- NFTs generated billions of dollars and an NFT sold for almost $ 70 million.
- Many people question whether digital assets will maintain their value over time.
- Some investors compare the NFT boom with the rise of the Internet.
- See more stories on the Insider business page.
Last month, people spent more than $ 1 billion on digital assets, according to data from CryptoSlam.
Crypto art has been around for more than half a decade, but for many people outside the crypto world, these digital assets, known as non-fungible tokens or NFTs, seem to have come out of nowhere.
So, what is driving people into the NFT craze, investing from hundreds of dollars to, in some cases, millions? Crypto investors say it is a combination of several factors, including the pandemic, as well as rising bitcoin prices.
In the past few months, crypto artists have drawn more attention than ever to the NFT markets with exuberant sales.
Last week, digital artist Mike Winkelmann – better known as Beeple – made history by selling a cryptographic work of art for nearly $ 70 million. Other artists like Grimes and 3LAU also made millions in a matter of hours by launching crypto-art collections.
On Monday, at the mere suggestion of Tesla CEO Elon Musk, selling his own digital asset, bids for the piece reached $ 1 million, before Musk declined the offer.
Both creators and buyers have made significant profits from crypto art. In February, Miami art collector Pablo Rodriguez-Fraile showed for the first time how profitable the market can be by reselling a Beeple piece for an increase of almost 1,000% over its original price.
Why are people buying NFTs now?
Rodriguez-Fraile told Insider that the rising price of Bitcoin, the impact of the pandemic and mistrust of the U.S. dollar created a perfect storm.
Last week, Bitcoin reached a record high, reaching $ 60,000. Since the start of the pandemic, more people are saving money. 59% of people with an income above $ 100,000 significantly increased their savings in 2020. As faith in the US dollar appears to be low, NFTs can be another way for people to invest.
“People have long used art to store value,” Rodriguez-Fraile told Insider. “Crypto extends easily to digital art. This is just a more modern approach to investing in art and using it as someone would use gold or bitcoin.”
He thinks that the NFT boom was accelerated by the pandemic, but ultimately inevitable – a product of the technological boom that the younger generations would end up driving anyway.
For many artists, especially in the music industry, the multi-million dollar sales of 3LAU and Grimes have captured the spotlight and created a kind of gold rush, but for buyers the reasoning is less clear.
Will NFTs maintain their value?
Investor Gary Vaynerchuk, CEO of VaynerMedia, told CoinDesk that he believes NFTs are operating under a bubble, but that does not mean they will not have staying power.
“Many people have said that the Internet is a fad,” said Vaynerchuk. “In reality, the Internet was a game-changing technological revolution, but many of the early projects were overpriced for the excitement.”
Even Winkelmann admits that NFTs are probably too inflated.
“If it is not a bubble now, I believe it will probably be a bubble at some point, because there are so many people running into this space,” Winkelmann told CoinDesk.
What do you get when you buy an NFT?
When someone buys an NFT, they gain the rights to the exclusive token, but only on the blockchain. If someone buys an image or meme, they may own it on the blockchain, but they have no control over the rights to its distribution.
When you buy an NFT, in most cases, you are not buying content, but a token that connects your name with the creator’s art on the blockchain.
However, digital tokens operate on the same deflationary principles as bitcoin. NFTs cannot be duplicated, they can be easily authenticated and are immutable, but there is no foolproof way of knowing whether they will maintain their value over time.
Billionaire Mark Cuban told Insider that buying NFTs is a matter of scarcity.
“The buyer knows how many will be made and has proof of ownership of the blockchain,” Cuban told Insider.
Cuban has advocated investment in NFT, from buying NBA Top Shot clips to investing in Mintable, a community-controlled digital asset market.
The CEO of SuperRare, another NFT website, said that Insider people are motivated to buy NFTs because it provides a unique connection to the creator that does not exist with any other form of art.
Crypto has also spawned entire online communities. Robert Martin, a senior content strategist at Kapwing, told Insider that there is a lot of pressure at the moment to buy and even create their own NFTs within the crypto community.
NFT buyers are not necessarily fans
Cherie Hu, a music industry expert, told Insider that an artist’s fan base does not determine his NFT sales. How could I? How many fans would be able to spend thousands, if not millions of dollars on a single digital token?
Musician Justin Blau, known by his stage name 3LAU, and André Allen Anjos, known as RAC, have been members of the cryptographic community for over half a decade. They told Insider that many of their buyers are already investors in the crypto world. As artists, they make a point of also buying NFTs from other creators.
“The cryptographic community creates and sells these works of art to each other,” Hu told Insider.
While NFT investors are unlikely to represent a large part of a creator’s fan base, involvement from outside the crypto community is increasing.
Platforms like the NBA Top Shot are spreading knowledge and presenting a broader appeal to the public. Hu told Insider that he believes the NFT space will continue to grow, but it will need to become more accessible to generate popular appeal.
Read More: Here are 4 NFT startups transforming the way we buy art and sports memorabilia
NFTs still face several barriers to mass adoption. Most NFT markets require buyers to use an encrypted wallet. Only about $ 70 million people – less than 1% of the world’s population – have an encrypted wallet, according to Blockchain.com.
Breeders and the buyer also have to deal with the gas fees associated with minting and purchasing a product outside the purchase chain. These hidden fees can cost hundreds of dollars.
Co-founders of the NFT Nifty Gateway platform, Duncan and Griffin Cock Foster have been working to make digital assets more accessible to the general public. They are one of the few platforms that allow users to purchase NFTs off-site using their credit card.
“We are trying to create a space where anyone can be an art collector,” Griffin Cock Foster told Insider.
Rodriguez-Fraile said that NFTs represent the future of the art world.
“A few years from now, this may just be how people have art,” he told Insider.