A Japanese trading card created for a children’s game might seem an unlikely place to look for lessons about the development of investment markets. Yet the extraordinary growth of Pokémon collecting offers an intriguing example of how the infrastructure around an asset can change how capital treats it.
Earlier this year, a vintage Pikachu Illustrator card sold for $16.5mn, while professionally authenticated and graded Pokémon cards are now estimated to have a combined top market value approaching $9bn. Trading stretches from Japan across Europe and the US, supported by an expanding network of specialist dealers, auction houses and data providers.
Those figures inevitably attract attention, but price alone tells us relatively little about whether something should be considered investable. Artworks have changed hands for enormous sums for centuries, while fine wine, watches, classic cars and jewellery can all store considerable wealth. An important distinction exists between something being valuable, tradeable and investable, and the evolution from one to the next depends increasingly on what develops around the asset itself.
Turning judgement into price discovery
One difficulty with collectables is their heterogeneity. Two apparently identical objects can command very different prices because of condition, provenance, rarity or authenticity, creating information asymmetries in which a specialist may recognise differences that are almost invisible to another buyer.
Pokémon offers an unusually clear illustration. Specialist grading companies authenticate cards and score their condition, giving buyers an independent assessment that can strongly influence price. A rare Pikachu card recently sold for around £250,000 with the highest Professional Sports Authenticator (PSA) 10 grade, compared with roughly £15,000 for a PSA 9 example.
Although the physical difference between those objects may be tiny, the difference in the information the market attaches to them is enormous. Grading has not improved either card, nor has it made two cards identical. Instead, it has standardised some of the information through which buyers compare them, creating a more widely understood reference point for transactions.
Similar mechanisms exist throughout investment markets, even though they take very different forms. Audited accounts, credit ratings, recognised benchmarks, property surveys, custody arrangements and independent valuations can all reduce uncertainty surrounding an asset. Reliable information does not eliminate risk, but it can make that risk easier to identify and price.
Scarcity needs a market
Billions of modern Pokémon cards continue to be produced, whereas the supply of vintage cards is constrained by their original print runs and the number surviving decades later in exceptional condition can be smaller still. Scarcity, however, only becomes economically significant when there is sufficient demand for what is scarce.
Pokémon’s development is interesting partly because an audience that first encountered the franchise as children is now reaching its thirties and forties. Greater disposable income has collided with nostalgia and limited supplies of particular vintage cards, giving objects that were once predominantly collected for enjoyment a very different financial dimension.
Nor is this phenomenon confined to trading cards. Collectibles frequently derive value from some combination of scarcity, cultural relevance and the wealth of the people who want to own them. As generations and tastes change, the assets attracting capital can change with them.
This presents a very different valuation problem from analysing the prospective cash flows of a company or bond. A collectible generally produces no earnings against which its price can be assessed, leaving its value ultimately dependent on what another participant is prepared to pay. The depth and durability of the market surrounding the asset consequently become particularly important.
A valuation is not an executable price
During periods of rapidly rising valuations, the distinction between an observed price and genuine liquidity can easily become obscured. For example the UK has developed into an important market for English-language Pokémon cards, although dealers say the deepest liquidity remains in the US, while the potential buyer population for particularly rare assets may be considerably narrower.
A recent transaction might suggest that an object is worth £100,000, but it doesn’t guarantee that another owner could sell an equivalent object for £100,000 tomorrow. The time required to locate a buyer, together with auction fees, dealer margins, authentication, insurance, storage and security, can all sit between an estimated valuation and the amount ultimately realised.
Public financial markets have spent decades building infrastructure designed to reduce many of these frictions. Exchanges concentrate buyers and sellers, continuous trading creates observable prices, and standardised securities make comparison relatively straightforward.
The contrast helps explain why liquidity itself has economic value. Deeper trading can improve price discovery and confidence in observed prices, whereas owners of collectables and other illiquid assets may need to wait for the appropriate buyer if they want to realise something close to an estimated valuation.
When infrastructure changes the asset
The scale of the infrastructure now developing around Pokémon is notable, with PSA processing more than 1.3mn Pokémon cards in August, ten times the number in the same month in 2021. Specialist dealers, auction houses, data platforms, conventions, storage arrangements, and authentication services increasingly surround the market, reducing some practical obstacles to participation.
As transactions increase, they generate more pricing information, which can attract additional participants and potentially deepen liquidity. That greater liquidity can then make participation more attractive to further capital, allowing the infrastructure and the market developing around it to reinforce one another.
None of this should be confused with the elimination of investment risk. Easier access can attract speculative capital as well as long-term collectors, cultural relevance can change, and liquidity that appears plentiful in a rising market may prove less reliable when many owners want to sell. Sophisticated infrastructure therefore tells us more about an asset’s investability than whether it represents good value.
New markets often develop by solving practical problems around information, standardisation, custody, valuation, and trading, sometimes without the underlying asset changing much at all. What changes instead is investors’ ability to assess it, compare it with alternatives, and ultimately transact.
Pokémon may be an unconventional example, but its evolution reveals something much more fundamental about the development of markets. Assets do not simply become investable because they become valuable; sometimes the infrastructure that allows people to authenticate, compare, price and trade them becomes part of what makes them valuable in the first place.