NFTs: emerging asset class, the future of art, or bubble?

Christie's just sold an NFT by the artist Beeple for $69 MILLION DOLLARS. For those not familiar, an NFT is a non-fungible token, essentially a perfectly scarce asset that shows you own the image or video attached that cannot be duplicated, which is usually based on the Ethereum blockchain. Anyone could save the exact same image to their desktop, but the NFT is valuable because it shows you "own" the image and it's one of a kind. They can take the form of art, images, or collectibles. People are paying millions of dollars for JPG images, which to me is completely insane, but so is the traditional art world. When someone paid $200,000 for the banana duct taped to the wall at Art Basel, what they're really owning is a certificate that says they own the banana being duct taped to a wall, the banana itself is worthless. To me, that is completely absurd but NFTs are the same underlying concept and I think they will continue to be hot in the future and could be considered an emerging asset class. 1:1 digital recreation of the Mona Lisa = worthless, 1:1 painted recreation of the Mona Lisa = worthless, but the original is worth hundreds of millions if not billions of dollars because it cannot be recreated. There are also smart contracts and royalties built in, which is pretty sweet for artists because they could automatically get 10% of all future sales paid out in Ethereum for example. 

Paying $300,000 for Pokémon Cards and NBA slam dunk video NFTs is a bubble imo and we can blame the federal reserve for this shit. But I could be completely wrong, and I am also a big believer in Bitcoin and the underlying scarcity of that. What do you guys think? Are NFTs a bubble, the future of art, money laundering vehicle, a demonstration that Ethereum whales don't know how to spend money, a way to support artists and musicians, or just a passing craze? 

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Comments (77)

Mar 11, 2021 - 3:58pm

I don't see NFTs as an emerging asset class, but as a platform to digitize analogical things. Using your Mona Lisa example: as a security measure, the Louvre could create an NFT of it, adding another layer of ownership.

Mar 11, 2021 - 4:05pm

There's a NFT which is a video clip of a guy burning a physical Banksy art piece which says "I can't believe you morons buy this shit" and depicts a traditional art auction. Yes the person behind it sold the NFT for 4x for what the Banksy was worth, but I freaking love the concept and think it's artistic genius. 

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Mar 12, 2021 - 6:20pm

Imagine the disappointment when some fool inevitably forgets to start recording.

I think they're a cool form of artistic expression, created through a modern medium which wasn't around 20 years ago. If you can sell a statue for $15mm or a painting for $15mm, why is it crazy to think that you can't sell something you created through a digital medium for $15mm? It really shows the evolution of art.

I do, however, think that the price is ridiculous for some NFTs that I personally don't like. Take the CryptoPunks that are selling for $1mm+ for example - those look pretty dumb to me (they're just small characters). But I can see why someone else might connect with them on an emotional level that I don't connect with them on, and subsequently they might pay $5mm for something that I wouldn't spend $5 on. 

My greatest fear would center on preserving the piece though. What happens if a server gets fried, a computer gets locked, or whatever, and you have this $15mm NFT that you can't ever access again? I don't know enough about the technology behind the blockchain, but I imagine you can have problems similar to those of people who get locked out of their $200mm bitcoin wallet and can't ever access it again.

It's arguably easier to keep a physical piece of art safe - put it in a bulletproof + temperature/humidity-controlled case and it's all good, barring insane circumstances. You only lose access to the piece if it gets physically destroyed. 

But that brings me to my final point - you said the value lies in scarcity, but how scarce is digital art really? What's really the difference between an NFT and a picture of an NFT? The difference lies in ownership, but in my mind it's much easier to copy a CryptoPunk than it is to copy the Mona Lisa. Anyone can have an identical-looking picture of a CryptoPunk, but there are subtle differences between any forgery of the Mona Lisa and the original, and when you look past the "ownership" aspect there really is no difference between an NFT and a picture of one. 

TLDR: they're a cool new medium of artistic expression, with as many differences between them and traditional art as there are between a painting and a sculpture, but I wouldn't personally pay much for any of them because I value traditional art more highly. 

