NFTs (non-fungible tokens) are making a claim to being the next big thing. These unique objects are units of stored data that can be bought and stored or sold on. The considerable profits being made by those who bought early and are now selling are attracting a lot of attention.
One neat feature of the NFT market is that ownership rights are verified using blockchain technology. The same processes that support the crypto markets support the NFT one. The fact that everyone on the network knows who owns what gives buyers extra confidence but has also attracted artists and producers of work as it solves some historical problems relating to copyright issues and image rights.
It’s not just the high price tags on the items that attract investors and producers – even though that helps. It’s the fact that work sold as an NFT can be easily traced. If the trend does become the new way of doing things, then growth in the NFT market could be exponential. With established auction houses such as Christie’s beginning to service the NFT market and achieving multi-million-dollar prices for items, it looks like the NFT market is at a tipping point.
The mysterious artist Pak symbolises some of the high-profile peculiarities of the NFT market. The fact that Pak’s identity remains unknown has led to him being referred to as the Satoshi of the NFT market – a reference to Satoshi Nakamoto, the unidentified creator of Bitcoin. Continuing the theme, Pak’s work has also caught the eye of crypto guru Elon Musk, who has described Pak as his favourite crypto artist.
Despite, or possibly because of, the enigma he has become, Pak’s work is much sought after. His 46MB surreal video of spherical objects entitled Metarift was recently sold for more than $900,000.
The work by artist Kevin Abosch offers some perspective to the NFT scene. Abosch made his reputation working in traditional mediums of art, but even in those early days, he demonstrated a passion for rule-breaking when he sold a photograph of a potato for €1m. He has since become a major pioneering crypto artist, and on Valentine’s Day in 2018, he sold one of his captures, an image of a rose, for $1m. The piece, entitled Forever Rose, was sold to a buyer on the Ethereum blockchain and became the most expensive virtual artwork at that time.
The work was a game-changer and brought NFTs to the attention of the mainstream media.
One of the sales that kicked off the 2021 buying frenzy was a collection released by artist Justin Roiland. Entitled The Best I Could Do, the pieces were sold in January for in excess of $1m, and given the exponential growth in the NFT market since then, they are probably already valued significantly higher. The artist still made a good return on his project and appears happy to have been part of the ground-breaking process – he subsequently described the work as “testing the boundaries of crypto art”.
It’s not just ‘artwork’ that sells as NFTs. On the blockchain gaming platform Axie Infinity, nine plots of virtual land were sold for the equivalent of $1.5m on 9th February 2021. This record-breaking price marked the highest NFT sale made in a virtual game.
The Genesis estate was purchased by Flying Falcon, an anonymous entity, who is thought to be looking to monetise their asset by allowing Axie Infinity players to build and decorate properties, harvest resources, and do battle. The ownership rights are secured using blockchain technology, so if it is a viable business option, Flying Falcon could be taking in real cash for virtual services in a virtual world.
Jack Dorsey, the founder of Twitter, started a social media revolution in 2006. The first message he posted read:
Fifteen years later, that tech milestone had grown to be so significant that it sold as an NFT for $2,915,835. Dorsey pledged to donate the funds to charity. 95% of the sales proceeds went to the charity GiveDirectly, with the exchange that managed the sale, Valuables by Cent, taking a 5% commission.
Grimes, the Canadian music artist, and partner of Elon Musk, sold a collection of 10 pieces of artwork for more than $6m in February 2021. The flying cherub theme proved popular with bidders who snapped up the pieces on the Nifty Gateway exchange. The pieces are a combination of visual and audio art and a percentage of the proceeds were donated to eco-charities.
Digital artist Mike Winkelmann, aka Beeple, is responsible for two big-ticket items in the list of the most expensive NFTs ever. His dystopian artwork Crossroads mocks President Donald Trump and marked the conclusion of several pieces he made in reference to a variety of political figures. Crossroads was sold on Nifty Gateway in 2020 for $6.6m.
If Forever Rose was the opportunity for the traditional art world and blockchain to introduce themselves to each other, the next item on the list of most expensive NFTs marks the shift towards digital imagery.
