Spending nearly half a million dollars on a cartoon monkey is precisely the sort of thing that celebrities with too much money might be expected to do.
Splashy deals for non-fungible tokens such as Eminem’s purchase of EminApe create hype. They also raise suspicion. NFTs have many of the hallmarks of a fad. At their worst they may act like a Ponzi scheme. But despite the excess around many projects, there could still be value in some of them.
One year after artist Beeple sold an NFT for $69mn the number available on marketplace OpenSea has reached 250mn, boosted by celebrity endorsements and interest from Silicon Valley venture capital, Facebook parent company Meta and music streaming platform Spotify.
This popularity does not make pricing straightforward. Best known for Bored Ape Yacht Club’s monkey profile pictures, NFTs are more like receipts or collectibles than art. They do not provide exclusive access to images, for example. If someone wants to look or take a screenshot they can. The NFT is a record of a transaction using blockchain technology that means it cannot be replicated or altered.
High prices for the cryptocurrencies used to trade NFTs helped drive the market up last year. Investors spent more than $44bn, according to data company Chainanalysis. Now prices are falling. This remains an unregulated market in which unscrupulous sellers can lift prices by bidding on their own NFTs. The ethereum network on which sales are recorded is notorious for high carbon emissions. And the market is concentrated. The two most valuable NFT collections, Bored Ape Yacht Club and Crypto Punks, are owned by one company, Yuga Labs.
What happens next depends on whether Yuga Labs and others can sustain public interest. Not all NFTs will survive. But recognisable brands could. Perks such as Bored Ape’s digital social club help. Moving into other areas of entertainment will add value to intellectual property. Yuga Labs is reported to be working on a project that could turn NFTs into gaming characters. The monetisation of digital assets is just getting started.