  • Analyst 1 in IB - Gen
Mar 13, 2021 - 10:49am

the bet with the crypto punks is that they were one of, if not the first of their kind. if digital art becomes and stays a major thing, people may look back in 50 years, 100 years, 500 years, and want a part of that digital art history. they do look pretty useless though. Also, to your point about the blockchain and computers getting destroyed, the way a blockchain works is computers all around the globe secure the network. For some blockchains, this number is in the hundreds of thousands. these miners are financially incentivized to do this so they are running non stop. in order for the blockchain to be erased, every one of these computers would need to be turned off / destroyed at the same time. just one computer that wasn't shut off would be able to maintain the blockchain. this is what makes blockchain technology so anti fragile and powerful, and why we haven't see bitcoin for example get hacked/shut off despite it holding over $1 trillion dollars of value.

Mar 11, 2021 - 4:54pm

Lots of celebrities using NFTs to cash out on their brand. I don't know if you follow the wizardofsoho on Instagram, he has a minor Instagram following but was still able to sell NFTs for like $3000 for an image which is a pretty bananas way to capitalize off your personal brand 

  • Analyst 1 in IB - Gen
Mar 11, 2021 - 7:54pm

I think what we are currently witnessing is a massive bubble (who the hell spends thousands of dollars on a Lindsey Lohan NFT), BUT they will have a huge use case in the future. It will be great for online creators, and I think once companies like Disney get involved, holy shit we're gonna see a lot of use cases. But right now as an investor I'm not touching it. When this bubble pops you don't wanna be caught holding something that illiquid.

Mar 11, 2021 - 11:34pm

Speaking not from a finance perspective, but from an art one, there will be some performative aspects to this, like the Banksy thing, but other than that it's not going to displace anything major in the art world. People still want and appreciate actual things (bananas taped to walls withstanding), an NFT is not going to replace the desire for an original Picasso, Manet, Calder or Lichtenstein. My bet is the art world is going to tire of it soon. There are only so many novel ways to sell tokens of art, and it's the performative aspect that the art world appreciates, not the token itself. 

Mar 11, 2021 - 11:56pm

A lot of the NFTs are images of an actual painting or artwork, and I'm sure there's some set up where you get both the NFT and the physical artwork. It's not going to replace to demand for Picassos, but its undoubtedly an emerging category which could siphon off a chunk of market cap from traditional art. And this is also a reflection of an emerging class of multimillionaire and billionaire Bitcoin whales - when Bitcoin reaches $200,000, there will be a large number of newly wealthy people who will want to spend their money on art, but they may prefer NFTs. Also a lot of art is used for money laundering - why mess around with auctions, shell companies, free ports when you can just directly use NFTs to transfer money? I think it's definitely in the tulip mania stage right now but I can see this becoming a mature emerging asset class.

Mar 12, 2021 - 10:01am

Right now, I think most of it is trash. But I do think that as digital economies like those in Roblox for example scale, that NFTs will become a very real asset class for the digital space. The concept is fascinating and I look forward to watching it develop.

Array

Mar 12, 2021 - 10:48am

NFTs will present a significant value-add to society going forward, especially with real world assets. The easiest example to predict is Real Estate, as ownership begins to be put on blockchains (and it will) non-fungible tokens will be utilized to seamlessly transfer ownership and keep immutable records. (think countries outside the U.S.)

Have seen some wild ideas thrown out there where people suggested having entire decentralized driven sports teams/leagues built around NFTs. Players could be traded or swapped around as NFTs, jerseys changed by NFT owners, team governance voted on by these owners, etc.

The possibilities are actually endless.

Mar 12, 2021 - 3:53pm

Agree with the countries outside of the US part. People can't really grasp the concept of how smart contracts and real estate and wills and other legal contracts would be put on the blockchain, but that's because the US is really spoiled with its legal system and rule of law. Blockchain technology and digital payments will be such a help to the developing world. 

Mar 12, 2021 - 6:54pm

On the one hand, I think it is incredibly stupid to see some of these NFTs that are selling for millions of dollars, such as Dorsey's original tweet. I still can't fathom why one would put so much money towards 'owning' a tweet when I could just take a screenshot (yes I know they aren't the same). On the other hand, NFTs are no different than cryptocurrencies, baseball cards, or even the U.S. dollar. All of these have value only because someone says they do, and someone else agrees. Whether that someone is the US government or some random Twitter artist does not make much of a difference. If there is scarcity and demand (no matter how irrational), you could sell shoveled shit on a street corner. An NFT is "worth" no more or less than the United States dollar or one Bitcoin. So even though prices might be extremely inflated, I think it will be interesting going forward to see how they emerge as an alternative asset class that could possibly be used as an inflation hedge (similar to how crypto enthusiasts see BTC and other coins). To be clear, like I said, I think it is very asinine to pay outrageous prices to own some of these things but I do agree as innovation continues there might be some practical purposes (keyword "might")

Mar 12, 2021 - 7:44pm

This just reminds me of unusual hats in TF2. Or beany babies. What does an NFT Jpeg allow you to do that you can't otherwise do with a normal jpeg? 

