#coincollecting

My 25 years of palaeoart chronology…

Ignacy Łukasiewicz (200th Anniversary of the Birth), 2022, Poland, 10 Złotych, Silver (.999), Mintage: 10.000, Proof, High Relief, 31.1 g, 32 mm

I want to examine three trends today. They are not new, but they are accelerating:

1. Polarizing the buy and sell markets

There has been an increase in the number of venues which are “buy only” and “sell only” as market polarization increases. Physical brick and mortar shops are now increasingly “buy only” establishments from the dealer perspective, as the hobby has fewer buyers. These establishments are making their money on the buy-side of the transaction by paying under market, and have decided that to maximize profits, they will not sell in the same marketplace. Or, if they do sell – they sell only bullion and no numismatic items. What other business exists where they will buy your goods, but not sell you equivalent goods? I think this has several causes:

a. Reputation management -shops do not want to be perceived as having “bad deals” on the sell side, as it may deter potential sellers once seeing reviews from disinterested buyers.

b. Opaque pricing – Having no “sell price” allows the shop to lie about their margins to the seller. I often go to shows and hear dealers listing off to the public their “overhead” in a lengthy list in an attempt to justify their buy price. My response to those dealers is the same: if you have so much overhead, why are you in business? Not revealing the true spread allows a seller to acquire a better buy price.

d. Cash flow optimization—There is no need to have coins for sale in a physical shop – If a shop is working on an exclusively wholesale agreement, the coins may be in the door one day, and out the door next day. Shops are looking more for cash flow than optimizing profit.

e. Profit optimization – Inversely, there are some shops which confusingly will not sell to other dealers, because they have such large collector bases online that any immediate sale presents no benefit when the item will be sold at full retail in days or weeks. Any sales to small time collectors in store are more hassle when items are optimized for eCommerce fulfillment.

Some shops are now heavily moving to wholesale models where they will exclusively sell to middlemen or large wholesalers (APMEX, JP Bullion, SD Bullion, Dillon Gage). There is similarly an emerging market of pure “sell only” venues in eCommerce, with dealers originating their collections from middle-market wholesalers, and selling to other collectors online, never physically seeing the originating collection, or the collector. As mentioned on Twitter, to support this new type of sell-only venue, some shops are now selling inventory to large flippers acting as wholesalers, bypassing the traditional wholesale market. In a bout of irony, the dealers who are adamantly against eBay are now having their items being sold on eBay 2 or 3 steps down the chain, and they may even be buying the same coin once it is graded by a third party. Because of all of these, the retail “coin shop” for buyers has been dying for 40 years, but it will find new life online (but at perhaps a worse deal; the ‘good deals’ will be reserved for those with the cash and patience to be collector-dealers)

2. Disinformation by Boomers regarding profitability and the new generation of dealers

The coin dealer footprint is shrinking and consolidating as the Boomers die off. They are not going out without a fight, and seem to be transferring much of the inventory holdings to their long established business partners, rather than doing the right thing for the health of the market, and selling to younger dealers. These old time dealers often shout the myth: “I don’t make a lot of money”, but this is purely for show. Yes, coin dealers make a lot of money! Scandalous! If a coin dealer is not making serious money from their business, they are bad at business, or lying, and it is impossible to tell without examining their financial statements. A new generation of dealers are emerging, and the next 5-20 years of cleaning out the dying Boomers’ stock is going to going to lead to increasing consolidation and the passing of a torch to a new tech savvy generation of dealers. Whether the torch is passed peacefully or wrestled out of a rigor mortis stricken hand is yet to be seen.

3. The pot will call the kettle black, and it will be on Facebook

Dealers have been calling other dealers frauds and crooks since coin dealing became a profession. The fact is, collectibles as a business is not based on extracting value from labor, but speculation of rarity, supply, and demand. Therefore, there is a large incentive to issue detractions of competitors to gain competitive advantage. Many dealers accuse other dealers of the same tricks they themselves engage in, especially when it comes to sourcing and pricing. Every dealer wants to give the impression that they have a magical source of problem-free coins and their competition is polishing old inventory and selling it as uncirculated. Recently this has been weaponized via social media, and this hostility has turned off many away of the dealers wishing to sell at retail pricing for fear of ostracization by the buyer-oriented community. An effect of this absence of the retail dealers is the emergence of the buyer friendly flipper on social media. Market-to-market arbitrage on social media is now occurring very often, with schemes like Instagram-to-eBay, Reddit-to-eBay, or Instagram-to-Facebook being the modus operandi of an entire new generation of dealers. In all cases, the buy sale is being made dealer-to-dealer with high amounts of information and low information asymmetry to the more casual collector sell side market with a greater amount of information asymmetry. In no-value-add markets like collectibles, profit is the result of information asymmetry because in a perfectly level market, the margins from normal lot sizing profit would not be enough to be sustainable, and thus the market should cease to exist.

Because of all these, we will see an acceleration of polarization and a shift to online-only sales venues in the next few years. Online sales venues allow for low overhead, reduced licensing, greater efficiency, and greater physical security. Dealers are now wising up to information arbitrage as a means to profit, and that arbitrage is leading to the separation of the customers, locations, and normalities of the buy and sell markets.