From the farm to the gallery.
Put your shitcoins out to pasture, turn off the tractor, you’re an artist now.
The Modern Degenerate does not want to be out in the fields farming food coins like his predecessor.
He has no interest in 10,000% APY on his bacon tokens, for he is now (actually he always has been) a Digital Art Enthusiast.
Who wants to be seen farming food coins when you can join Soulja Boy, Lindsay Lohan, and Lil Yachty in the infinitely more respectable Digital Art Industry?
For some of these projects, provably scarce is not scarce enough.
Fools will fish for greater fools, and in this market they won’t wait long. The permissionless nature of crypto means anyone can make a Pollock out of themselves creating and trading digital art, but just because you can doesn’t mean you should.
In financial economics, the efficient-market hypothesis (EMH) states that asset prices reflect all available information. That means that this gif of a twerking cartoon dog is worth seven thousand four hundred dollars (not investment advice).
In the past twelve months, Ethereum has gone up in value by 714%, Bitcoin has gone up by 459%, and the fundamental value proposition of why we should pay $200 to mint the word “Nonce” onto the blockchain has never been more apparent.
We are living in the golden age of money laundering.
NFTs finally allow people to prove they liked something before it was cool.
When Gary Vee tweets “Nft”, then it must be time to buy.
When headlines tell us:
“Lil Yachty Collectible Fetches $16K in String of High-Profile NFT Auctions”
Perhaps the time has come to ask ourselves - just how long is a piece of string?
There’s no doubting that this technology will revolutionise content creation, and it makes sense that an increasingly online world would begin to assign more value to digital assets, however, the current level of hype plus the vapid celebrity endorsements is at least tiring if not reminiscent of a market top…
The tech is here to stay, but Lindsay Lohan is not.
How do we filter the signal from the noise and assess the worth of new NFT projects?
As the value of art is so subjective, it is much harder to predict how these digital assets will be received. Hashmasks was an instant success, yet Cryptopunks were not received with anywhere near the same amount of hype when they were released in June 2017. The market conditions were similar, but perhaps people weren’t yet ready to understand the importance, or the utility, of digital assets.
In the current market, Cryptopunks such as Punk 4156 shown above sell for up to 650 ETH (($1,245,633.99 USD), and Hashmasks have quickly established a solid price floor, with the 90 day average sale price at a respectable 2.3203 ETH, ($6359 at publish) and the NFTX Mask index price developing a strong technical support line at ~$3000 USD.
The launch of Hashmasks introduced new concepts to the industry. Their Name Changing Token, NCT has a market cap of over $4.5 million, yet around the time of their launch on Feb 4th, research showed that 30% of newly minted NCT was owned by addresses that didn’t even own a Hashmask. The ease of trading and their close proximity to financial focus crypto assets means NFT art seems to attract even more speculators than the traditional art industry.
NFTs bridge the gap between the on and off-chain worlds. With the arrival of projects such as Tinlake, it’s not just gamers and creators who will benefit, but diversified financial investors, as decentralised asset financing will allow them to use their rarest Pepe to help finance the construction of family homes.
Actively managed NFT hedge funds such as Blackpool Finance (part of the rekt news family) are able to not only hold the NFTs but also maximise their returns by using them in-game with dedicated managers: from farming SLPs in Axie Infinity to participating in SO5 fantasy leagues on Sorare.
When you can earn yield by lending your character skins or use your legendary weapons as collateral to purchase different game assets, then the scope for interoperability and monetisation of gaming will explode.
However, not all NFT use cases will be so wholesome...
That won’t take long to change.
The nefarious use cases of NFTs are quickly becoming apparent. Accusations of money laundering, wash trading, and even terrorist financing have been pointed at all of DeFi and at NFTs in particular.
We tracked down a real life terrie and asked him how he laundered his money.
What we found was shocking.
“NFT sales are useful to transfer wealth in plain sight, here’s how we do it”
Step 1: 0x0000 has crypto assets that they cannot bring back in the traditional system for whatever reason, e.g. an address with tainted ETH acquired in a hack.
Step 2: 0x1111 purchases premium NFTs on a different address and then tries to resell them on an NFT marketplace at a higher price.
Step 3: 0x0000 (with dirty funds) bids for NFTs sold by 0x1111 and wins the auction.
Outcome: Dirty ETH were cleaned, as 0x1111 cannot be responsible for where the ETH is coming from in a decentralised, permissionless marketplace. 0x1111 has realised a profit, taxable with capital gains.
Bonus: 0x0000 would probably bid on multiple NFTs which don’t all belong to him to reduce chances of getting caught, so there will be real volume as well (which is good for NFTs).
Bonus 2: If there are significant funds to launder, multiple dirty addresses are used to bid against themselves to fake real interest in the auction. Who knows … you could end up with faking a market and actually selling your NFT to a legit person at an absurd price.
Note: of course this also happens with traditional art!
So, as you can see, NFTs don’t just benefit the moral investor, they’re also a great tool for the tax evader, which could go some way towards explaining some of the sky high valuations we see for these pixelated pieces.
To further our investigation we wanted to talk to some of the more well known faces in the industry, so we tracked down two of the most notorious characters on crypto Twitter…
Let's get straight into it - right now the NFT industry is exploding, some projects look set to stay and others definitely don't.
What's the best and the worst of the NFT space?
