First, NFTs are an incredible innovation that might be even more important than the cryptocurrencies they are based on. NFTs establish property rights in the digital sphere where none had previously existed. U.S. copyright law provides for what is called the “first sale doctrine,” where it is “legal to resell or otherwise dispose of physical copies of copyrighted works,” according to Katya Fisher, writing in the Cardozo Arts & Entertainment Law Journal. Up until this point, no such protections existed in the digital realm, as digital copies of a work of art were considered to be fungible, and that a digital first sale right could not exist with digital works due to their fungibility. If one buys a physical painting, that person just bought the painting, not the rights to reproduce that painting. NFTs operate in much the same way.

The interesting thing about NFTs is that they aren’t being used for that purpose, at least for now. They’re being used to speculate on silliness. There are legitimate digital artists — David McLeod and Alberto Seveso come to mind — whose NFTs are trading well below the penguins and lo-res cats. Sure, Damien Hirst just sold a bunch of dot portrait NFTs, which have gone up 10-fold, and Beeple sold his digital mosaic “Everydays: The First 5000 Days” for $69 million, but Hirst is the most famous fine artist of our time, and there has been much debate over the artistic quality of Beeple’s vulgar daily sketches.

That’s one feature of this bull market that has puzzled me over the last year: the highest-performing assets have been the dregs, stocks like GameStop Corp. and AMC Entertainment Holdings Inc., junk bonds with negative real yields, and the 24px NFTs. Instead of the running out and buying the best assets, speculators are buying the worst. The WallStreetBets crowd could have easily bought Apple Inc., but they didn’t. Financial historians will look back at this period of time with a mixture of amazement and horror.

Since NFTs are non-fungible, they are really just collectibles. There have been a handful of bubbles in collectibles over the years, with Beanie Babies in the late 1990s being perhaps the most famous example. The Beanie Babies implosion had no systemic effects, but what was noteworthy about that episode was that it was perfectly timed with the rise and fall of dot-com stocks. Bubbles in collectibles tend to be synchronous with other asset bubbles, and actual physical collectibles are roaring right now, from comic books to sports memorabilia to sneakers.

But one way in which the physical collectibles market differs from NFTs is that there is a finite supply with physical collectibles. As high prices attract new entrants, new NFTs are being minted all the time. Some of my newsletter subscribers have told me stories of their children minting a new NFT for as little as $20, only to sell it for $1,000. This is being repeated thousands of times across the country as tech-savvy teenagers look to get into the game.

Jens Parsson, writing in “Dying of Money: Lessons of the Great German and American Inflations,” described how attitudes toward money changed in Weimar Germany: “When money was so easy to come by, one took less care to obtain real value for it, and frugality came to seem inconsequential.”  The defining financial feature of 2021 is that money is so easy and speculation is rampant, just as it was in Germany in 1920.

When people are buying crudely-drawn rocks for $500,000, what stage of the cycle are we in? I actually spent half-a-million dollars recently on something, too: nine acres of land close to the beach in South Carolina. Which will be worth more in 10 years, the land or the rock picture?  Well, the land has already doubled in value in six months, and I didn’t need the blockchain to do it.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Jared Dillian is the editor and publisher of The Daily Dirtnap, investment strategist at Mauldin Economics, and the author of “Street Freak” and “All the Evil of This World.” He may have a stake in the areas he writes about.