings’ hauls sound, they were left utterly in the shade on 11 March when Christie’s announced in a tweet that it had carried out its first-ever NFT art auction – with the piece in question selling for almost $70m. Created by digital artist Mike Winkelmann, alias ‘Beeple’, the photographic collage Everydays: The First 5,000 Days went to an experienced digital-assets collector with the online pseudonym of Metakovan, who started building his portfolio by buying land in virtual worlds. The sale instantly made Beeple one of the three most valuable living artists by the sale of individual works – behind only Jeff Koons (Rabbit, $91.1m) and David Hockney (Pool with Two Figures, $90.3m).
TIME Magazine Two weeks later, the leading current affairs journal sold three, special-issue front covers as NFTs for $443,000. All set out in a unified style of red type on a black background, the stark designs asked readers to consider, ‘Is God Dead?’, ‘Is Truth Dead?’, and ‘Is Fiat Dead?’ – with the latter referring not to the famous automaker, but traditional currency. Explaining the rationale behind the Fiat cover, TIME creative director DW Pine said in a statement: “I love the idea that its meaning isn’t clear to the casual viewer – much like the crazy, lucrative world of NFTs.”
In a 22 March think piece, online style and culture journal Input noted that NFTs attached to coveted virtual and physical sneakers are also beginning to take off, showing that no type of product is off-limits.
So, how should NFTs be judged as stores of value? Speaking to BBC News, Hargreaves Lansdown senior investment and markets analyst Susannah Streeter made it clear that a long-range, strategic view rather than fly-by-night opportunism is key. “If you want to buy an asset as an investment,” she said, “ideally you should do it because you have done your homework and you believe that over the longer term that investment will rise.”
She added: “At the moment, some people are buying these types of assets for short-term speculative gain, with the expectation that they will be able to ride the wave of higher prices. There may well be a frenzy, but then the craze is likely to move on to the next big thing and the asset could end up being worth nothing.”
Regular readers may recall that in our February ‘In case you missed it’ roundup, we explored major US investor Bill Miller’s assertion that Bitcoin was “the best-performing asset category in 2020” – and his encouragement to corporates to lay down their surplus cash on the virtual currency. Well, in late March, Bitcoin landed another cheerleader in the form of Michael Saylor, CEO of business analytics software provider MicroStrategy.
In an industry webinar covered at CFO Dive, Saylor said that a combination of unprecedented market stimulus and the ease of using Bitcoin in financial transactions would likely drive up the currency’s value as time goes on, making it more appealing to corporate treasurers as an inflation hedge. He remarked: “We never in modern history had a situation where the cost of capital was so extreme [and yet] we could actually store monetary energy in an open global digital network… those two things cause you to reassess your strategy as a corporation, or as an investor, or just as an individual.”
The piece notes that in a recent regulatory filing, MicroStrategy revealed that its current Bitcoin holdings are worth $4.9bn.
Others are notably less convinced. Speaking to Ledger Insights, Compass Group deputy treasurer Ben Walters said: “A key objective of treasury is to secure the business’s cash. The priority is to conserve that cash and make sure that it’s there when the business needs it.” As such, he explained, Bitcoin was off for him: “You don’t tend to get hauled over the coals on your interest income, anything like the extent of the problems you’d create if you did not have the cash when the business needed it.”
In the same piece, Association of Corporate Treasurers (ACT) associate director, policy and technical, Naresh Aggarwal made a few similarly sceptical points of his own:
1. The ACT is close to US body the National Association of Corporate Treasurers and, as far as he has seen, its members are – for the time being – merely curious about cryptocurrency;
2. As treasurers are trained to oversee security, liquidity and yield, the value of liquid assets held today should be fairly similar tomorrow to tick the ‘security’ box; and
3. If a listed firm wanted to be adventurous with its investments, it would typically select other, more familiar types of alternative assets.
Clearly, this one is going to run and run.
As ESG-related factors become steadily more prominent in corporate annual reports, stakeholders will be faced with ever-increasing quantities of data to sift. With that in mind, Fitch has launched a new, at-a-glance Discovery Tool providing a top-down view of the credit relevance and materiality of ESG issues across every corporate sector. To guide its intended audience, the tool shows the distribution of the rating agency’s ESG Relevance Scores (ESG.RS) for more than 1,500 entities around the world – enabling users to track changes in specific ESG issues between Q4 2019 and Q4 2020.
In a statement, Fitch explained that the tool highlights trends such as the materiality of greenhouse gas (GHG) emissions and air quality in a particular sector versus other sectors. “For example,” it pointed out, “global electricity generation entities overwhelmingly scored ESG.RS of 3. One exception is Empresa Electrica Angamos SpA, who received a score of 4 due to its total reliance on coal for energy generation.”
Among auto manufacturers, it noted, “we see a distribution of GHG emissions and air quality scores with 10 entities having a score of 3, five with a score of 4 and one with a score of 5.” Within the ‘4’ group, the agency said, “Jaguar Land Rover Automotive Plc was affected by exposure to new EU vehicle emissions standards and associated fines, as well as heightened need for investment in electric vehicles. Volkswagen, in contrast, had a 5 following ongoing liabilities from the 2018 Dieselgate scandal.”
Speaking to ESG Today, Fitch Ratings director, sustainable finance, Justin Sloggett said: “To assist investors and issuers with their ESG integration efforts, we have launched our new ESG Sector Discovery Tool that clearly displays which ESG factors are relevant or material to our credit-rating decisions and allows comparisons between sub-sectors of non-financial corporates. We are cognisant that investors are struggling to understand how other financial players define ESG materiality. We hope that this tool and subsequent Discovery Tools and guidance reports will help them.”
It’s a fintech-eat-fintech world, according to Baker McKenzie M&A attorney Lawrence C Lee – and the pace of consolidation in the sector is only set to ramp up as the world recovers from the pandemic.
Speaking to Crowdfund Insider, Lee – who previously served as in-house counsel at crypto-wallet Coinbase – noted that the sector’s characteristic “explosive growth” has continued unabated during the COVID-19 crisis. In his assessment, the key trend behind the ongoing surge has been the move towards cashless and contactless payments, digital payment solutions and modernised payments infrastructures.
Lee noted: “Mergers and acquisitions transactions in the space also continued at a fast pace in 2020, as we saw many of the large fintech players seek to both consolidate and bolster their incumbent positions, as well as expand and grow their service offerings.”
As the world emerges from the pandemic during and beyond this year, he explained, fintech will continue to see rapid growth and significant M&A deals, with large players using their acquisitions to drive global expansion and the diversification of new products and services.
Meanwhile, he added: “Traditional financial institutions will also continue to be very active in acquisitions of fintech companies. The pandemic highlighted the need for these institutions to prioritise and accelerate their digital offerings in order to stay competitive. Additionally, the need to provide better, faster and cheaper financial services to a larger market will continue to drive acquisitions.”