In the digital world, sales of so-called non-fungible tokens (NFTs) are booming. They are essentially digital certificates of authenticity and ownership. For this purpose, a video clip or a digital work of art is recorded on a blockchain and its owner as well as purchases and sales are recorded.
By registering, the NFT receives a unique digital signature that is virtually impossible to change due to blockchain technology. Even if the underlying work can be reproduced millions of times, this process gives the deposited object a uniqueness. It therefore remains unique, the unique position not referring to the object itself, but to the certificate.
Some investors are betting that the growing interest in the worlds of arts, sports, and media will keep the prices of items in this relatively new class of cryptoassets on the rise. In August, NFT sales jumped to $1.9 billion so far, the largest NFT trading platform, OpenSea, said. The volume has thus increased more than tenfold over the past five months. In January, volume on the platform was just over $8 million.
The boom is apparently mainly due to the increased trade in items. Over the past few weeks, some collections have been on offer with great success and sold out when launched, says Ian Kane of market-tracking analytics house DappRadar. This activity then spilled over to OpenSea.
An NFT with the image of a cartoon monkey was sold on OpenSea for 39 Ethereum last week. This was equivalent to $124,205 at the time of purchase. Two weeks earlier, the NFT monkey was purchased for 22.5 Ethereum for $61,329. An NFT of an abstract digital artwork traded for 1000 Ethereum ($3.3 million) earlier this week after selling for 0.58 Ethereum ($1366) in June. Depending on the provider, NFT market data varies. DappRadar has recorded 32 known NFT sales worth over $1 million in the past 30 days alone.
“Bubble stupidity”
MichaelK, a 30-year-old NFT marketer who declined to give his real name, said he’s spent around $250,000 on NFTs since September. He now holds 90% of his wealth in cryptocurrencies and NFTs. Earlier this month, according to the Etherscan website, he bought an NFT of a penguin cartoon for Ethereum for around $139 and resold it four days later for around $3956.
MichaelK believes the coronavirus pandemic, which is forcing people to spend more time at home and online, has helped NFTs take off. Rising cryptocurrency prices may also have played a role. NFTs are often valued in Ethereum. The price of the second most important cybercurrency after Bitcoin rose by around 23% in August. “I don’t want to think of it as a bubble. I want to think of it as something new that’s going to be a big wave,” MichaelK said.
Not everyone on the market is so euphoric. Michael Every, Rabobank’s Asia-Pacific expert, said he was “stunned” by the “bubble-shaped stupidity” of the NFT market. An NFT is more like buying a lottery ticket. Given the opportunities for returns, young people would be particularly attracted, as they would find it difficult to build up wealth. But NFTs are a bubble that will “definitely” burst, Every was convinced.