Nate Hart, NFT expert and the founder of “the Secret Project“, had adored an artwork of a cat for years: it was gray, with abnormally wide eyes, and was depicted on a shattered, flaming tablet. So, when the owner indicated a willingness to sell in September, Hart stepped in with a sizable offer: $600,000.
The pricing didn’t bother him because the cartoon, which is part of a collection of cat images called CryptoKitties, is a non-fungible token, or NFT. NFTs are similar to Internet property deeds in that they allow owners to claim digital art, music, and images. NFTs have transformed online art into desirable goods that can be possessed and potentially gain in value by verifying the item on a digital ledger known as the blockchain.
NFTs on the Rise
The market for NFTs was rife at the time of his purchase. Celebrities created their own, Adidas collaborated with notable collectors, and Hart was among those who paid hundreds — and in some cases millions — of dollars to possess their own digital art.
People paid exorbitant prices, including $69 million for a JPEG file by digital artist Beeple, $10.5 million for a pixelated image resembling the Joker character from Batman, and $5.4 million for a token of Edward Snowden‘s face constructed out of court records.
However, with the crypto market plummeting by $500 billion in recent weeks, the excitement surrounding NFTs has subsided. While Hart, who goes by NateAlex on Twitter and is a cryptocurrency investor, is unlikely to sell, he is aware that if he put it on the market today, it would most certainly sell low. His cat photo isn’t from a collectible, he claims, like the multicolored apes known as the Bored Ape Yacht Club or the pixelated people known as CryptoPunks.
“It’s more of a wait-and-see situation,” he remarked. “It will be immensely valuable if it becomes a historical artifact.” If it doesn’t happen, it may simply drift away into obscurity, where no one knows or cares about it.”
Hart isn’t the only one. In recent months, a slew of collectors have paid tiny fortunes for digital assets whose value is now in doubt.
An NFT of Twitter founder Jack Dorsey‘s first tweet, purchased last year for $2.9 million by an Iranian crypto investor, was auctioned off in April, with bids reaching $280. On May 8, a token depicting a pixelated man wearing sunglasses and a hat was sold for almost $1 million seven months earlier bringing only $138,000 in value. A digital token picturing an ape with a red hat, sleeveless T-shirt, and multicolored grin purchased for more than $520,000 on April 30 was sold for approximately half that price 10 days later.
NFTs have gained a lot of buzz during the last three years because proponents claim they solve difficult challenges. Digital photographs, formerly thought to be useless due to their ease of copying, can now be owned and ascribed monetary value. Collectible art, which was once thought to be confined to elite society, could now exist on decentralized, community-run networks, making it more appealing to a new generation.
However, such lofty expectations have been dashed by scammers targeting the business. North Korean hackers stole more than $600 million from the NFT gaming company Axie Infinity in March, where tokens are required to gain access to the game and purchase add-ons. The Bored Ape Yacht Club stated in April that hackers broke into their Instagram account and stole $2.8 million in NFTs.
High-profile mishaps have recently deflated investors. Yuga Labs, the startup behind the Bored Ape Yacht Club, auctioned off millions in tokens selling land in a metaverse project they established in late April. Because of its popularity, the digital ledger on which it was traded nearly shut down. According to news reports, trading volume caused transaction costs to increase above the actual NFT pricing in some situations.
“I think of NFTs as pure froth,” said economist Peter M. Garber, author of “Famous First Bubbles: The Fundamentals of Early Mania.” “It’s more of a pump-and-dump operation and a Wolf of Wall Street act than anything else.”
According to statistics from crypto intelligence firm Chainalysis, the market of NFTs exploded in 2021, with investors spending around $40 billion on tokens, up from $106 million in 2020. According to research, as of May, NFTs have generated approximately $37 billion in sales.
While this puts revenues on track to surpass last year’s, experts believe that a few major companies may be driving a large portion of the rise.
According to Chainalysis, transactions have come in “fits and starts” since last summer, with two spikes likely driving the majority of activity: The Mutant Ape Yacht Club‘s late-August delivery of digital tokens, a distinct set of photos of apes with colorful disfigurations, and a period between January and early February this year were most likely motivated by the creation of a new NFT marketplace, LooksRare.
The report found that since then, transactions have dropped significantly, from $3.9 billion the week of Feb. 13 to $964 million the week of March 13, with recent increases coming from the Bored Ape Yacht Club‘s project to sell land in the metaverse, which garnered $320 million in sales over two weeks ago.
According to Ethan McMahon, an economist at Chainalysis, this shows that the NFT sector is beginning to consolidate, with a few businesses gaining market dominance. NFTs developed by lesser-known companies and without celebrity, appeal are losing traction. High-end collections, known as blue chips, such as the Bored Ape Yacht Club and CryptoPunks, will most likely retain value because of their mass appeal, financial support, partnerships with major companies like Adidas, and celebrity collaborations.
“Things are shifting,” he stated. “We’ve seen consolidation in the most well-known blue-chip collections of NFTs.”
Multiple crypto specialists have recently stated that the sudden drop in cryptocurrencies has led the market for high-end NFTs — those that sell for hundreds or even millions of dollars — to stop. Fewer bitcoin millionaires, they argue, means less money for luxury items like high-priced NFTs.
David Hsiao, CEO of the crypto magazine Block Journal, says he sold his whole NFT collection for a profit of roughly $165,000 about two weeks ago. That included his prized image of an ape with a lazy expression, spectacles, collared shirt, and green vest from the Bored Ape Yacht Club collection, which he had purchased in October for around $210,000. He stated that the market for digital assets is looking grim in the coming days and that he wanted to reduce the harm by selling now.
Hsiao went on to say that he expects the NFT market will suffer as a result of the falling price of bitcoin, as well as other factors such as inflation, the likelihood of rising interest rates, the pandemic, and Russia’s war in Ukraine. He changed the earnings from the sale of his NFTs to USD Coin, a cryptocurrency pegged to the US dollar.
“If we get a serious recession, NFTs will be the first to go,” he said. “People aren’t going to respect art, especially in this new age of digital art, when the world has a lot more issues.”
NFTs are beneficial and expected to retain value in some industries, such as video games and the high-end art market.
Christie‘s NFT lead, Noah Davis, stated that the auction house will sell the digital assets for a long time. They intend to organize biannual events in New York, London, and Hong Kong where they will sell artwork tokens, and they are also collaborating with OpenSea, an NFT marketplace.
NFTs, according to Davis, solve an important problem by “giving currency to ephemeral products in an era where people are tending to favor virtual life,” but he admits that some individuals will lose a lot of money by making terrible bets.
“This is an especially democratic and open economy, and it is undoubtedly influenced by buzz and FOMO,” he said, using the acronym for “fear of missing out.” “And people make poor choices in every market.”
Deepak Thapliyal, CEO of a cryptocurrency business “Chain“, who paid $23.7 million for a rare NFT depicting a pixelated alien in February, seems unfazed. “My decision to purchase a rare Alien Crypto Punk is the same as it is today,” he told The Washington Post in a statement. “It is a rare piece of digital art with lifetime value for the beholder.”
Meanwhile, Frank Chaparro, an NFT collector who works for the crypto news website “The Block“, said he had paid more than $20,000 for his NFT collection, which includes tokens such as Froyo Kittens, which are images of cats in bowls.
He believes they are of little significance nowadays. But Chaparro noted that he isn’t concerned because what drew him to these NFTs was not a desire to make money, but rather an appeal to the image and community they formed.
“Does it hurt? Of course,” Chaparro responded. “You want what you have to go up, but consider all the things you love having that have no worth but say something about you.”
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