CryptoPunk #7804 is one of 10,000 collectible digital characters. Each of the characters is created by a two-man team referred to as Larva Labs, with the imagery for each being slightly different. The algorithm-generated pixel images first came on the scene in 2017, but by 2021, some of the more distinctive images were selling for sky-high prices. CryptoPunk #7804 features a punk in a flat cap smoking a pipe and was traded for $7.57m in February 2021.
A scan of the transaction history for the piece shows that back on 10th January 2018, it exchanged hands for $14,988. The account holder who made that purchase, 0xf4b4a5, is the same ID that pocketed a profit of more than $7.5m three years later.
When the 70 artists who make up the Hashmasks project decided to sell their entire collection of 16,384 unique digital face masks, they may not have been expecting the pieces to reach such a high price. The individual masks have a graffiti theme and are sold untitled, enticing the successful bidder to engage in the process of bringing them to life.
This massive compilation of artwork by Beeple stands out for its price tag but also because it was sold by establishment auction house Christie’s. The piece consists of 5,000 different artworks and is a log of Beeple’s daily work since May 2007. It catapulted the South Carolina graphic designer into the top three of the highest-paid living artists. Jeff Koons and David Hockney may have been around for longer, but it looks to be only a matter of time before Beeple takes the top spot. At that point, a lot of mainstream media attention can be expected to fall on the NFT sector, and what this does for prices is anyone’s guess.
The bidding process for Everydays: the First 5000 Days highlights the way that NFTs might be democratising the art investment arena. According to statistics from Christie’s, two-thirds of the bidders were Millennials or younger. The sale also marked the first time that an established auction house sold crypto art or accepted cryptocurrency as payment.
NFTs have announced themselves on the world stage thanks to the staggering prices paid for the items. While some have spent some time getting familiar with the process and waiting to see how the market settles in, others have been making eye-watering returns. A familiar list of high-profile thought leaders, including Jack Dorsey and Elon Musk, have been early adopters. Having those names associated with the phenomenon is enough reason to merit giving the market some attention. If NFTs go the same way as social media (Twitter) and electric vehicles (Tesla), they’ll soon step up from being futuristic curiosities to being the new normal.
NFTs are turning into a crypto version of collectibles. This time, the items range from exclusive artworks to memes and video game landscapes. Unlike analogue collectibles such as Pokémon cards, each NFT contains a unique encryption that makes it impossible for two NFTs to be traded. They can’t even be divided into smaller quantities.
There is also another significant development. Most NFTs are traded on the Ethereum blockchain. This platform offers superior functionality to the Bitcoin blockchain, and the added versatility has for some time encouraged many to buy ETH rather than BTC. If NFT really takes off, the consequences would be as far-reaching for the crypto market as they are for the art world.
Mike Winkelmann, a graphic artist from South Carolina, takes first spot in terms of volume of work and revenue received for it. His work Everydays: the First 5000 Days includes images produced each and every day over the course of 13 years. The piece sold for more than $69m and brought NFTs to mainstream attention.
The core USP of NFTs is that it changes a digital item, an image, soundtrack, or video, from something that can be infinitely copied into something singular and one of a kind. This is due to the items being registered on a blockchain and prevents the risk of fraud or counterfeiting. Even if items represented by NFTs can still be viewed online for free, they cannot be replicated. They can, however, be licensed out.
It’s fair to say that NFTs divide opinion. Currently, the tide is in their favour because so many who dismissed crypto are now left with a severe case of FOMO and don’t want to dismiss NFTs too readily. Traditional companies and brands are already getting involved with NFTs. Teams from the National Basketball Association are issuing them and establishment auction houses such as Christie’s and Sotheby’s are getting in on the act.
With NFTs being such a new and dynamic marketplace, it’s highly likely that there could be many twists and turns in terms of what’s popular. Current trends include popular and widely recognisable memes such as ‘Disaster Girl’ being sold as NFTs. In the case of Zoë Roth’s image, the sale price was $500,000.
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Justin is an active trader with more than 20-years of industry experience. He has worked at big banks and hedge funds including Citigroup, D. E. Shaw and Millennium Capital Management.