Why are investors are shelling out large sums for so-called crypto art – Non-Fungible tokens or NFTs?
For example, the cartoon frog HomerPepe sold for $320,000; The musician Grimes (no first name) sold an NFT bundle for $6 million; an NFT tweet from Mark Cuban sold for $952; and the National Basketball Association is selling bundles of games clips on its NBA Topshot platform.
NFTs bring to digital art a one-of-a-kind or limited-edition quality that’s been lost in the copy-paste, post-repost world of the internet. Each work of art is associated with a proof of ownership that’s recorded on the blockchain. In other words, the same process that ensures that a new bitcoin is authentic is being used to guarantee that the work of art is an original, and cannot be copied.
“The authentications can be applied to images, videos, music and other digital files. Copies and copies of copies might abound on the web. But only one person can lay claim to the NFT behind it,” writes one commentator.
In fact, the blockchain has become an accepted means of authenticating transactions across many sectors of the economy, from government to retail sales.
This is no longer a tiny niche. Over $250 million of NFT volume was traded in 2020, according to a report from NonFungible, and that’s not counting the recent $230 million in sales by NBA Topshop.
Some say that a fundamental change in perspective is taking place, driving the sales of NFTs.
“There could be a deeper force at play. I believe that everyone should be looking at some of the macro trends that are happening with humanity,” says the pseudonymous “Whale Shark,” based in Hong Kong, who claims to be the world’s second-largest collector of NFTs with over 210,000 pieces.
“More and more people are spending their time on their phone, or online … Our lifestyles are moving from physical to digital,” says Shark. Most of us stare at two, three or four screens each day. Especially during the pandemic.
So it’s only natural that, when we want to own things, we’re becoming more comfortable owning them in our digital life, which, more and more, is just life.”
The trend to invest in alternatives
However, from a financial point of view, all of this is a function of the search for yield by investors in this climate of low or negative interest rates. Investors are seeking hard assets which have a fairly low risk of loss, and which generally have a secure rate of appreciation. Artwork, wine, classic cars, jewellery have all become more than collectibles.
NFTs offer the opportunity of an asset that is secured in terms of authenticity, and very low risk in terms of value. They are unlikely to decline sharply in value, and the probablility of appreciation is high.
And it’s possible to make a fairly small investment to acquire an NFT, because artists are breaking down their works into bite-sized pieces.
The Parisian street artist, Pascal Boyart, did a mural that got spray painted over by municipal authorities.
He then remade the piece into an NFT which he broke up into 100 pieces at 0.5 ETH (ether, the currency of Ethereum). He sold them all off quickly at a value of €73,000.