Creating Liquidity for an Illiquid Market
(Photo : Creating Liquidity for an Illiquid Market)

A stainless steel sculpture "Rabbit" made by Jeff Koons in 1986 was sold at Christie's Auction in 2019 for a record-breaking $91.1 million. It is still the most expensive piece of art ever sold by a living artist.

Collectibles like "Rabbit" are unique items that are worth more than what they were originally sold for due to its rarity and popularity. They include a variety of categories like art, antiques, stamps, books, real estate, cars, coins, trading cards, and others. Although collectibles often make the headlines with their jaw-dropping price tags, the liquidity of such items is actually very limited.

How Does the Collectibles Market Lack Liquidity?

In 2021, the collectibles market was estimated to be worth $402 billion, and by 2032 it is expected to surpass $1 trillion. While the fairly new NFT collectibles segment is expected to grow the fastest during the forecast period with a CAGR of 19.2%, the overall collectibles market has existed for centuries. Despite its long standing history, the industry has not undergone any significant changes. As before, collectibles are valued according to their commercial, social, and intrinsic worth, as well as their condition and original purchase price. 

While many collectors seek out rare items for their inherent value, there are other players in the market that see collectibles as an investment opportunity. More so, collectibles have proven to be such a lucrative financial tool that they are considered to be an alternative investment. Alternative investments cover all other asset classes except traditional types like stocks, bonds and cash.

One of the key differences between traditional and alternative investments is how easy and quickly one can transform them into cash. For example, stocks are traded on a daily basis in different markets and so stockholders can easily sell their stakes in exchange for fiat. Alternative investments like collectibles, on the other hand, are a very different story. Given their by-definition-rarity, collectibles have a very specific niche of interested buyers that is very challenging to tap into. Unlike traditional assets like stocks or bonds, collectibles do not have a marketplace that investors can turn to. Instead, collectibles go through a lengthy auctioning process. 

In addition to a limited number of outlets that can facilitate an auction of any rare collectible, it is a very intricate process that only a select few have enough experience (or enough funds to hire those with experience) to participate in it. Adding the complexity and the gravity of the multi-million dollar transactions, the market is left with only a handful of sellers and buyers. Due to these barriers, selling and buying of unique collectibles is very tedious and time consuming - making collectibles a relatively illiquid asset class. 

Essentially, liquidity is a measure for how quickly an asset can be converted into cash. Liquidity risk, i.e. the likelihood of not being able to turn an asset into fiat, plays a significant role in investors' decision making for obvious reasons. Hence, while the collectibles market can be seen as a lucrative investment and store of value, its lack of liquidity becomes a barrier to entry for many investors.

Jupiter Exchange: Bringing Liquidity to Collectibles Market 

This is where the world's first public alternative asset exchange, Jupiter Exchange, comes in. Combining the concept of fractional ownership with blockchain technology, the platform creates liquidity to the most exclusive collectibles. Jupiter puts rare collectibles on the blockchain in a form of NFTs and then fracitonalizes them into tokens. Once buyers acquire the fractionalized tokens, they are then provided with further opportunities to trade them at the Jupiter Exchange. 

As a result, Jupiter offers a convenient and efficient platform to trade fractions of iconic collectibles just like one can buy and sell stocks or cryptocurrencies elsewhere. By doing so, previously inaccessible tradable assets, such as those offered through private auctions, can now be made available to a broader range of sellers, providing real-time market information. All in all, Jupiter Exchange provides institutional and retail investors in alternative assets with market infrastructure, data services, and technology solutions. 

ⓒ 2024 TECHTIMES.com All rights reserved. Do not reproduce without permission.
* This is a contributed article and this content does not necessarily represent the views of techtimes.com
Join the Discussion