But is it art? How NFTs stormed the market
Serious institutions are coming to the party when it comes to the rise of NFTs — a new way of buying and owning digital art — including Christie’s, the National Basketball Association and Warner Music Group.
The hottest asset of 2021 has been met by a near-universal reaction: disbelief. Non-fungible tokens — NFTs — have taken in more than $US200m ($258.7m) in just the past month, and that’s not even counting the recent $US69m sale of a digital artwork by an artist named Beeple.
While some may roll their eyes at the idea of a digital file selling for the price of an old master painting, NFTs have become a bridge from the hermetic world of cryptocurrencies to the more mainstream — if still hermetic — worlds of art and sports. And some are comfortable with that.
“It’s already natural to me,” says Alec Monopoly, a street artist who has recently begun selling works as NFTs. “It feels very similar to the art world, the way it’s traded, the way you do the releases.” NFTs, notes Avery Andon, Monopoly’s brother and an art dealer, have “just taken the grey-area economics of the art world and transferred it into an even more grey area of cryptocurrency”. A new investible asset has been created out of the ether (literally, because the cryptocurrency ether is the main currency for NFTs). “The moment you have any group of people deeming something as a store of value, it’s no longer hocus-pocus,” he says.
Digital tokens could have broader implications. The blockchain software they are secured by acts like a tracking device, making it possible to protect copyrights online. That capability opens new avenues for commerce and is elevating creators who might not have got an audience in the old world: Cezanne, meet Beeple.
The art and collectables being sold as NFTs don’t act like their counterparts in the traditional world. Images that people “own” are for the most part still available on the internet, so buyers don’t get the thrill of showing dinner party guests their new Seurat.
NFTs can contain just about anything. That has meant dancing taco GIFs from Taco Bell that have been bid up to $US3500, enough for about 2000 Crunchy Taco Supremes, and a token backed by socks that’s selling for $US75,000. The token can be redeemed for a pair of real socks.
“When you see stuff like this, it makes you dismiss the entire category because some of the stuff is so outlandish, which I think is a mistake,” says Michael Batnick, director of research at Ritholtz Wealth Management, who has bought NFTs.
Yet serious institutions are coming to the NFT party. They include Christie’s, the National Basketball Association and Warner Music Group. Christie’s, which sold the Beeple work, has been a believer in the promise of blockchain for years, says representative Rebecca Riegelhaupt. Digital art has been around since the 1950s, but “it has always been impossible to monetise works of purely digital means because it’s easy to duplicate works on your computer”, she says. The encrypted record of an NFT turns “digital artists who were previously relegated to being hobbyists or graphic artists mainly focused on client work into artists just like painters or sculptors”.
NFTs first made a splash in 2017, when a company called Dapper Labs created and sold collectable images of cats known as CryptoKitties.
Then, last northern autumn, Dapper Labs and the NBA formed a partnership: the league licenses video clips of games through a trading platform called Top Shot that became open to buyers on Oct. 1. Top Shot is modelled after baseball and basketball cards, whose physical versions have waned in popularity since the 1990s. New “packs” of moments that are shaped like card packs are released from time to time. There are limited numbers of each clip available, generally 50 to 10,000. And “owning” it doesn’t mean that no one else can look at it. They’re still available to watch.
Prices started to soar. A clip of a LeBron James dunk sold for a record $US208,000 in February. Batnick, an NBA fan, started buying Top Shot moments in January, purchasing a clip of Phoenix Suns star Devin Booker for $US2500.
“The next morning I woke up with a lump in my throat,” he recalls. “Like what did I do, right? Am I insane? Because I’m not like a YOLO (you only live once) guy. I don’t trade options; I don’t buy meme stocks. For 2500 bucks I could go on vacation.” But the market worked in his favour. “A few weeks later, I sold it for $US2999.” Batnick says the market relies heavily on scarcity. A clip of an inferior player that has fewer copies is often worth more than one of a superstar with more copies. And the number of each clip is important, too, with lower numbers often selling for more.
“It’s all about status,” Batnick says. “Some of these NFTs are the new ‘I invested in Uber’s seed round’. It’s a status symbol.”
The software still can befuddle users and is vulnerable to hacking. Some accounts on one of the most prominent platforms for NFTs, Nifty Gateway, were hacked this month. Nifty Gateway said a “limited number” of users without two-factor authentication had their accounts taken over. Buyers and sellers also have to pay “gas” fees to the platforms that link the art to the blockchain. Those fees can be almost as expensive as the art.
The gas fees on one $US100 work that Batnick had considered buying were $US90, causing him to walk away. And NFTs may wane in value as cryptocurrency gyrates, as it often does.
“I don’t think this is going to go away,” Batnick says. “I think this is only day one. And I think the future is bright, even if there’s going to be a tonne of money lost along the way. And frankly, let’s be honest, there has already been a tonne of money made.”
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