NFT mania is here. What do you need to know?
Digital art has always been something pretty cool but has reached a new level recently with NFT mania.
It seems like all of a sudden you can become a millionaire artist in a couple of hours and have your new masterpieces trading online in just a few clicks, but what actually are NFTs and is just a passing craze?
What is a NFT?
NFTs, or non-fungible tokens, are pieces of digital art such as images, videos and songs that are tokenized and listed on a blockchain. What makes them valuable is that every NFT is unique and non-fungible, essentially meaning that one NFT and its perceived value is never the exact same as another NFT.
To clarify further let's take for example FIAT money. Cash is "fungible" my dollar is equal to your dollar and a direct swap would be inconsequential. We can't state the same for the NFTs. My photo of the Moon can't be traded, replaced or exchanged for the video of your cat without one side benefiting more from the transaction.
As a result of COVID-19 there was a rapid acceleration of digitization in 2020 which resulted in the crypto industry exploding yet again. The NTF market tripled in 2020 reaching estimated sales of 250 million and the first quarter of 2021 saw that number eclipsed almost 10 fold.
NFT marketplaces are breaking new trading records almost daily, with the most famous collections recording skyrocketing sales.
OpenSea hit a trading volume of more than $1B in just a week
The largest NFT marketplace hit an all-time high of $1.52B trading volume for the last 7 days, up 98.53% from the previous 7 days. OpenSea dominates among the other Ethereum-based NFT platforms and has over 90% marketshare.
On top of that, the marketplace raised $100 million in funding and became a virtual overnight unicorn with a valuation of $1.5 billion. The most notable investor is Andreessen Horowitz, also known by A16z.
This is not the first funding for OpenSea this year. In March the marketplace announced a $23 million round led again by A16z and other notable investors such as Ron Conway, Mark Cuban, Belinda Johnson, Naval Ravikant, Ben Silbermann.
Even Visa bought a CryptoPunk NFT
CryptoPunks, one of the most attractive NFT collections, are 10 000 uniquely generated characters. Their unordinary and in some cases even strange style made them the second NFT project to hit $1B in trading volume.
It seems like not only are retailer investors and collectors who are interested in the collection but also institutions too. Recently the payment giant Visa bought a Punk for $165 000 - CryptoPunk #7610 to be exact.
How should we think about the CryptoPunk purchase in relation to Visa's corporate strategy and balance sheet? The move itself increased interest in NFT's as investors speculated that many more institutions will start buying and naturally drive the prices up.
As a well-established company, and the middle man of billions of global transactions, perhaps the payment company finds the NFT market as a new asset category and wants to be in the middle of it as well or do they just appreciate the artwork?
Cuy Sheffield, head of crypto at Visa, said in a blogpost "We think NFTs will play an important role in the future of retail, social media, entertainment, and commerce….. To help our clients and partners participate, we need a firsthand understanding of the infrastructure requirements for a global brand to purchase, store, and leverage an NFT."
Binance to digitize da Vinci's artwork
Binance, the largest crypto exchange by trading volume recently announced that it will partner with the well-known Hermitage Museum to bring some of the world's most well-known masterpieces into the NFT space. The collection is titled "Your token is kept in the Hermitage" and will produce five NFTs including "The Madonna and Child" by Leonardo da Vinci, "Judith" by Giorgione, "Lilac Bush" by Vincent Van Gogh, "Composition VI" by Wassily Kandinsky, and "Corner of the Garden at Montgeron" by Claude Monet.
Short term hype or a long-term investment?
NFTs are an amazing way to show the world your art without any limitations. People all around the planet can see your masterpiece without even knowing you and the most importantly it is all occurring in a decentralized way. Nobody can stop your artwork from trading or delete it once it is on the blockchain.
With many global institutions trying to take a piece of the pie, it does looks like the non-fungible tokens are here to stay. But be wary as an investor and make sure you truly like the NFTs you purchase, otherwise you could be left disappointed if the price of the art you purchase drops down and all you are left with is a thumbnail sized picture of cyberpunk.
Militsa Dimitrova is a crypto enthusiast with experience in content creation & social media, who produces her own Cryptocurrency Newsletter and Podcast both in English and Bulgarian. She joined FXCM as an Accountant in 2020, after obtaining a Bachelor's degree in Accounting from the University of National and World Economy of Sofia.