NFTs: Art, Collectible, Digital Asset
When a collectible generates significant public interest it can be difficult to discern its value based on the fundamental analysis typically used to analyze traditional financial assets. This is currently true for NFTs, which can loosely be referred to as collectibles but are injected with technological steroids that make them very different from a binder of baseball cards or a box of Beanie Babies.
NFTs: More than just a collectible
The blockchain foundation that NFTs are built on permits the creation of public exchanges and applications, which allow anyone to look at the transaction history of a particular NFT and efficiently compare metrics related to liquidity, previous ownership, and demand.
NFTs are a uniquely decentralized type of collectible. When most people bought Beanie Babies in the ’90s they were buying the toys from a retail store which was supplied by Ty Inc, the company controlling everything about their popular product including the design, manufacturing rate, and volume. The tightly controlled product availability holds true for other physical collectibles like coins, stamps, and Magic the Gathering decks.
Anyone — with a level of technical ability and marketing shrewdness — can create and sell an NFT, which has led to great variation in the creativity level and purpose of the NFTs available. But it also necessitates a question that we don’t have to ask when adding another vintage coin to our 50 state quarter booklet: Where, or from, who, does this collectible come from?
Who Makes NFTs, and Why?
CryptoPunks are one of the earliest and most prominent examples of a successful NFT project. Certain Punks have sold for millions, and the project has inspired subsequent NFT collections that are also designed to mix and match random attributes and generate unique characters so that each has its own level of rarity.
To some people, there is little practical difference between CryptoPunks and a new NFT collection that can be bought cheaply — as long as the upside or investment opportunity is the same. But if NFTs are digital art, that line of thinking is like saying any canvas with some paint splashed on it might be worth as much as a Jackson Pollack one day.
It is the talent and intention behind CryptoPunks that gives them value. The creators at Larva Labs are passionate about software and digital art, and they have many other projects that have achieved acclaim. They’ve also done projects for the public good, like creating the biggest public repository for legal documents. CryptoPunks was crucial in the development of the ERC-721 standard which is now ubiquitous in NFT technology. Finally, the 10,000 Punks were originally given away for free.
The best investment in NFTs will likely be those that have already made money. An example from the crypto world is Tron (TRX), a coin that rose from obscurity to $0.20 during the bull run of 2017. Tron generated interest and excitement, but this was at a phase in the development of digital assets where all attention was on cryptocurrencies and few people knew what an NFT was. Eventually, that bull run ended, and while larger, more widely adopted currencies sailed past their all-time highs in 2021, TRX didn’t even come close. It now sits at $0.06.
Trading NFTs brings more volatility than cryptocurrencies, which are themselves a highly volatile asset class. When there is a bull — or bear — run on NFTs (as we saw in January 2022), some NFTs can maintain — or gain — their value while others can see their prices drop dramatically. The dominant names in the crypto space — Bitcoin, Ether, CryptoPunks — perform much more predictably at these times and can still create triple-digit yields. BTC was hovering around $9,000 before COVID and went as high as $65,000 in 2021. Sure, a new, unproven coin or NFT might get you 5,000% returns if you are incredibly lucky, but it could also go to $0.
NFTS in 2022 and beyond
2021 was the year that NFTs went mainstream, and we are still in an early, experimental stage with these exciting new digital assets. NFTs combine art, investment, social capital, and blockchain technology in a complex and still-evolving form. While NFTs have become known for their now-ubiquitous presence on Twitter and across social media and for their volatility, we are still in the early days of NFTs. The way that we understand the value of NFTs is also sure to evolve, and we at Defy Trends are glad to provide you with the educational tools needed to navigate the world of NFTs and digital assets.
About Defy Trends
Defy Trends is an intuitive, all-in-one crypto and NFT intelligence platform that empowers individual and institutional investors to make confident data-backed investment decisions. The Defy Trends platform includes sentiment analysis, the Defy Trends Score news aggregation, on-chain analysis, AI forecasts, in-depth educational materials, and crowd-sourced research.
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