NFTs: the future, the failure or the fraudster?
21st March 2022 |
What are you to make of the NFT world right now?
As a brief refresher, an NFT is a “non-fungible token”. That is a crypto token that is a one of a kind. There is no other like it. It is unique, transferrable, tradeable but effectively is the only one of its kind that will ever exist.
This is in contrast to “fungible” tokens like bitcoin’s token, BTC or Ethereum’s token ETH. If you hold 1 ETH and I hold 1 ETH, they are the same. While there are multiple iterations of them, they are both exact replicas of each other, nothing to separate them from the other apart from the fact you hold one in your Ethereum wallet and I hold one in my Ethereum wallet.
Therefore the NFT phenomenon is very much built on the rise of the concept of digital scarcity. To own something that is unique and rare can, in the right instances, the right conditions, the right time, be very valuable.
Its why we’ve seen projects like the Bored Ape Yacht Club (BAYC) explode in notoriety and value. As a subjectively important collection of NFTs, some with rare qualities are viewed as more collectible and rarer than others. That means they also sell for more on secondary markets.
Some collections have become famous. Examples include Crypto Punks, and more recently the BAYC. Why? Honestly, I don’t know. The wonders of how society works is sometimes mysterious.
Nonetheless, as recently as late February the average sale price for a BAYC was over 110 ETH (US$286,000).
However, in the recent past, a bit of “heat” has come out of the NFT market.
By early March the BAYC average sale price had fallen to just 74 ETH (US$192,000). The question that started to be thrown around was: is the NFT mania over, and was the hype just a brief flash in the pan?
You’ve heard of the “crypto winter”, which is now, thankfully, history. People were beginning to wonder if the “NFT summer” had ended.
Well… never expect the crypto world to just idly sit by and let things get boring.
While the market might not be as hot in terms of money actually rolling into highly priced NFTs, the market itself is still thriving in a way that is only going to get more interesting, more litigious and more complex…
Wen NFT coin?
There’s a trend emerging in the NFT space that is scarily reminiscent of the 2017/18 initial coin offering (ICO) boom.
You see NFT projects that are launching their NFT artwork. Typically, it’s contemporary art. Some is good, some is shocking, and some is not safe for work (NSFW – unsuited for display in a family-friendly environment or a highly controlled work environment). All kinds of craziness really are evident. Some protagonists are delivering millions in crypto to NFT projects. Other NFT projects some are slow burning. Yet others barely make it past the starting post.
This is pretty similar to what happened with the ICO boom. People would launch a bare bones project with much hype and few details – and worry about development later on. They would have a rush of blood to the head, an idea that appeared at least half credible, a white paper and they would be in business. That was a fun, crazy, scary market to be a part of, as is the NFT market now.
It also does raise the question which will no doubt soon need an answer: are these NFTs securities?
There are of course strict securities laws that govern the markets in the traditional finance (TradFi) world. You can’t just start selling stock in your company to anyone, any old time you like. That’s just not how the system is built.
Now I’m not saying that system and set of rules is right, or fair, or doesn’t need a top to bottom overhaul, but the rules are the rules: you still have to play by them.
Meanwhile, in the world of crypto, there’s a lot of grey area. There’s so much grey area that it would tie up regulators for years on end if they didn’t know what direction to even face.
What we saw off the back of the ICO boom was an interest from regulators to ensure ongoing market integrity and protection for consumers. And over the last couple of years this has resulted in many ICO projects getting sued (typically) by the US Securities and Exchange Commission (SEC – the main financial markets regulator in the United States).
Often these ICO projects have paid fines, reached settlements and been eventually to go about their business, having been charged for selling unregistered securities.
For some projects, it’s sent them into the dustbins of history. For others, the experience has given them a chance to reinvigorate their project and to head to greater heights.
What I’m saying is I can guarantee you the regulators now have their eyes firmly set on the NFT market… and, rightly so.
While there may have been some grey areas for a project simply selling NFT art, things are now a little more complicated given that events in the NFT space are starting to look a lot more like those of the ICO boom.
You see a lot of NFT projects that are now trying to figure out how to deliver more value to their communities. It’s not enough any more to just sell some original NFT art and then to say thanks and goodnight.
No, to stay relevant and to maintain interest, the managers of these projects are now minting and releasing tokens to their communities. Not more NFTs, but fungible ones, tokens that can be used within their own ecosystems.
