Hello everyone! We are back again today with another edition of Splinterland Economics - a series in which we introduce a basic economic concept and then apply it to Splinterlands. If this is your first time reading, just to tell you a little bit about myself: my day job is in an unrelated area but I consider myself a little bit of economics nerd - I read a little (or maybe way, way) more news than I should, double majored in econ, and am obsessed with optimization. I love the way Splinterlands is equal parts card game and resource allocation game. My goal with these articles is to share a little bit of what I know with you all.
What do wine and Splinterlands have in common? Well, we are going to find that out today! Our subject this week describes one way that you can accumulate large amounts of wealth, and should be familiar to anyone who has previous experience with collectibles or other vintage items. It is extremely important when making purchasing decisions, and overlooking it could lead to huge losses, or otherwise leaving large potential gains on the table. Today, we'll be talking about appreciation!
What is appreciation?
Appreciation is when the value of an asset increases over time. The asset can be pretty much anything - a share of stock, a piece of real estate, a NFT, a currency, etc. When the asset price goes up then the increase is the amount that is is appreciating. If an asset value decreases over time then we have the opposite - depreciation. Nearly as important as whether or not an asset is appreciating is how much and how quickly the asset is appreciating. This is measured as a rate over time - some sort of rate of return.
One key point that I would like to emphasize here is that your profits from holding an asset are slightly different from straight up appreciation. If you see the terms ROA, APR, or APY then those are various ways of calculating the return of an asset. However, those numbers are usually related to the income you earn from purchasing it (such as interest or rental payments) and often do not take into account that asset's appreciation or depreciation - if you are doing your due diligence then it might be a good idea to go and double check those numbers. While you are deciding whether to spend some of your capital on a a new investment, be sure to remember to take potential appreciation or depreciation into account, as well as any other cash flows you may receive from purchasing it!
It is easy to look at the definition of appreciation and understand that it is desirable to have assets which appreciate in value. It is much more difficult to identify which assets will appreciate well over time and to have the discipline to obtain and hold them, which leads us to a big question - how do assets appreciate, and how can we identify which ones will in the future? And while there is no hard and fast answer (if there was then we would all be rich!), remember that a large portion of assets are bought and sold in marketplaces - this means that they will tend to follow the rules of supply and demand. Do you expect that an item will decrease in supply, or will have a greatly increased demand at some point in the future? That is a sign that it may appreciate going forward!
How do we apply it to Splinterlands?
I have (half jokingly) referred to the "wine cellar" strategy several times while chatting on Twitch or discord, and it is an idea based on the concept of asset appreciation. Wine tends to go up in value over time (as well as improve in taste). One way to take advantage of asset appreciation is to identify wines which will age well and stock up on them while they are young. Then, you store them for a while. If you have chosen well then they will get better with time, and you have a choice - you can either drink great wine at a (relative) bargain price or sell it for a profit. You can complete the loop by using those profits to purchase more wine to restock your cellar.
As always, the purpose of this column is to offer entertainment and education, and this is not financial advice. But hopefully you can see the parallels with Splinterlands - if you think appreciation is likely then you can stock up on "good" cards while they are in print and cheap, and sell them later on at a profit which you can then plow back in to future cards. If you believe strongly in the future of the game and think that certain cards will do well in the future, you may choose to stock up on a few extras of those.
There are plenty of other ways to make appreciation work for you in Splinterlands. Any time you look at a game asset - for example, SPS, Nodes, Land, just to name a few - there is the potential for appreciation. Do your research - read up on what an asset does and how it will be handled in the future. As I mentioned earlier, if an item will decrease in supply or will have a greatly increased demand at some point in the future then that is a possible sign of future appreciation (and I can't say this enough - NFA).
Why should we care?
Holding appreciating assets is an excellent way to increase your wealth in the long term. And do remember that compounding your gains over time can really add up! Researching and picking out the assets or items which will grow your wealth as quickly as possible is extremely important, and taking the time to do so properly will oftentimes pay dividends (heh) in the future.
If you are working with large amounts of assets then taking advantage of appreciation may have an additional benefit - taxes! Oftentimes you may need to immediately pay taxes on income such as dividends or even airdrops, but depending on your local tax laws you may be able to sit on (paper) gains from appreciation, essentially giving yourself a free loan from your government. I am not a tax professional and this is not financial advice so please consult your local tax code, but it is worth taking a look into.
Thank you so much for reading all the way to the end. Interested in seeing some more of my writing in the future? Be sure to give me a follow! In the meantime, if you'd like to see some of my recent posts:
Things that go Bloop in the Night - Using Flying Squid in Battle! - Last week's battle challenge, featuring Flying Squid!
Splinterlands Economics: Money - An look into the concept of money, and how understanding it can help us in Splinterlands.
Splinterlands Economics: Rent - An overview of the concept of economic rent, and how we can use it in Splinterlands.
Thinking about giving Splinterlands a try but haven't signed up yet? Feel free to use my referral link: https://splinterlands.com?ref=bteim, and be sure to reach out to me if you have any questions!
All images used in this article are open source and obtained from Pixabay or Unsplash. Thumbnails borrowed with permission from the Splinterlands team or made in Canva.