“A bubble is a bull market in which you don’t have a position.”
– Dominic Frisby
Just when you thought the bubble in financial assets could not get any crazier…
Along comes the non-fungible token (NFT).
NFTs are the latest trendy digital asset.
An NFT is a digital token that uses blockchain technology to record ownership and prevent duplication of digital items.
If that’s tough to wrap your head around, consider this art example.
NFTs are especially popular in the art world.
Everydays: The First 5000 Days – the first purely digital NFT-based artwork – recently sold for $69 million at a Christie’s auction.
That was far off the $92 million that a masterwork by Sandro Botticelli sold for in January.
But Botticelli’s piece had taken more than 500 years to reach that price. The NFT artwork – created by Mike Winkelmann, known professionally as Beeple – took 25 days from its “minting” to the moment it was sold.
Even Beeple himself was shocked, as the video of the final moments of the online auction confirms. He celebrated by going to Disney World.
No wonder more established figures in the art world – like the U.K.’s Damien Hirst – are planning to mint their own NFTs.
Hirst recently revealed details of a “secret art project” called The Currency to be sold later this year.
He will issue NFTs based on 10,000 works of art on paper, made five years ago and stored in a vault.
Hirst will release the artworks using Palm, a technology connected to the Ethereum network – the same technology used by Beeple.
Hirst expects it to challenge “the concept of value through money and art.” (Presumably, by being ridiculously expensive.)
Welcome to the Art World
By all conventional standards, Beeple’s success seems absurd.
But keep in mind that such absurdity isn’t new for the art world. Absurdism, after all, is a postmodern school of art.
As the BBC’s art critic Will Gompertz put it…
It doesn’t make any sense to me. But then nor did someone paying $450 million to buy Salvator Mundi in 2017, an over-restored wreck of a painting that some… attribute to Leonardo da Vinci…
Andrea Felsted on Bloomberg noted that the Sandro Botticelli and Beeple artwork are more similar than you may think.
Their desirability is driven by similar factors… an undiminished appetite among wealthy collectors for prestige investments, as well as an influx of younger, tech-savvy buyers whom galleries and dealers have managed to reach online.
NFTs have expanded beyond the art world and have minted similarly absurd fortunes.
DJ Justin Blau, aka 3LAU, was shocked by the $11.7 million he made selling NFTs of his previously released albums.
Twitter CEO Jack Dorsey sold his first tweet as an NFT for $2.9 million.
What NFTs Are Really Good For
When digital media came along, easy replication eliminated scarcity.
You no longer had to wait for your favorite song to come on the radio. Your favorite TV show was a couple of clicks away on a streaming service.
The value of record collections, video cassettes and home movies went to zero.
But blockchain makes digital scarcity possible.
Anyone can view a certain work of art. In the digital age, any artwork can be copied and pasted. But NFTs mean only one person has the ownership token. The NFT means that ownership of anything can be verified, digitally secured and easily transferred.
Silicon Valley types draw grandiose conclusions about independently provable digital ownership.
As the entrepreneur Naval Ravikant puts it, “We are going… to [a world] where every valuable digital representation of an object or person has a token. Public blockchains will be the title registries for everything of value. Ultimately, NFTs will authenticate the world.”
But that doesn’t make NFTs a good investment.
Here’s my prediction.
NFTs are yet another bubble in a world chock-full of bubbles. The recent obsession with NFTs is yet another example of fascination with novelty for novelty’s sake.
NFTs may have their prosaic uses. But as an investment, NFTs will prove to be a short-lived fad.
They are a symptom of too many people with too much time and too much money.
And the recent $69 million sale of The First 5000 Days will go down in history as the moment the short-lived NFT bubble burst.
Click here to watch Nicholas’ latest video update.