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How does the NFT craze subvert the collection and investment market?

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The turmoil of NFT is not only sweeping the art world, but also subverting sports, music, games and other fields, and even things that traditionally have no collection value. What kind of storm will this have on the investment market?

Original title: "How does the NFT craze subvert the collection and investment market?" "

Original Source: FT Chinese Network

After two weeks of crazy After online bidding, the artist under the pseudonym Beeple sold his non-fungible token for a staggering $60 million at Christie’s on March 11 ( NFT) work "Everyday - the first 5000 days", the final total price plus buyer's commission and other auction expenses may exceed 69 million US dollars, becoming Most expensive digital work ever sold at auction and 19th most expensive of all auctioned works (including physical).

. In late February, another work by Beeple was sold for $6.6 million on the online NFT platform Nifty Gateway.

When the price of blockchain-based digital images has begun to make the price of Picasso and Monet hanging on the wall of the museum Dwarfed by comparison, does this mean that NFT will subvert the art collection market? However, the turmoil of NFT is not only sweeping the art world, but also subverting fields such as sports, music, games, and even things that traditionally have no collection value. What kind of storm will this create for the investment market?

Twitter CEO Jack Dorsey auctioned his debut tweet 15 years ago as NFT tokens on March 5 , the auction ended on March 21. As of March 9, the highest bid had reached $2.5 million. Dorsey said he would convert the proceeds into bitcoin and donate them to the African Relief Fund.

On February 28, Canadian singer Grimes launched a set of NFT artwork, which was sold for $5.8 million through Nifty Gateway. Sold out within 20 minutes.

, presented as a short video from multiple angles, and turned into an NFT product. TV celebrity billionaire investor Mark Cuban is one of the promoters of NFT. He asserts that in the next 10 years, Top Shot will likely become the top three sources of income for the NBA.

As a branch of encrypted currency, NFT is currently the most popular blockchain field, none of them. But what exactly are NFTs? What are its qualities that attract investors? Will it drive the "value reorganization" of the entire collection and investment world?

What is NFT?

The literal translation of NFT (Non-fungible Token) is a non-fungible token, an application that combines blockchain and cryptocurrency.

NFT exists in the blockchain, each NFT token is a unique digital asset, and its ownership is managed and certified through blockchain technology. No two NFTs are the same, and unlike Bitcoin, each token has no substitute and cannot be split.

Digital ownership means that any collector can access it at any time. Digital items can not only be owned, but ownership can bring value.

Almost anything can be virtualized, from collectibles, game items, artwork, event tickets, domain names, music to ownership records for physical assets.

Cuban believes that the driving force behind the NFT phenomenon is the newly emerging "value storage generation": Generation Z who grew up in the digital age are native "digital citizens" "It is not fashionable to collect physical baseball cards or basketball memorabilia, but to regard NFT as a digital asset that stores value.

Digital assets that support smart contracts have unique, verifiable, liquid and tradable characteristics. NFT Essentially turning data into liquid intellectual property, empowering creators and collectors. The value of NFT comes from its liquidity, scarcity and authenticity.

NBA Top Shot allows buyers to amass a digital collection of great dunk shots, which they can then show off to others. Each NBA Top Shot is a non-fungible cryptocurrency, as each serial number numbered Top Shot can only allow one holder. Purchased highlights will be added to a buyer-specific secure digital wallet.

Since launching in October 2020 through early March, NBA Top Shot has generated over $338 million in sales through over 1 million transactions. An NFT of a LeBron James dunk sold for a record $208,000 on Feb. 22.

The attraction of the NBA Top Shot series also lies in the fact that the official website also has a secondary market exchange for Buyers provide instant buy and sell liquidity. The NBA also continues to take a cut of all secondary sales.

Traditional "store of value" collectibles are "tangible" entities that can be touched, seen or heard, such as trading cards, artwork, cars, Stamps etc. One of the reasons they can "store value" is the need for physical ownership as evidence of existence and confirming scarcity, but value is always threatened by counterfeiting and fraud.

But for the new generation who grew up in the digital world, the greatest value is digitalization. Because they believe that smart contracts and the digital commodities or encrypted assets they reflect are better investments than traditional physical assets.

This is because when traditional collectors collect stamps or cards, they must from time to time evaluate the condition of the entity: Is the item in good condition? Still needs fixing? Collectors have numerous storage and security considerations, and selling their collections also requires physical delivery, inspection by buyers, and considerable risk in transit. Since much of the collecting industry involves human-to-human transactions, there are various other risks and costs in the system. Insurance and storage also add additional costs.

