During one of the most intense times in recent history, the world was under attack by an invisible aggressor, an infectious disease caused by the SARS-CoV-2 virus commonly known as COVID-19. While the whole world was under strict lockdown enforced by governments, many of us took a deeper dive in the world of investments. Some alternative investments which were overlooked by many in the past moved into center stage with the help of social media influencers, such as, rare and collectible Pokemon cards, physical artworks, watches such as Rolex, Audemars Piguet, Patek Philippe and of course Non Fungible Tokens (NFTs).
It seemed while the stock market suffered from significant blows due to the economic uncertainty, speculative investors tried their hand at physical and digital assets as the usual run to the safety commodities such as Gold and Sliver were no longer places to park cash as a hedge Q2 2020.
In order to understand Non Fungible Tokens (NFTs), it is important to understand: Blockchain technology. Blockchain is an electronic ledger, a database which records transactions. This technology at its core is transparent. In a day and age where trust for the government, financial institutions are far from their peak, many turned to Blockchain, for its accurate record keeping abilities and visibility to all. By strict definition, Blockchain is: A system in which a record of transactions made in bitcoin or another cryptocurrency are maintained across several computers that are linked in a peer-to-peer network.
For many if not all industries such as watches, collectible cards and even fine wine, each respective industry continues to fight the neverending war against counterfeit goods. On May 4th 2022, wristenthusiast.com reported on an isolated seizure of $10M in fake Rolex watches. Blockchain technology allows for buyers to authentic transactions by tracking where the seller obtained the asset from, this core feature alleviates buyers from not being able to track provenance.
Enter NFTs... NFTs are non-interchangeable units of data stored on a blockchain. What does this mean? A NFT can be anything in electronic form. This can be an image, a song or even a tweet on Twitter - it is important to remember it like this, Blockchain technology can store data/information and everything on our computers is data hence NFTs can be stored on the Blockchain.
Enter supply and demand... This iconic concept introduced in the 1600s just doesn’t seem to go away. Human beings are drawn to owning rare assets, for several different reasons, social status, the joy of collecting, price appreciation, the list goes on. When examining the common characteristics across most successful NFT projects a single factor tends to emerge, rarity and popularity - these two factors (among others) create financial value.
Let’s look at a specific NFT project, Bored Ape Yacht Club. A limited number (10,000) of bored ape images were created by a small team, a story surrounded the amazing art and the project managed to gain traction. As at January 2022 the project had generated over $1B worth of sales. The world was hooked on the fictional universe and a strong community was formed.
Originally each NFT was available for $192 but due to the demand all 10,000 NFTs were sold out in 12 hours. Over time, new buyers craved to purchase the sought after NFT and were willing to pay much higher amounts than the initial price. Today, it is now very common for Bored Ape Yacht Club NFTs to sell for $250,000 - $1M for a single NFT. Celebrities such as Madonna, Stephen Curry, Post Malone, Jimmy Fallon and many more have purchased Bored Ape Yacht Club NFTs and shown off their respective Apes on social media. Artist, Gunna tattooed his Bored Ape onto his body.
The value of NFTs is widely debated, but ultimately a NFT is an image on the Blockchain. Platforms such as OpenSea, NiftyGatewa, SuperRare and others have created a seamless website to buy and sell your NFT, and many users have flocked to buy these electronic images. Is the NFT market a bubble? Will prices continue to increase? Was this simply a pump and dump by large private and institutional investors? All questions which we will learn over time.