Last week, we saw the first big iteration of this with the BAYC airdrop of ApeCoin (APE) tokens to BAYC and Mutant Ape Yacht Club (MAYC) holders. 150 million APE tokens are available to claim for owners of the NFTs.
For example, if you own a BAYC, you will get 10,094 APE tokens. A MAYC will get 2,042 APE. In either case, if you own one, you have 90 days to claim your tokens.
I would suggest doing so, because at the time of writing the APE value was around $8 per token.
That’s right. The BAYC project through ApeCoin just dropped around $80,752 in crypto to the NFT owners.
Interestingly, in early trading once the airdrop claim went live, the price from APE was up over $100 on some exchanges. That’s right, $100. Yes, over $1 million in APE tokens.
So it’s no great surprise the price cratered as BAYC holders sold their APE tokens to claim their free money.
For anyone holding a BAYC that got a claim of tokens, it’s great. I think it’s wonderful that the crypto world is providing literally life-changing money to a handful of people. Note: there are only 10,000 BAYC and 6,400 owners (or at least registered wallets, so that in reality the total owner number is likely far lower). So, yes, it’s only a handful of people that benefit here.
Still, this is a sign of what’s to come in the NFT space.
I can categorically tell you that I would be surprised if every NFT project didn’t launch a token in the next year to everyone that’s holding that particular NFT.
I think this is going to drive the next NFT mania in 2022. You see when BAYC said they were doing this, the floor price for BAYC picked up from that 74 ETH “low”.
On the day of the airdrop claim the average price picked up to over 105 ETH and the volume traded on Opensea was the second biggest in terms of volume ever.
I believe this is a preview of what’s to come for a lot of NFT projects in 2022. To stave off an “NFT winter” we will see token drops to the NFT communities to try and fluff up some value.
Some will be pure cash grabs, ways to extract (scam) communities for more crypto and there will be a lot of dicey token releases so be very aware of the fraudsters.
Many NFT tokens will be dumped. A few might have real value long term. Which ones? It’s too early to tell. But some will thrive, some will fail, some will just be outright fraudsters.
And when this happens, I guarantee that it’ll catch the eye of the regulators. Artwork might not classify as a security. However, a token, that’s used as an ecosystem token to build brands, build partnerships, to reward a community… sounds a lot like a security.
Again, whether it’s fair or not is irrelevant. Expect some big projects that are flaunting the red cape at the bull to get their day in the spotlight with the regulator. They’ll have a war chest big enough to fight it, maybe beat it, definitely pay the fines. Make no mistake, the promoters of these projects are heading for the corrida.
It’s this ongoing dance of innovation, development and its clash with the legacy systems trying to adapt at breakneck pace that has led to the emergence of the crypto world. It’s a fascinating ride, and unbelievable to watch play out.
We continue to watch the NFT space with great interest to see what happens – and where maybe some of the opportunities might appear.
Crypto to Know
Below is our “Crypto to Know” list where you’ll find several cryptos that we think you should be taking the time to learn and understand.
They each form an important part of the burgeoning crypto ecosystem.
Several of these cryptos are doing very different things to others.
What’s key is to learn that every crypto has its own use cases, its own guiding principles, and its own particular potential.
Each crypto is to be judged and assessed on its own merits.
Our aim here is to help you understand these cryptos and the wider crypto world.
These aren’t specific recommendations but a guide to help you learn and build your confidence in operating in this space.
We will add more names to this list over time. However, if you’re new to the world of crypto, these are the names where we think you should start your education and learning.
We’ve also added links to each one.
The links are to what we believe, in each case, is the best resource for learning about that crypto.
“Crypto to Know” watchlist
- Bitcoin –it/wiki/Main_Page
- Ethereum – ethereum.org/en/what-is-ethereum
- IOTA – docs.iota.org
- Tezos – https://tezos.com/learn/getting-started/
- Filecoin – docs.filecoin.io
- Cosmos – v1.cosmos.network/intro
- Binance – binance.com/en/about & research.binance.com/en/projects/bnb
- FTX – ftx.com & help.ftx.com/hc/en-us
- Solana – https://docs.solana.com/introduction
- Secret Network – https://scrt.network/about/about-secret-network
Sam Volkering
Editor, Sam Volkering’s Crypto Network
