We try to keep it light on the education here — we think undergrad was a $200k scam, too. But it recently dawned on me that many of you still believe buying an NFT is equally as scammy. So here’s a quick crash course in financial engineering.
The art market exists because rich people like getting richer. As cash inflates, it loses value, so the Bezos and Beyoncés of the world with billions of it need something to spend it on that won’t. Art is just a tangible asset they can borrow against to fund business operations, sell at a loss to offset their annual tax bill, or buy a new yacht.
Before blockchain, there wasn’t an accessible way for anyone without a private island to do this. Now, there is. Sure, instead of Picasso you’re buying a twerking Pepe, but the founding principles are the same. Collectible fine art has a record of ownership associated with it, provenance. Having provenance — authenticity and quality insurance — helps to establish a work of art’s fair market value. And since the blockchain is a public ledger, there is provenance inherent in every NFT transaction.
This means that if/when Ethereum goes to the moon, as many believe it will, the value of NFTs linked to ETH will also rise. We saw this in action in February, when the NFT craze took off after the price of ETH doubled. Hyped projects like CryptoPunks, purchased for 3.5eth in 2018 when 1eth was worth $200, sold for the same amount of Ethereum, or far more, when 1eth jumped to $2,000. And even less publicized NFTs could be sold at a loss in Ethereum for gains in USD. As of the end of Q3, NFT sales are still surging — so, fad or not, there’s real money to be made here.
Of course, not every NFT is automatically a safe bet. But NFTs aren’t all just cheap JPEGs whipped up in some neckbeard’s basement either. Many are created by startups developing dope products or artists exploring possibilities on a new medium (see below) while some offer exclusive access to metaverse content for those of us who still want to play video games for a living.
Be smart, do your research, and invest in projects you believe in. In the end, NFTs are to the art market as meme coins are to Ponzi schemes — basically the same thing, but now you don’t have to be rich to benefit from them. We’ll take the former any day, but you do you. Rappers love to shout out Madoff, too.