The value of digital transactions on NBA Top Shot, while still set by the same laws of supply and demand, is much less risky than physical assets. Even if other people can watch the same video on the Internet anytime and anywhere, or even print the same lens picture, this will not change the value of the digital NFT itself.

When the buyer wants to sell the NFT he owns, he can check the serial number, price and related information of each NFT to be purchased in the secondary online market provided by NBA Top Shot Information, form an efficient community market with like-minded people.

Era factors reflected by NFT

Currently the four largest usage scenarios of NFT include:< /p>

1. Commemorative collections: ball collection cards, videos, pictures, etc. Like the aforementioned NBA Top Shot.

2. Digital Art: It is estimated that the annual circulation of the global art market is 70 billion US dollars, and the sales of counterfeit artworks account for 20%-50% of it . Digitizing ownership of artworks via NFTs may reduce the chances of counterfeiting, as the tokens are on the blockchain, guaranteeing their authenticity.

3. Gaming: The total addressable market (TAM) in this space could exceed $200 billion. Instead of going through a middleman, players can basically monetize their creations, from entire alternate universes, new weapons, cute critters, paying directly for what they create.

4. DeFi (decentralized finance) : Assets in the real world can be converted into NFTs and used for financial purposes. For example, sell part of the ownership of Porsche through NFT and earn interest on it.

5. Entertainment products: NFT also redefines the traditional form of distribution of entertainment products. Kings of Leon’s latest album, “When You See Yourself,” was also released as an NFT token through the blockchain-based music platform YellowHeart. Fans can choose from three types of tokens: the first offers special album packages; the second offers virtual live performance bonuses, such as "front row seats"; and the third includes exclusive audiovisual art.

Pricing starts at $50 for each NFT token, which includes digital downloads, limited-edition vinyl records, and "enhanced media" like moving album covers. According to data from the Open Sea platform, tokenized albums and NFT transactions, which began selling on March 5, reached sales of at least $1.45 million (8.20 ethers) within five days of listing.

The band representatives are estimated to earn more than $2 million, of which $600,000 will be donated to the National Team Foundation, which supports live music groups impacted by COVID-19.

NFT has appeared in 2017/2018, why will it form a big explosion in 2020/2021? In short, the following background factors give this frenzy a strong driving force:

1. Under the new crown epidemic, most people are trapped in At home, form a mental framework that embraces the virtual and digital world.

2. With the central bank printing a large amount of money, the market is full of liquid funds, pursuing the next hot spot of getting rich overnight.

3. The bull market of cryptocurrency has driven investors' enthusiasm for the entire encryption market.

4. The field involves celebrity effects in the entertainment and sports circles.

5. After several years of brewing, NFT platforms and markets such as Mintbase, NiftyGateway, OpenSea, Sorare, SuperRare and other platforms are constantly improving, making them more intuitive and easy to use for novices.

6. The increase of NFT categories attracts a wider audience.

7. The income began to be on par with physical collectibles, or even surpassed.

Another attraction of the NFT market is transparency, where buyers can see the history of every past buyer and bidder, what price they paid, and any The current state of the market for digital goods.

More importantly, buyers can complete transactions in minutes or less. After the transaction is completed, there is no need to wait for the transportation process to enter your own collection library (wallet). When you want to sell, the secondary market not only provides liquidity, but also completes the quick satisfaction provided by the market as a whole.

In the new crown epidemic, transactions that can be completed without human contact are of course particularly attractive. The digital generation is more likely to indulge in the pleasure of "instant gratification".

NFT forms an open platform that creators can control. Artists are actively jumping into the field of NFT, believing that digitization can protect the rights and interests of artists and give them the opportunity to self-empower. Parisian street artist Pascal Boyat painted a mural in a blue-collar neighborhood in January 2019, inspired by Eugène Delacroix's famous work "Liberty Leading the People", but with contemporary realities .

Boyart replaced the French rebels who overthrew Charles X in the 19th century with demonstrators of the "yellow vest movement". The French authorities were not happy with this and covered Boyart's mural with a layer of gray paint. But while the physical mural no longer exists, Boyart minted an NFT version of the mural, splitting it into 100 pieces and selling each for 0.5 ether.

In other words, NFT not only revives the street art suppressed by the government, but also allows artists to sell their works directly to fans. This has made what would otherwise be a difficult business for an artist very profitable. Boyart sold his NFT piece “Meditations of the Red Clown” for 75 ether on Feb. 26, for $112,000 at the time, his largest sale to date.

