‘I still don’t understand why NFTs are a thing’

by | Dec 12, 2022

By all counts, we may be in for an NFT winter…

November saw NFT sales hit all-time lows with the month setting record-low sales volumes this year. According to a Balthazar analysis, sales across five of the world’s largest NFT marketplaces – OpenSea, Magic Eden, X2Y2, LooksRare, and Solanart – combined were $392 million, down by over $100 million or approximately 20% below October.

All said, however, only a fool would count out the NFT market entirely. No, I’m not talking about projects pledging “utility” when I’m discussing this rationale.

To understand why I can be so confident it’ll return, you’ll have to understand why people buy pictures of apes and call it art. To answer that question, I’ll ask another. Why do Wall Street traders, or those in the investment banking class, when they want to status signal their successes, what do they do?

They will buy expensive wearable items – for example, watches, ties, or suits – or other outwardly visible signs of wealth like cars and wall art.

Now turn back the clock to the advent of the NFT bull market. This was colloquially referred to as “DeFi Summer.” A lot of newly minted millionaires roamed the blockchain in the ETH ecosystem looking for potential status symbols to poach and wear. This is because blockchain and BTC discovery mostly took place elsewhere and the easiest way to flex was profile pictures.

This generated a spillover effect into other forms of art on chain but primarily 10k projects. These were often generative NFT artwork projects that produced 10,000 pieces of art of varying rarities, such as the famous Bored Ape Yacht Club and Cryptopunks. These are then used that as a template for Ethereum-based collections of art.

Art follows fads, certainly, but traditional art markets don’t have perfectly instrumented markets. NFT do, though. Auctions with high water marks tend to happen in bull markets, and even traditional markets rise and fall, but even they don’t become permanently dead.

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