I have been watching the Magic bubble inflate for a while. I have also seen many call the impending burst of the bubble, and it has not happened. I believe that none of us know when the bubble will burst. First, I would like to go through the logic of why we are in a bubble.
A bubble in any collectible is defined by an increasing demand followed by large increases in prices that is not organic. In Magic, organic means that the cards see a lot of play. We have two sub-bubbles within the larger Magic bubble that are unsustainable:
Sub-bubble 1. The Reserved List bubble, which I have been documenting, in my very small, peasant way, for a few years on this blog. I will add another chapter here. There is no play reason for most of the reserved list cards to continue to go up in value. The supply is small and fixed, and the demand is ever-increasing and purely speculative. Demand is based on the premise of an ever-expanding collector and speculator base.
Sub-bubble 2. The variants bubble, which has just gotten started this year, and coincides with the COVID pandemic, a time in which many of us are stuck at home. Those who have disposable money, some from government relief checks, are spending some of this extra money on Magic. In many cases, that money would have been spent on vacations. I plan for the first chapter of my variants bubble watch in some other post, maybe after Zendikar Rising comes out. Fancy variants can only be less playable than the base card since most players will want their base cards to sustain play wear, but will keep their beautiful variants pristine. Even though most of the variants are playable, they will remain a collectible to look at and not to play, Once again, demand is based on the premise of an ever-expanding collector and speculator base.
Collectors and speculators are fueling the bubble. Players stuck at home are also feeding the bubble because they are spending vacation money (and any other non-Magic money, such as checks from the government) on Magic.
Back to the Reserved List bubble. There are many cards on the reserved list that are playable, such as Tolarian Academy.
Tolarian Academy has seen three large increases in value:
1. Summer 2016, from $20 to $35 (all values approximate).
2. Summer 2017, all the way up to $80 and then down to $50.
3. Summer 2020 (COVID), to $100, and still fluctuating.
Tolarian Academy is not a good example of the Reserved List bubble. It could be that more people want to own this one very playable card (I know I do). The best examples of inorganic growth in value are cards that under no circumstances will ever see any play. These cards are subject to attempted buyouts (I will just call them buyouts). The perfect targets for these buyouts are rares from the earliest sets. The cards saw low printings, but not low enough to demand the current valuations (I am making this statement assuming common sense, and not based on any empirical evidence). Here are two examples, picked randomly, and there are many more.
Exhibit A: City in a Bottle.
City in a Bottle has experienced what I would call buyouts, beginning in 2015.
In the original buyout, in late 2015, the card went from $15 to $60, a four-fold increase.
The card experienced a second buyout in late 2017, and went to $200. You get the picture... it happened again in late 2018 and this COVID summer. A completely unplayable yet reasonably scarce card is $400, the price of four booster boxes of a recent Standard set.
I had another card to discuss, but it doesn't matter. Any one rare from the Reserved List has gone through at least one buyout in recent years. Most of these cards will never see play.
So, how does a collectible bubble burst? A collectible bubble bursts when we run out of buyers willing to pay ever-increasing prices, and, specifically for Magic, when the game undergoes a significant exit of players. We are not seeing either of these signs. For as long as many of us are stuck at home, we will be spending what would have been vacation money on Magic.
Bubble deflation scenarios:
Scenario 1. The economy tanks and the government stops issuing free money checks, even though the virus is not yet held in check. Such a downturn (which, of course, I very much pray and hope does not happen), would hurt collectors, speculators, and players.
Scenario 2. The economy remains flaky, but the government continues to pump out "free" money, and the virus is not yet held in check. This is a 'things continue as they are' scenario.
Scenario 3. The economy booms once the virus is held at bay enough for everyone to be able to go on vacation again. There will be less substitution of vacation money going to Magic, yet there will also be enough people with money to maintain their Magic hobby. (I want this scenario. I want us all to be happy, even if we have to put up with this silly collectibles bubble).
A prolonged scenario 1 would definitely burst the bubble. It would take much longer for scenario 2 to burst the bubble. In scenario 3, the bubble may not be expanded much, but it would remain inflated. I can't think of any other scenario. In any scenario in which the the virus is held at bay enough for everyone to be able to go on vacation again, the economy will be in good, even great shape. There is plenty of pent-up economic activity that would inevitably happen once the virus is held at bay.
The bubble we now have remains sustainable. We could even say that these valuations make sense (they don't to me, but who am I to know better?). After all, someone is willing to pay these prices. When will it end? I don't know, and I am betting neither do you. The cliff-hanger is the variants bubble, but that one has not yet matured. It may burst before it matures. Only time will tell.
