You could be forgiven for not having heard of ‘Beeple’, but in March last year he sold one of his works of art at auction for $69.3 million. What might surprise you is that Beeple’s “Everydays – The First 5000 Days” is not a ‘real’ work of art, and what he sold was a non-fungible token, aka an NFT.
You could also be forgiven for thinking that this sounds like some freak event in a weird digital corner of cyberspace, populated by geeky programmers and gullible buyers. But you could be wrong…
To understand why one first needs to understand what NFTs are. I would describe them in two ways. On the one hand they are the digital equivalent of football cards or, for younger readers, things like Gogo’s Crazy Bones. The kind of assets that used to enjoy vigorous trade in playgrounds across the world, and maybe still do.
On the other they are an indelible record of ownership of a unique piece of digital code, representing some form of object or artwork. That record is stored online on a digital ledger: the blockchain.
So far so niche you might say… What’s the relevance of this cyber-child’s play?
Some context… One estimate puts the size of the NFT market in 2021 at around $44.6 billion (Source: Chainalysis). Sales of Bored Ape Yacht Club NFTs alone in the last seven days have totalled over $96m (Source: nonfungible.com). Sports clubs are starting to offer NFTs in the form of fan tokens that confer special benefits. In December Nike acquired RTFKT Studios, a company that “leverages cutting edge innovation to deliver next generation collectibles that merge culture and gaming”, i.e. they make NFTs to pair with real things…like shoes.
Whatever one’s philosophical views on the merging between physical reality and virtual reality (aka Mark Zuckerberg’s “metaverse”), this feels like more than a fad or a niche. If that’s right it will become increasingly important to investors. NFTs – particularly those that confer benefits or can be used on gaming platforms, or just allow their owners to “flex” online, could evolve into an asset class in their own right.
Equally, most NFTs are traded using cryptocurrencies, not fiat currencies, providing a potential answer to the vexed question, “why do I need to own crypto?”
To be clear, I am not advocating NFTs or crypto as an investment today. What I am saying is that these are markets one cannot afford to completely ignore.