5 Reasons NFTs are Hot Right Now

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NFTs have taken over the headlines these past few weeks. From Beeple’s record setting $69 million dollar sale, to Tom Brady’s new company, to Jack’s first tweet, it’s hard to not hear about this new form of digital asset. Are NFTs a fad or are they here to stay? There are five reasons we see for the heat in the market: 

  1. Excitement over Ethereum smart contract for royalties and provenance
  2. A “small” bubble as early investors got Ethereum for pennies (now worth around $2,000)
  3. It’s new! (The first anything’s are valuable.)
  4. Digital assets are hot and are here to stay.
  5. Collectibles have increased dramatically in value in the past 15 months.

(This post assumes some knowledge of non-fungible tokens. Check out this post for a primer.) Let’s investigate each of these in more detail: 

Excitement over Ethereum smart contract for royalties and provenance

Visual artists are one of the few artists that do not receive royalties for their work. With the Ethereum smart contract embedded into the way NFTs trade, artists will receive a resale right each time the NFT changes ownership. In addition the smart contract could also define a number of other rights for the artists including the percentage of take, how often or minimum time to hold, and other factors that can influence an artists’ market. Additionally, the blockchain provides provenance for collectors in the future. Since each transaction is recorded, forgeries and fakes should be prevented from entering the market as we will see exactly the chain of ownership from artist to present day owner.

It’s a Bubble

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Sure, we’ve heard this one before. We ARE in a bubble. Bitcoin and Ethereum are hitting all time highs and early crypto investors are looking for other places to put their digital riches. What better place to put your newfound riches than into NFTs. However, while the term currency makes ETH seem like money, the IRS treats ETH (and all crypto) as property, so to the IRS it looks like you are selling your ETH for dollars and then rebuying the NFT at the dollar amount. This all results in a tax bill that won’t be seen for another year, but possibly one that could help deflate the market.

It’s New

NFTs are new. There’s always a demand for the first of anything. The first NFT, the first AI drawing, the first AI drawn NFT, and many other firsts. When NFTs become a cornerstone of the creative market, people will be pointing back to the Beeple piece as the one that put NFTs on the map. They may be even pointing to the first Jack Tweet that was recently picked up for 2.5m. Either way, speculators believe that these museum worthy digital collectibles will increase in value as the firsts of this new medium. 

Digital Assets are here to stay

Crypto Kitties (100K+), NBA Top Shots, CryptoPunks, video game assets, Gods Unchained digital card game, SecondLife real estate, Decentraland Estate, and others digital 1’s and 0’s are selling for REAL money. Zynga created an entire publicly traded business selling power ups and extra virtual tractors to the players in Farmville and other virtual worlds and games. As we live more of our lives online, more and more digital assets and status symbols will be valuable. We are just touching the tip of the iceberg with NFTs. These are new types of assets. As Anne-Laure Lemaitre, Curator at insitu.art, states, “You cannot enter the NFT space with a traditional art collecting/art making mindset or by solely trying to surf the hype. It’s a new sandbox to play in, with different rules and different collectors.” 

Collectible Explosion

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The collectible market has exploded in the past year. The combination of the stimulus, pandemic, and low interest rates have contributed to record highs for all kinds of collectibles. Sports cards, art, comic books, sneakers, and new forms of limited edition products have captured the mindshare of the general population. NFT bridge products like Top Shots and Crypto Kitties have brought many of these similar collectors over into the NFT ecosystem. Will the collectibles market slow down after the re-open? We don’t think so as it will still be a few years before we see interest rates close to 5% which we think is the driver for assets non denominated in dollars.

The NFT market has heated up in this first quarter and while in the short term there might be a “bubble” there is definitely valuable infrastructure being laid down right now. (To the many HODLers, the NFT market could be where Bitcoin was when it hit 19,500 toward the end of 2017. For the n00bs out there, Bitcoin came “crashing” back down to 3,000 a year later (12/2018), until two years later where it climbed and continued to climb and now hovers around the 60,000 mark.) 

Some in the art world, like Lemaitre, think NFTs will keep growing: “I think NFT as a market and creative space will keep developing and becoming more exciting and interesting beyond this wave of hype and I truly hope to see more incredibly talented traditional artists explore the potential of this space and new interesting platforms come to life.” Others, such as artist Chellis Baird, believe that NFTs are a fad, “NFTs in my opinion are elaborate screensavers. Their shocking acceptance in the art market is connected to the endless amount of time people have spent on computers during Covid.”  

What happens next? We shall see! Good luck everyone! 

 

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