Nothing. Nothing at all.

You are trying to add value on something that can be endlessly copied, viewed, used, by anybody. Oh haha but you own the one crypto version! Who gives a fuck. Change a single pixel and you can create another NFT of virtually the same image. We would all need to live, work, and play in a fully structured and legally binding digital reality for this to have any real use. 

It also doesn't work as a proof of ownership for physical artwork. Imagine if there is an official NFT for the Mona Lisa. And the password is lost. Will the Mona Lisa just not matter because whoopsie someone forgot the crypto version? Let's make Mona Lisa 2.0 and hope we don't forget it again? Gtfo. This is absolute baseless hype. Supreme brick anyone? 

Mar 13, 2021 - 9:53am

why is the Mona Lisa worth anything? It's just paint on a canvas. Art itself has no utility or value, people just buy it because they 1) like it aesthetically or 2) want to sell it for more they paid for it. Yes NFTs are in the mania phase but the underlying reason to buy is identical to traditional art 

Mar 13, 2021 - 10:11am

I think they'll eventually settle and be something in 5 - 8 years. The 3D designer we use just sold a piece for $150,000+ which is nuts to me. You could hire him full-time for two years for that much to make you w/e you want lol

It was a really cool piece and he put an insane amount of time into it, but still, just doesn't make any sense. I'm guessing a lot of this is the illicit money holding crypto looking for a place to "invest".

Mar 17, 2021 - 12:41pm

Yeah if you track NFT's like you do Bitcoin/crypto. I would say we are at where bitcoin was in 2013 with NFT's.  They is probably a strong market of low hanging fruit that could be generated.  

Mar 13, 2021 - 3:41pm

I think NFT is too broad a bucket to describe - they are merely the new medium of existing collectibles. I'm not sure I'd really describe it as an asset class so much as a medium for hobbyist/collectors. Baseball cards, art, etc have long existed and have hobbyists / collectors to support them. NFTs are merely the digital progression of those items. I think in a more practical sense its better to look at it in sub-sectors rather than NFTs in general. There can be a strong argument for the sports cards equivalent NFTs, maybe even for famous artists. But random things that historically haven't had a collectable community and are more fad driven, ie who is the hottest influencer at any given movement, might struggle a bit more. 

There is clearly a get rich quick scheme going on in the moment, but the underlying concept for certain categories / collectable groups has a good shot of persisting. 

Mar 14, 2021 - 1:40pm

Feels like late stage everything at this point.

Difference with Bitcoin I would say is that the value in NFTs is specifically driven by the creator's artistic process, rather than a shared process anyone can in theory participate in following the same rules.

  • Intern in HF - Other
Mar 14, 2021 - 5:31pm

The underlying concept is an interesting one and I think that is here to stay. 

What I'm surprised nobody brought up is the piece about the artists being able to take up to 10% of the transaction each time an NFT is sold. That is criminal and incredibly greedy. 

Mar 15, 2021 - 3:32am

The artists set the contract for their work being sold. It could be 10%, it could be 30%, it could be zero. They created the work, they should be able to profit off of it. That's not being greedy 

  • Intern in HF - Other
Mar 15, 2021 - 7:23am

Would you buy a house an architect designed who would take a % of the sale every time that house is sold? 

The artists are in need of capital and receive capital for their work (they have little to no leverage). Why should they be able to take a percentage of future sales? The fact that the buyer has to pay 100% of the costs upfront for the painting supporting the artists lifestyle but doesn't realize 100% of the gains or losses on the sale of that artwork that they paid to own is ridiculous. The harsh truth is that there are maybe 50-100 artists in the world who can get away with something like that (Banksey type artists) if they tried to pull something like that. If some hipster in Brooklyn or Portland tried charging 10% on the resale of his/her art to support there weed and non GMO strawberry habits. Whose buying? 

