This article explains how rare coin want lists can enhance the rare coin market when publicized and centralized, such as on an active website, for all buyers and sellers to access. It is understood that supply and demand dictates price. While the supply of coins is relatively known, the demand is not. A central website “exchange” providing this information will help buyers and sellers determine the demand side of the rare coin market.
Before explaining how a want list site can enhance the rare coin market, I will define what a market is and discuss the key elements that make a market efficient. This background information should prove helpful in understanding how the rare coin market works.
The definition of a market is the process through which buyers and sellers connect to aid in the exchange of something. While buyers and sellers often are connected via a brick and mortar storefront, a physical location is not required for a market to exist. A “market” merely facilitates the exchange. An electronic exchange brings buyers and sellers together, just like a brick and mortar storefront. In addition, regardless of whether the market is physical or electronic, the market itself need not own the items being traded. Its purpose is to unite buyers and sellers and to facilitate transactions.
Most collectors will agree that the market for rare coins is well established and efficient. But what is it specifically that makes it so? Compare the rare coin market to the market for collectible buttons, for example, and the differences are clear. The rare coin market has many characteristics which are lacking in the collectible button market.
An efficient market has several characteristics. One characteristic is the availability and quality of information. Price guides, auction data, and information provided by the third party grading services, for example, all serve to inform participants in the rare coin market about the values and supply of the coins they seek. Combined with many coin publications/newsletters, websites, and other sources, it becomes clear that information is widely available and easy to obtain.
Another important characteristic of an efficient market is liquidity. Liquidity is the ability to sell something quickly and at a fair price. A “fair price” simply means that the value of the item is generally known in the marketplace. In an efficient market, buyers should be easy to find and the buy prices should be relatively consistent; that is, there should not be a wide fluctuation in the buy prices in the short-term (excluding the impact of precious metal prices).
In an efficient market, transaction costs are minimal. Such costs should be considered in percentage terms compared to the overall value of the transaction. In the rare coin market, transaction costs include commissions or even the cost of postage. In the stock market, the primary transaction cost is brokerage fees.
Of course, the rare coin market will never be as efficient as the stock market. One share of stock is no different than another. This is not true with rare coins. As much as third party grading services have standardized grading, not all coins with the same numerical grade are equal. Toning, luster, strike, and other factors differentiate one coin from another and can impact values considerably. Furthermore, stocks don’t possess the same rarity characteristics as rare coins. While some coins are so scarce that only a few exist, this is not the case with shares of stock. Finding a share of a particular stock is not difficult; finding a particular coin in a particular grade can be challenging.
Having provided a brief overview of markets, I’d like to discuss how active public “want lists” can serve to enhance the rare coin market in ways that may not be obvious. Many collectors furnish “want lists” to their favorite coin dealers. The dealers then try to locate the coins on their behalf using the many resources available to them: coin shows, electronic exchanges, contacting other coin dealers, etc. Because coin dealers have access to considerable information and access to other dealers, they have a better chance of finding a particular coin than the average collector. Submitting a want list to a dealer will likely increase the chances a collector has in finding the coin(s) they desire.
Now, consider this one big limitation- only your dealer knows what coin(s) you desire. Chances are good that they have many such lists, so yours may or may not receive much attention. What if there existed a centralized place for collectors and dealers to post their want lists? Such a place, if utilized widely, would provide an excellent barometer for rare coin demand. Which coins are in demand and which ones are not would be widely known. This type of information is critical to an efficient market. The supply of coins is obvious – most dealers post their inventories on the web. Knowing demand, however, is far more difficult to ascertain. A want list exchange would help to quantify demand.
A central “want list exchange” would do much more than to show which coins are in demand. If buyers post what they are willing to pay for the coins they desire, several things will occur: 1) The mechanism for establishing appropriate market values will be improved (currently, the coin market does not have a mechanism that quantifies demand) and 2) coins that may not have been available for sale will become available. For example, let’s say a collector posts that they desire an 1862 Seated Quarter in XF 45 condition and are willing to pay $250. If this offer exceeds recent transactions in the market, owners of this coin may be motivated to sell. Posted buy prices therefore serve as an excellent mechanism for moving more coins into the coin market.
As any market matures, new ideas and technologies make it more efficient. For example, the introduction of third party grading services offered many benefits. Such benefits include providing valuable census information, building trust (coins are graded by trusted experts, which builds buyer confidence), and standardizing coins as commodities. This last benefit enables “sight unseen” transactions to occur because buyers trust third party grading services. This trust may be absent when transacting with an unfamiliar dealer. Similarly, a centralized want list exchange will enhance the market by providing better information about the “demand” side of the market, which will help it to operate more efficiently by providing critical demand information.
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