Is the NFT bubble about to burst? Cryptocube’s new NFT coach Dfarmer weighs in.
Is the NFT bubble about to burst? Possibly. But guess what? The next one that comes along will be even bigger and more outlandish than before. As with Bitcoin in 2017, non-fungible tokens are nearing critical mass as celebrities, artists, sportspeople and crypto-focused hedge funds fuel the retail mania. What’s more, synergies between the worlds of decentralized finance (defi) and NFTs suggest a bright future for tokenized art, music, tweets, GIFs – you name it.
Supply and Demand
The recent sale of Beeple’s collage “The First 5,000 Days” for $69 million may, for some, represent the moment when the NFT market jumped the shark. I disagree. The value of any commodity is reflected by what people are willing to pay for it. And this was no elaborate stunt: the 5,000 Days NFT artwork sold at Christie’s, one of the world’s most recognized auction houses, after attracting hundreds of bids from serious buyers. Next up is Sotheby’s, which is planning a sale of NFT-based digital art from anonymous artist Pak.
Questions abound, chief among them “Aren’t NFT artworks just glorified JPEGs?” It’s difficult to answer this question. The truth is, NFTs should represent true digital scarcity – the owner of an NFT is beyond dispute, thanks to the nature of the blockchain. However, in a sense the holder is trusting the artist not to dilute the work’s value by minting more NFTs down the line.
Here’s a natural query to ask: does the copyright belong to the NFT owner or the artist? Must comprehensive contracts be drawn up to determine exactly what the NFT owner can and can’t do with the work? The buyer may own an NFT which represents a digital simulacrum of a painting itself, but what about the physical version?
These are all matters that are being ironed out. It is early days for NFTs and a rulebook hasn’t really been drafted. As tends to be the case with any trend, naysayers claim NFTs are overhyped and, at this juncture, overvalued. In any case, they are changing hands for millions of dollars, and at a rapid rate. Earlier this month, Kings of Leon became the first major band to release an album in the form of an NFT – generating $2 million worth of sales in the process.
Rising interest in NFTs has led to a surplus of drops on various platforms, flooding the market with a hodgepodge of items of dubious value. Nonetheless, baseline price tags continue to creep upward – a concern for speculators and collectors who, after all, may be keen to flip the product in the future.
Let us not forget that while NFT marketplaces generally price fees much lower than a traditional art gallery, we’re still talking about a 10% artist commission/creator fee plus a 5% service fee. These platforms will protect their bottom line no matter what, and unless NFTs continue to appreciate forevermore, the secondary market will be negatively affected.
Hashmasks, Chiliz and Bitcoin Angel
Despite the questions raised by the technology itself, the outlook for NFTs is strong. We can already see a successful template in the form of Hashmasks, which confer full and complete copyright ownership and reproduction rights upon the token holder. The online digital art collective has quickly become a top five NFT platform, with weekly sales stretching into the millions. Thanks to a partnership with Terra Virtua, Hashmasks also let NFT owners earn a cut of sales of a licensed mask bot.
The integration of NFTs into defi protocols represents a means by which NFT owners can participate in liquidity pools and earn yield. Expect more projects like NFTfi – which lets borrowers post NFTs as collateral – to come online as greater liquidity floods in. Naturally, the prime movers – Cryptopunks, Hashmasks, Decentraland, etc – are well placed to thrive, though I expect the vast majority of imitators to wash out with the tide. The cream always rises to the top.
The exciting thing is, NFTs have virtually limitless potential. They can integrate with defi and elements such as gamification and community interaction represent promising avenues for exploration. Indeed, we have already seen this with so-called fan tokens that entitle bearers to special perks – sports tokenization blockchain Chiliz is the best example of this so far, having partnered with some of the biggest soccer teams on the planet.
Artist Trevor Jones, meanwhile, is giving everyone who has an open edition Bitcoin Angel NFT in their wallet when Bitcoin hits $77,777 a chance to have their portrait drawn by Jones himself. The secondary market volume for Bitcoin Angel is impressive, sitting inside the all-time top 10 on marketplace Nifty.
It’s easy to envisage use-cases for NFTs. Imagine, if you will, an NFT that gives the bearer some control over the creative direction of a musician. Or, for that matter, a stake in that musician’s success. How many times have you watched an upcoming singer play a show and known in your heart they were destined for bigger things? NFTs could well become staples of the post-concert merchandise stand.
Of course, we shouldn’t forget that art is, well, art. Since time immemorial we have connected with literature, paintings and music on a human level, assigning value according to the emotions these works evoke. NFTs are simply the latest technological vehicle by which artists can produce a reaction. And, potentially, earn handsomely for doing so.
Ultimately, no-one knows for sure what happens next. With any luck, competition will inspire creative applications of the NFT model and inspire the artists gravitating towards the space. Let’s buckle in and enjoy the ride.