Mar 15, 2021 - 2:33pm

I'm sure there's a bunch of manipulation behind the scenes, with people buying up certain artists and collectively pumping them, but on the other hand, that is EXACTLY what happens in the traditional art market. I wish I was sophisticated enough to play in this arena. 

Mar 17, 2021 - 1:10pm

Apparently there's some vetting going on behind the scenes with the big transactions. People think Ethereum and Bitcoin are anonymous, but the blockchain records every transaction and it's possible to see which wallet is doing what. Coins like Monero are actually anonymous. Of course this can be obfuscated if you know what you're doing, but it isn't THAT simple but it beats traditional art market money laundering (auction houses, shell companies, free ports). 

  • Associate 3 in PE - LBOs
Mar 17, 2021 - 1:25pm

It's going to become a pretty useful tool in the art world if you can truly restrict copying - I don't know how you get around that, especially for digital art and photography.  As it stands, if a graphic artist/photographer's .tif files are leaked, then anyone can endlessly print those images at indistinguishable quality from a gallery/museum. 

That being said, it is just a tool for ownership.  And cost of ownership will be determined by perceived value of the art itself, not NFT versus paper certificate. 

Mar 17, 2021 - 1:59pm

From an art historical standpoint, artists since the late 1800's have always attempted to push boundaries / experiment with what could be considered art. It's only natural that with the massive advancements in tech that creating forms of completely digital art would eventually become a thing. (Think Duchamp's ready mades, but with tech) I think this isn't going away and the more cerebral/conceptual artists of today will continue to experiment with new ways of playing with this idea of art and ownership through tech and NFT's just as artists in Duchamp's era did. The fad of it being popular will die out but I think 50 years from now art historians, will refer back to this as an important moment in early 21st century art. 

Mar 18, 2021 - 9:39am

But that's just it, the absurdity of it and the prompting of the idea you just posed alone is enough to make it valid from a "how far are we pushing it/has it gone too far" POV. There are already tons of art historians and critics writing up long papers on the validity or invalidity of using coding and blockchain as current day tools/vessels for a human expression that is becoming increasingly commodified. Some of the dialogue will be BS, some will be interesting but conversation alone (particularly within the context of this moment of blockchain becoming mainstream) is what makes it interesting - again this is purely from an academic and art world perspective. Like a lot contemporary art, most people who are not into that world won't really care or get the point of it. 

Mar 17, 2021 - 2:11pm

Every day someone comes up with a new, stupid, pointless way to generate wealth for himself that makes me want to kill myself. 

Array

Mar 17, 2021 - 3:55pm

Can NFTs be stolen?

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

Mar 17, 2021 - 4:39pm

I don't get, I don't get it at all.

Art, I sort of understand in the reasoning that it is truly unique, you can make replicas with very skilled artists and painters, but you can't replicate the physical characteristic that's most important of all, time.

Digital things? They're all fundamentally fungible. They're all 1s and 0s, run through some sort of machine translation to come out as a jpeg. Yes, you could distinguish Jpegs by using the date and whatever, but that sequence of 1s and 0s are fixed. And there is no "time" physical factor to this.

And how the hell does one verify an NFT? I mean, actually how?

Yes, a token says you own the Mona Lisa on the blockchain, great, there's nothing stopping me starting another blockchain that says I own the Mona Lisa. There's nothing, absolutely nothing, that stops me from stating that I own a physical item digitally, because the digital world can't verify whether I have the physical item, or the digital representation of 1s and 0s that are used to represent the physical item.

I hope someone starts a rival NFT blockchain that claims literally every item on earth, clogs up the servers of everyone trying this dumb idea, and forces everyone to stop using it.

But knowing clown world, this will rocket straight to the moon forever.

Mar 18, 2021 - 7:11am

I'm pretty sure there's already more than one blockchain - Ethereum is the main one though. If you pick the wrong blockchain to have your assets on, you're fucked though. No one is using Tron or EOS.

Mar 18, 2021 - 8:15am

Yes, but how do you prove that someone actually owns something then?

If two people claim they own the original Mona Lisa, you can go there and just physically figure out who possess it. You can't reasonably present proof of ownership if you don't actually possess the item.

