Signals #24 – Alternative Assets: NFTs and Digital Art

This is report #2 in the Signals – Alternative Assets series.

Overview

  • Conventional assets (stocks, bonds, funds) are heavily influenced by the markets with values constantly in fluctuation. They can also become overpriced, locking out retail investors.
  • Alternative assets have different fundamental assumptions: rarity. The demand for these assets increases while the supply decreases. The values of alternative assets rise slowly but steadily. 📈
  • NFTs (Non-Fungible Tokens) and other forms of digital art have exploded in popularity recently with bull markets in crypto currencies.
  • The hype for NFTs has died down since the peak but if it looks anything like crypto, it will likely be back with a vengeance, rewarding those that have held. Remember the hype cycle.

Opportunities

  • Like with sports cards, the best way to get started in alternative assets is to become a collector. Treat it like any other investment and start small, getting your feet wet with a few low-cost NFTs and developing a thesis for what works and what doesn’t.
  • Work with existing artists. Despite best efforts, the process of setting up a NFT is hard and partnering with non-technical artists is a win-win for everyone involved.
  • Experiment with tiered pricing for maximizing incoming revenue:

How to Launch

  • Unlike other alternative assets, NFTs and the broader crypto art can feel random at times. However, underneath the randomness are common themes. Cryptopunks is already 5 years oldand yet it is consistently at the forefront of any NFT discussion. Find and understand these themes.
  • Build an audience. The market for alternative assets is extremely bottom heavy. There are many investors that know relatively little about NFTs and deep expert knowledge is scarce. Share your knowledge and build an audience.

Cases

Platforms

  • Opensea – The largest NFT marketplace.
  • VeeFriends – GaryVee’s NFT project tying together offline experiences with NFTs.
  • Valuables – Buy and sell tweets, or at least the NFT of tweets.
  • CryptoKitties – Collect, breed, and sell digital cats.
  • CryptoArt – A ranking of the most expensive NFTs ever sold .
  • NBA Topshot – Highest revenue NFT project to date ($200mm in sales).

Market Data

  • Search interest in NFTs has been steadily declining since a peak in late February/early March 2021. However, the trend looks eerily similar to the first peak of Bitcoin back in 2017. Bitcoin took almost two years to recover back to its previous peak. Further, NFTs are non-fungible, in the sense that investing into NFTs is more akin to investing into individual stocks.
  • The number of NFT contracts has been rising exponentially for some time now:

Forecast

  • The current use cases for NFTs are similar to early cryptocurrencies: a lot of speculation with a little bit of functionality. There are huge tailwinds behinds an online-first, web3 infrastructure and we’ll likely see use cases for NFTs being developed for many creators – from writers to painters to any other creative freelance work.
  • NFTs have missed one of its largest markets, gaming creators. Gaming creators that build online first experiences with large audiences are perfectly suited for NFTs. After all, even Twitch got its start from gamers.

Resources