08.02.2023

NFT

An NFT is a unique token placed in any network on a blockchain. Its uniqueness is that even in the same network it is impossible to exchange these tokens 1 to 1. For example, on the Ether network, the underlying currency ETH can be exchanged 1k1, but those very NFTs, on the Ether network – the ERC721 standard (for example) – allow each token within the same contract to be made different from each other, which makes them so unique.

The most obvious analogy in the real world might be the art market or the real estate market. Even paintings by the same artist or houses standing next to each other can be valued quite differently. But while houses and paintings can be explained by their sometimes enormous value, the value of NFTs sometimes defies explanation.

Above are the top 5 highest turnover NFT projects. Floor Price is the price of the minimum lot of collections. BAYC with a minimum value of $130t seems insane. However, it is probably worth paying attention to the psychology of the owners of these tokens. In many ways, people who own this collection openly display the lots they own in their social networks, showing how “rich” they are. The same trend can be seen on almost any social network – Instagram, Twitter, Reddit, TikTok, etc. Our culture is slipping towards showing off the cover, but not having any real substance. In such a scenario, we certainly have some justification for the rise in value and such a colossal valuation of these projects. However, how long can this valuation be sustainable? Below is an interesting graph of the daily turnover of the NFT market.

Despite the fact that Ether, within the framework of which it was possible to create various contracts and NFT, was available in 2015, the active growth of this market came only in 2021. Of course, this is largely due to the fact that a number of projects were launched in 2021, including Decentraland, which began active operations only at the beginning of that year. Based on the graph, it can be argued that the main turnover (which is measured in units here), came at the end of spring and all summer. This market became multi-billion dollar in a matter of months. Such a graph echoes any market hype, be it the tulip rush, the gold rush, or the dot-com boom. All of these situations are characterised by information assimilation and greed for profit. Most people who buy these assets don’t even know what they are or how to use them. As a result, they put apes on their avatars, asserting their “wealth. 

According to some experts, this boom in NFT may also be related to the fact that this new sphere is banally used for money laundering. The art market and the real estate market have always been used. The latter two, due to its capitalization are able to absorb almost any amount, and are able to justify its growth “features of the market. The same peculiarities help to hide the origin of the value in the NFT.

Of course, it is impossible to say that the entire NFT market is money laundering. Still, just like with paintings, there is always some uniqueness of the object. With blockchain technology, as well as the various protocols being developed, any artist and creator can now keep the right to their invention exclusively to themselves without having to patent it or involve a third party, which very often cheats ordinary users. Even the content of any user in Insta does not belong to him, it belongs to Meta, which in the end does not suit everyone. Meta collects content for free and resells it to the advertiser. Now, using these technologies, it’s possible to get all your dividends. This, too, is just one of the factors affecting the NFT market.

Another important feature of the last two years is the developed countries monetary policy. The EU and the U.S. – essentially the largest economic regions, lowered the Fed and ECB rates to zero, which created the opportunity to issue a large amount of free money. And really, what difference does it make – you can always print more dollars. In 2021, the M1 money supply in the U.S. more than quadrupled. In 1 year alone, 4 times as much money was printed as the entire time before that. As a result, this money had to be distributed to the market somehow – through subsidies, grants, loans, etc. However, any surplus from the market is taken away through economic instruments – good when this absorption occurs through an increase in the value of any segments – individual markets grow. It’s bad when inflation comes in. The NFT market, especially over the summer of 2021 essentially absorbed some of the printed dollars, and now inflation has come in.

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