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Fractional Comparables: Pokémon

Fractional Comparables: Pokémon
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Charizard

‘1999 Charizard 1st Edition Holo #4 (PSA 10)’ copies have had a challenging 6 months since a peak auction record of $420,000. Copies of this card can be found trading on two fractional exchanges, Public.com and Rally. Their prices over the last 18 months have mostly tracked below the auction prices of each card, but that dynamic has begun to change. As auction prices continue to drop, prices on fractional exchanges are relatively flat; what appeared to be a discount for holding fractional assets has turned into a premium.

In March 2022 when the Rally card began trading, we saw significant gaps to the upside compared to auction pricing. The initial two sales of that year pegged the value of the card anywhere between $100-$200,000 above the fractional market capitalization of either card. The record set during that March--$420,000 at PWCC--also sits head and shoulders above the peak prices found on fractional exchanges; at $341,250, the Rally object tried to match the auction record, before starting a multi-month downswing.

The downswing that followed the peak in March bottomed in late July at a price of $132,608, which falls outside the range of prices found at auction over the last 18 months. One interesting factor to observe is how fractional valuations fall under the range on the low end but find a ceiling below the auction record on the high end. In what has commonly been the case within fractional markets to date, price action to the downside is far more decisive than that of movements to the upside.

The correlations between the fractional prices and those found at auction are vastly different when compared by platform. One thing to note: the Public.com asset traded at the same price for around 1.5 months late in the summer during the transition from Otis to Public.com. Aside from that, we can see that the Rally asset has moved in accordance with auction sales. This could be the result of multiple factors such as a more robust or  informed user-base. Considering that Rally is a pure-play fractional asset marketplace, each of those possible explanations track. On a forward looking basis, we will have to monitor activity on Public.com to see if their offering finds a closer correlation over time.

The prices on Rally and Public.com have been quite unstable. Such a thin market of traders makes it a challenge to provide liquidity at almost any price, leading to regular and significant price jumps in either direction. This can make the price-discovery process challenging on fractional platforms.

Comparing fractional price-discovery to the auction process, as of right now, it is a much smoother process. Assets are bid up in increments of ~$100 until the clock runs out. Since there is only one ‘trade’ happening (between consignor and buyer) the very clunky bid/ask back and forth need not occur.

Another element of the more precise price discovery process in auction sales is that of the actors that make up each game. eBay, PWCC, and Heritage collectors are far more likely to be experienced and knowledgeable on the assets they are bidding on. Since fractional alternative asset investing is such a new concept it stands to reason that these early investors are somewhat under-informed when compared to collectors regularly bidding on six-figure cards at auction.

The amount of capital required between these two options also represents a significant disparity. The appeal of fractional investing is the democratization of these assets; anyone can invest with as little is $20! This use-case is of little value to those with the means and experience to participate in high-end auction sales. If you can buy a Charizard outright for even $162,000, the auction price floor of the last 18 months, it is safe to assume that fractional Pokémon card investing is not for you.

FOSSIL BOX

Still within the Pokémon TCG universe, the ‘1999 Fossil 1st Edition Booster Box’ represents a very different type of asset compared to Charizard. It contains 36 packs of 11 cards each. Unlike an individual card, the fossil box could potentially be worth far more or less than its price at auction or on Rally. If you were to open the box and find multiple Lapras cards ($2,800) or an Articuno card ($4,800), you could easily profit from the opening of the box. That likelihood is priced in however, but theoretically if boxes continue to be opened this box will become more and more rare leading to a higher price.

The fractional pricing of the Rally object does not seem to be following the same pattern here. With a larger set of comparable auctions, we can see that there is a correlation in the movement of these two datasets. One similarity of note is the price ceiling of the fractional asset being well below the auction records.

This +50% correlation implies a connection between the price movements of the asset, but not an extremely strong one. The ‘gamble’ nature of investing in this box is a potential explanation for this reason; the 97% correlation between the Rally Charizard and its auction prices would imply that Rally’s investors are able to follow the price movements of auction sales, albeit with some delay.

On January 3rd and March 23rd of this year the box was trading on Rally at a peak market capitalization of $13,020. This price approaches the auction records in the same way that the fractional Charizard prices do. On the upper end of their trading ranges both fractional assets were unable to touch peak prices found at auction. Highs for both objects fell just under 20% below the auction records.

The similarity between the gap in peak prices is striking. It is possible that the sample size of two assets is simply not enough to infer a trustworthy conclusion. The datasets that these percentages were born from are comprised of more than a year of fractional pricing and several individual auctions. The relationships in price movements between Charizard and the Fossil Box aren’t perfectly similar, but they seem to imply a consistency in price discovery between these two options for collectible investing.

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Disclaimer: You understand that by reading Altan Insights, you are not receiving financial advice. No content published here constitutes a recommendation that any particular security, transaction, or investment strategy is suitable for any specific person. You further understand that the author(s) are not advising you personally concerning the nature, potential, value or suitability of any particular security, transaction, or investment strategy. You alone are solely responsible for determining whether an investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal financial situation. Please speak with a financial advisor to understand if the risks inherent in trading are appropriate for you. Trade at your own risk. 

November 23, 2022
By 
Keenan Flack
Altanin post bacgraund

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