Not so on the blockchain. Because we're dealing with real life physical objects, the actual legitimacy of a claim of ownership cannot be established by blockchain technology. Yes, if the asset is purely digital, then perhaps the blockchain might be able to ensure legitimacy, but a claim to any physical asset like a painting on canvas or a statue will not be provable by digital means.

A large part of the thesis of NFTs is breaking into the physical art market, which blockchain can't solve. A claim on ETH or anything else has just as much proof of work behind it after a couple of blocks.

What happens when two blockchains claim a physical item has two different owners? There's no way other than to revert back to the original method of physically examining both parties. Whoever claims to own a banana taped to the wall of an art gallery can be verified only by seeing if they have a banana taped to the wall of a gallery.

And then, how would you undo it? You can't go back in time to change a fraudulent transaction in the blockchain.

Mar 18, 2021 - 9:52am

Bro. The current price of NFTs tell me one thing. This is the new method of money laundering. I'm in crypto. I invest. I'm worth low 6-figs (thanks BTC, ETH, and FTM) but there is zero chance I buy any "digital art" as a store of value. I've screenshotted some cool NFTs. That tells you what I think of them.

Mar 18, 2021 - 10:43am

FTM is the stupidest shit ever, trade that for BTC. Also I bet a lot of the people buying NFTs are either whales who have hundreds of millions if not billions in crypto, or, they're a bunch of speculators who coordinate with their friends wallets to own and pump different artists and NFTs. Most rational people would never buy NFTs, but here we are. 

Mar 18, 2021 - 10:51am

Lol I know folks on the Fantom (FTM) team. They will pump their token to multiple dollars (eventually). Undervalued tech, and they are beginning to port projects over from Eth to their platform. They are a ~$1B market cap while Eth is ~$190B market cap. I have BTC, ETH, and FTM. FTM is my moonshot. I also sold most of my portfolio while BTC was at 60k. One more bear then bull market, and I'll have $25M+

Jan 4, 2022 - 11:26am

I think this is the future. It's just a new kind of asset, even though it all looks absurd. I won't say that I understand everything about cryptocurrencies and NFTs, but I don't want to be late for buying them. Last year, I bought a few altcoins, and now I'm looking to buy Physical NFTs from https://fuego.no/. It's a cool concept where you get a digital receipt for the Metaverse.
People online mock NFTs by taking screenshots of these NFTs, but they're missing the point. You can be into NFTs just for the profit, or you want to support the artists. It's a direction our world is going, and I want to follow.

Most Helpful
Jan 5, 2022 - 10:23am

I'm convinced that only the smartest and stupidest people make money in the ether. Objectively, so many of these stocks, all of the cryptocurrencies, and the entire principle of NFTs that have made so many people rich are so absurd on their face that people of normal intelligence (well within the bulk of the bell in the bell curve) can't make heads or tails of these investments. I'm a huge Tesla fan (I have a lot of Tesla stock and I drive a Tesla Model 3), but anyone investing in Tesla in 2015 was simply stupid and got incredibly lucky or was an incredible genius. 

I was at a large birthday dinner a few weeks ago and I was talking to an NFT addict who has made several hundred grand in NFTs, and with genuine curiosity I asked him a handful of "skeptical" questions which he had absolutely no answer for. He went in headfirst into NFT investing without any kind of critical thinking involved. Dumb people can make money in these asset classes because they just jump in headfirst without any care about the depth of the water. Really smart people can make money in these asset classes for many reasons (they can take advantage of stupid people, they can intuit the next big thing, etc.).

I'm convinced that people in that 100 to 140 IQ range simply cannot compute how NFTs can be valuable. I calculated it a year or so ago for a work project, and there are 20+ million households with very high income or very high wealth. That's a helluvalot of bored, poorly educated and low IQ family members with money to burn. These inane investments will continue forever.  

Array

  • 5
Jan 11, 2022 - 5:58pm

I think there a potential positive here in dealing with the people investing here. I recently read Howard Marks' "The Most Important Thing" and I found it interesting how he decided to invest in areas that have very little interest from investors. He claimed that these areas are the least efficient and can have the best results if you make thoughtful investment decisions. Of course, he was talking about distressed assets here, but I think this easily could apply to NFTs if you're smart. But you have to be really, really smart. It's too hard for just about anyone to figure out how to do the same thing with NFTs right now, but maybe in the future, it could be possible to exercise value investing principles here. 

Jan 11, 2022 - 1:36pm

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