NFT also allows performance art to find a new outlet: a group of artists who are proficient in encryption technology first bought a bank under the pseudonym Banks ( Banksy's British political campaign graffiti artist, burned the artwork in a park in Brooklyn on March 7, and the burning moment was recorded and sold in the form of NFT, selling 228.69 ether coins, or about 38 Ten thousand U.S. dollars.

Another function of NFT is a mechanism to continuously motivate artists. Europe has the droit de suite (French, "right to follow") or "artist's right to resell," a mechanism that grants an artist or his heirs the right to receive a commission on the resale of an artwork in certain jurisdictions. This differs from US copyright law, which is based on the first sale doctrine, under which policy the artist has no right to control or profit from subsequent sales.

According to the copyright law of the United States, a young artist sold an oil painting for $1,000 today, and then became famous, and the work sold for 30 million after 30 years Sold for USD. Galleries and collectors will share the value-added benefits, but for this work, the artist and heirs will not get a dime.

The concept of the artist's resale right originated in France. Angelus, the collectors at the time reaped huge profits, and Miller's family was poor.

Once the artist uses the NFT format, the royalties can be programmed through the smart contract, so every time the work is sold, the artist can earn a portion of the income from it . Every time Boyart's "The Pensive Red Clown" changes hands from one art collector to another, he can continue to take the 5 percent cut.

Value restructuring and future NFT trends

As of the beginning of March this year, the market has sold Nearly $375 million worth of NFTs were sold, of which nearly $178 million (47%) came in the most recent month. Assuming this trend holds, total sales in 2021 will exceed $2 billion. However, as the speed continues to climb, the industry expects that the market transaction volume may exceed 20 billion US dollars this year.

NBA Top Shot has sold more than $230 million since its inception through early March, but a site crash caused by high demand has technically limited growth Ability. Expect other sports leagues to jump on the fortunes bandwagon soon.

If NFT is a securitized digital IP, then the trading market plays a role similar to an investment bank. These platforms can carry out asset securitization, manage market rules, and collect collection and transaction data at any time when assets are produced, traded or adjusted.

The future NFT field may be deeply cultivated in the following scenarios:

Digital art market and collectibles : About $64 billion in art changed hands in 2019, only a fraction of which was digital art, but this market is growing rapidly. AI-generated nude portraits, for example, are selling for about $14,000 this year.

Game: NFT can be used as pets, weapon props, clothing and other items in the game. The popular crypto cat in 2018 uses NFT technology to give each cat a special marking number, making it a unique cat.

Meme lottery: In the future, some social platforms will issue meme lottery, content that reaches a certain threshold can be automatically packaged as NFT, and GIF can be used to initiate a viral effect , let users snap up like a lottery, and the economic benefits will be distributed between the platform and the original users.

Mortgage NFT: Traditional works of art lack liquidity and cash flow channels. Although they have become popular as loan collateral and securitization in the past few decades, among them The identification, insurance and valuation procedures involved remain cumbersome. Once entering the virtual field, the financialization of NFT should bring another kind of liquidity to the market.

In addition to the assets of the virtual world, NFT may also be applied to scenes in real life:

< p>Intellectual property field: NFT can represent a song, a video, a painting, a sculpture, a photo, a patent, or other intellectual property rights, and it acts like a patent office, helping every Unique things undergo copyright or patent registration to determine their copyright or patent identification.

Tickets: Concert tickets, movie tickets, drama tickets, etc., can all be marked with NFT. Although all tickets of the same class have the same benefits, the seat numbers are different.

Records and proof of identity: NFT can also be used to verify identity and birth certificates, driver's licenses, academic certificates, etc. These can be kept securely in digital form, preventing misuse or tampering.

Financial documents: invoices, orders, insurance, bills, etc. can all be converted into NFTs for transactions.

Entity assets: Real estate such as houses and other physical assets can be represented by NFT for tokenization and used for financial markets such as asset circulation.

From this point of view, this article may soon be able to automatically generate a limited edition NFT, waiting for readers to snap up...

The long-term potential of NFT will increase with the expansion of application scenarios. They and derivatives will evolve into new categories of alternative investments, giving birth to the trend of "encryption of all things" and becoming A new arena where traditional collectors, coin circles, investors and speculators gather.

But when the economy restarts, the market digests too many dollars, and people don’t have to stay at home to avoid the epidemic. Will it burst the current asset bubble chasing hot spots? Basically, the NFT market will be roughly synchronized with Bitcoin and cryptocurrencies, so it is very likely that the simultaneous heavy positions of cryptocurrencies and NFT will not be able to achieve the effect of diversifying risks. These are all digital asset investors must think about when they follow the swarm of "value restructuring".