Non-Fungible Tokens are all the rage now on the decentralized assets market, shadowing tokens and coins with their prices and – more importantly – the veil of inherent value that is being attributed to them as progressive manifestations of art in a new, digital world.
The frenzy being witnessed on the collectibles market has reached new, unprecedented heights, as sales volumes recorded on OpenSea – the largest NFT trading platform – have surpassed the $1.9 billion mark over the course of August. That value is over ten times higher than the maximum seen in March, which was a mere $148 million, and a far cry from January’s meager $8 million.
The Visa payment system is also contributing to the market upheaval and attracting investors after its acquisition of Cryptopunk #7610 on August 18th. The collectible was valued at 49.5 ETH, or $150,000 at the time. Among the other assets purchased recently that have set records are Ringers #879 by Dmitri Cherniak, which was bought for $5,077,152, Fidenza #313 by Tyler Hobbs for $2,820,640, Bored Ape #9361 at $1,410,320, Bored Ape #1734 for $1,184,669, and many others.
Data on the dynamics of the NFT market varies depending on the providers’ applied methodology, but DappRadar recorded 32 prominent NFT sales that surpassed the $1 million mark each in the past 30 days alone.
For Justice’s Sake
Despite the attention of the NFT market being glued to their art-space segment, NFTs are used in a variety of other industry sectors, including gaming, domain names, digital assets for design programs, sports, and many others. But market forces and rules dictate that application is secondary to value, which in itself is determined not entirely by inherent applicability, but rather by external forces that can manipulate perception of value tethered to an object.
If art is to be taken as the present most relevant form of NFT monetization, then it has to be construed as a store of value proposition. But the present state of the market and the metrics that show a billowing of high-value purchases indicates that high-net-worth individuals are currently the driving forces of market growth alongside corporations and funds that are rushing to jump on the NFT bandwagon. As the vast majority of retail investors have no such capital to access an increasingly mounting entry threshold of the NFT market, the question arises whether these assets are turning into another asset class on par with traditional forms of art as a means of value storage inaccessible to most decentralized market participants.
If so, then NFTs as a form of art are moving in the direction of Bitcoin, which is a largely unaffordable asset for most market participants. But unlike Bitcoin, which is divisible into Satoshis, NFTs are non-fungible and for now mostly non-divisible, and cannot be sold for less than the price set by the artist, nor lower than what the buyer paid for them, as that would negate their characteristic of a value-storing asset.
It is highly unlikely that the value of NFTs purchased for millions of dollars will be dropping even in the face of a general market meltdown. The investors buying them will have done their homework and are unlikely to have been spurred by the frenzy of the moment when shelling out such amounts for adding pixelated (and programmable) artworks to their portfolios.
Still, there is a chance that NFTs may be overrated, or may have been miscategorized, as was the case with Cryptokitties NFTs, which have gone down in value considerably since their heydays. But a trump card in favor of art NFTs in this matter is the fact that they are artworks, and not part of an entertainment dApp, like Cryptokitties was.
Some Thoughts To Ponder
Most proponents of NFTs are glorifying them for being a completely new format of art that allows artists to express themselves and find appreciation in the digital medium. The same proponents are quietly hushing about the fact that most artists going for NFTs are looking for fame and fortune, spurred by the successes of the few that had been mentioned above.
This raises the question of whether NFT art actually be defined as art, or is it simply an over glorified form of digital imaging that has existed for decades and is now piggybacking on a technology experiencing a wave of hype. Collectibles can be a good store of value, but the current dynamics being witnessed on the market are indicative of a bubble, and that raises more questions about the soundness of such investments. It will be key to assess the long term viability of each NFT-series. CryptoPunks, for example, hold brand and historical value. Pictures of toilets, minted as NFTs, may or may not.
Some NFTs might mature and retain value like high-end art pieces and other collectibles, but from what has been seen so far, none of them can match the Mona Lisa in terms of artistic value and potential of being u exclusively displayed in museums. Digital imaging is an extremely popular form of expression and there are dozens of platforms that allow such digital artists to display their artworks and attract the attention of audiences, admirers and even buyers – DeviantArt and Pinterest to name but a couple.
It is absolutely clear that many of the NFT collections and issuing artists will fail in the future as the NFT market deflates and the application of the underlying technology is rechanneled into more practical purposes in other sectors of the economy. As such, it might be safer to invest in NFT funds, if they exist, or in the infrastructure around NFTs such as OpenSea, or in underlying collateral like Ethereum, Solana, Flow, or any of the platform tokens that support NFTs, as they will grow and adapt to new use cases regardless of NFT art market dynamics.
True art is the matter of legends and history, while NFTs are at present still just a trend, so investors in pixelated penguins should think very carefully about whether they will be able to find a buyer in the future who would willing to hang something of the like on a wall in their luxury yachts or display it on their profile as a status symbol.