Will NFT’s create a Tulip-like bubble making them worthless?
A good friend of mine has asked me a question in regards to my views on current NFT’s. Here’s his question and my answers below.
Question:
I’ve been wondering with the Tulip-like bubble blowing up in NFT’s which are basically worthless tokens that will return to their real value (zero) at the end of the land price cycle, do you think the hysteria around this shiny new object is sucking money out of Coins such as BTC and ETH?
Answer:
Thank you for your question my friend. As mentioned, I thought it better to put my answers and views online as it may help others asking the same questions — and I get to put out some content in the process.
I think majority of NFT’s will eventually become worthless. Just like all assets including the share market i.e. during the pre-internet era a lot of companies have collapsed. That being said, a few have also survived. We have the likes of:
- Amazon
- Apple
- Facebook, etc.
I think, at the end of the land price cycle, it won’t be just crypto’s that will come down.
You and I know, that it will be everything we know off (properties, sharemarket, crypto, bonds, etc) and it won’t be confined to US alone. Every single asset will come down.
First will be the over levered assets (companies, institutions, sovereigns and retail) will be affected. Followed by everything else.
As for NFT’s, cryptocurrencies right now are moving from one shiny object to another (crypto tokens i.e. BTC, ETH, etc). to DeFi to NFT’s… I believe Metaverse will shortly follow.
That being said, the NFT’s are only tradeable within the confines of the blockchain it’s created from (i.e. ETH and others). So, there are still plenty of digital assets that do not support NFT’s because their technology are specific to the projects they’re working on.
NFT’s are still a relatively small size compared to the whole cryptocurrency market. In 2020, the NFT market size was estimated at $232 Million which grew to $22 Billion in 2021. That is a huge increase of 9,382%
Here are some numbers below to put that into perspective:
Cryptocurrency market cap = $1.711 Trillion dollars
NFT’s overall value = $22 Billion (2021)
That’s still only a paltry 1.2% of NFT’s compared to the whole cryptocurrency market.
Even if you assume that all NFT’s are based on Ethereum and can ONLY be traded in an Ethereum marketplace. Here are some calculated numbers below.
Ethereum market cap = $358,903,758,733 (06th Feb 2022)
NFT’s overall value = $22 Billion (2021)
That is also just 6.1% of the current value of ETH if we assume all NFT’s are traded on ETH.
There appears to be a lot of talk on NFT’s at the moment because it’s had the most gain in the last year or so. This is partly because it’s relatively new.
New assets are always the ones to have the most gain given the relatively low value to start with.
This is the same thing that happened to Bitcoin when it was relatively new and when everyone else was saying Bitcoin is a scam and have no reason to exist.
At the moment, BTC doesn’t appear to be affected much here are the reasons why?
- BTC isn’t used widely as a smart contract like ETH and other blockchains does. BTC seems to be the one that’s becoming more and more like a store of “digital” value.
- Blockchains like ETH, ADA, SOL, EGLD, etc have the smart contract capability which enable NFT’s to be created and traded on their respective platforms.
As these blockchains have smart contract capabilities, their reach isn’t contained to just minting (creating) NFT’s. They’re also used for Decentralised Finance (DeFi) capabilities such as providing liquidity (LP), farming, borrowing, lending, insurance, etc.
In order to transact, you’d need to use the blockchain tokens (i.e. ETH tokens, etc.) as utilities — so to answer your question above it’s actually ‘locking’ up tokens which minimises supply.
So ultimately, the only reason you would’nt lock up your tokens is if you either;
- Wanted to liquidate your assets
- Found a better yielding asset you can invest your monies to.
If you’re investing in NFT’s, it would also be because;
- You’re either tired of the NFT
- Found another NFT to invest in
- Wanted to liquidate your asset
Some people might say that NFT’s are “digital crap” and people are paying fortunes in a place that doesn’t exist. I disagree.
I used to be one of those people thinking what’s the point in investing in NFT’s when I can just “right click” the image and I can own it for FREE!
It was only after doing more research into it that I found it isn’t so much the jpeg or the image or the artwork that makes the NFT tick. It is because of the utility that comes along with it.
Think of an example where a new budding singer (let’s name her La-Di-Da) and decides to create an NFT. La-Di-Da has a new single she’d like to release but in an NFT format.
For the first 100 people that buys her NFT single — they get to have:
- The first single with a personal message to them
- First access to the album when released
- Signed photo sent to them
- FREE concert attendance for life
- and many more
La-Di-Da’s passionate fans orders and shares their experience with their friends which creates the viral and “network effect”. La-Di-Da gets to keep 100% of royalties cutting the middlemen. Fans are happy because they get to connect with La-Di-Da direct.
Oh! and did I mention that anyone that holds La-Di-Da’s NFT’s also gets a share of the royalties from all the album sales? Yes, you can do this with NFT’s.
You might ask what about the jpg’s? They’re just images!
Truth be told, NFT’s aren’t just images — they also have utilities too. These jpg’s creates communities with raving fans willing to share what they have, their experiences and clout in the process.
- These NFT’s include ability to attend events in faraway places where you must be an NFT holder to be able to attend.
- These NFT’s enable you to earn distributions or consistent passive income in return for holding them.
- They allow an NFT holder to earn(shared) royalties for every time the NFT’s are traded
- They allow holders of an NFT to create a Decentralised Autonomous Organisation (DAO) which gives all holders ‘voting’ rights on where they would like or how they would like the project to move ahead.
- They allow the NFT project to be able to donate to a charity organisation that was voted on by the DAO (community).
- These NFT’s allow you to have a collection where over time they rise in value (just like physical trading cards would).
- and there are many more. The smart contract capability makes it easy for distributions to occur automatically.
There are already singers and creators utilising NFT to their projects
Imagine, when movie segments are turned into NFT’s where viewers are connected to a specific segment of a movie. Movie buffs would like to own a piece of that digital asset and claim it as part of their collection.
Or, imagine a moment where a skateboarder recorded a skateboard trick he’s been practicing for years and finally succeeding. He decides to turn that to an NFT with a course on “how-to” do the skateboarding trick — with other perks and utilities for buying the NFT’s.
I imagine in the next 7–10 years, NFT’s would be a part of our everyday lives. NFT creators would come in different areas, from a “stay-at-home” mom showing how to make your house tidy to a business person offering perks along with their goods and services — to a company that wants to add perks and benefits to their NFT collection.
It will become as common as to what email is today.
Here are some GaryVee videos I found online with him talking about NFT’s.
They’re short and they’re pretty good.
Hope this helps.