In my opinion the best is a lot of the actually good digital art that is being sold. It seems there is a platform for digital artists to be rewarded for their work, and we're seeing traditional artists enter crypto.
I'm a big fuckrender fan and like spending a lot of time looking at cool digital stuff.
I also think a lot of the older collectible projects are pretty cool — the obvious eg. Punks. But also Axie and Urbit etc.
The worst is the rent-seeking Hashmask copycats that are basically alternatives to ICOs. People are buying the "first tier" sale just to flip them. All that shit is going to zero IMO.
These market conditions plus the hype around NFTs in particular means we're seeing a ton of low quality projects emerging.
How do you assess the value of early stage NFT projects?
I am a bit of an NFT noob honestly, so my due diligence process has a non-trivial reliance on asking Cryptopathic if this seems good. That dude has like millions of dollars of CSGO skins and Pokemon cards so he's the collectibles authority in my life.
Outside of that: Do I like the art? Do I like the creator? Is there a big audience for this kinda thing, even if I don't personally like it (eg NBA Topshot)?
If it's more of a "project" like Punks/Hashmasks, then how do the ponzi economics stack up?
Yeah that's a lot of skins... We'll make sure to speak to Cryptopathic.
How seriously do you take NFTs as an investment? What percentage of your portfolio do they represent and do you see yourself increasing or decreasing that number in the short term?
For me it is definitely more "fringe". It's a tiny percent of my portfolio (but more than physical art/collectibles!) and it will probably increase.
I like to have exposure to NFT as an asset class (eg. NFTX, Muse) rather than picking NFTs from a money/investment side.
But buying/selling NFTs has been way more fun than Uniswap trading. So it's a hobby rather than a job.
What do you think the future holds for NFTs? Any far out predictions?
Huge divide between epic shit being like finding real diamonds and the trash all going to zero.
Probably a lot more NFT's linked to real world items too — eg. own a physical painting digitally with an open market for it, NFT redeemable.
Oh also lots more real-artists joining. Banksy NFTs soon.
Nice talking to you Cobain. Oh, and just one more thing... What's the secret to a great shitpost?
All good jokes contain true shit.
Any final message for our readers before we track down Cryptopathic?
You are not going to make it.
Hey Cryptopathic, our friend Cobain over here says you're big on NFTs, is that so?
Hey, yeah I've been buying a lot lately :)
He says he comes to you with questions on NFTs.. What’s he been asking you about recently?
I've filled him in on what exchanges and communities are big for NFTs (Niftygateway, Opensea) and just general info on what new projects pop up.
I told him about Hashmasks and it seemed to spread like wildfire after he talked about it on Twitter.
How important do you think that promotion was to the success of Hashmasks?
I think the sale would have gone on for at least a few more days - the awareness of Hashmasks only spread by word of mouth and the rate they were selling really took off after he talked about it.
A lot of people look to him for trading advice so when they saw he was getting in on it, it was a good opportunity to make money.
OK, enough about him!
You're one of the most respected voices in the NFT space right now.
With so much hype, plus the added subjectivity when valuing art-based products, how do you go about assessing the value of early stage NFT projects?
So the branding and community around something is the most important thing, that or the reputation of the artist, but in early stage projects this may not exist. I heard about masks, for example, from a friend who has been deep into NFTs for a while and had made some good investments, so that gave me some confidence that it would do well. But beyond that, Hashmasks had a very complex system of rarities and a sense of mystery to the whole project, something that hadn't really been done with collectible art NFTs. Not knowing what mask you would get and having all these secrets to be discovered made it really exciting, and also meant as a trader that you could make money by doing research and gaining an information advantage over other people in order to snipe sales of rare masks that may not be so obvious at first glance.
I think even if there isn't some grand puzzle behind Hashmasks then it's still a winner because the community behind it is huge and it has inspired a lot of people to be interested in NFTs or make their own. That's a "story" behind an artwork or collectible, and that's what's really valuable!
There's going to be a lot of similar projects that pop up, I imagine, but from here on success of new projects will probably depend on if they have an existing franchise behind them. Hashmasks and Cryptopunks have communities that exist around them because they were firsts in some aspects, and it's very easy to copy them, so most copycats will not be able to stick around as the market gets saturated.
NBA Topshot is doing exceptionally well as one of the only projects with an official brand behind them, and as you have probably heard there are a lot of celebrities jumping in too. Niftygateway have seen some incredible returns on big brand NFTs, with beeple's up 50x or more in many cases. I think you should only buy an NFT if you really like the idea of it, because a lot of them will end up worthless or illiquid, but it will certainly be safer to jump on things that have an existing strong brand behind them.
Alright alright alright, so you're bullish on NFTs we can see that. How do you see the adoption of this technology playing out?
NBA Topshot for example is a great gateway as people can get in without having to use crypto (and the high fees that come with it!) and they are building their own ecosystem around it, which is really important. It's going to let people use their moments in a mobile app, so they really become luxury goods that people can show off. Stuff like that is really going to make it click for a lot of people. I have been paying attention to NFTs for years but only recently got in for more money as I wasn't confident communities could value them, but the Cryptopunk rise really set this all in motion. Niftygateway is also amazing - while it's centralized, like Topshot, it allows people to buy using credit cards and also has a service to help famous artists make their own NFTs without having to worry about the technicals. It's going to be the Coinbase of NFTs.
What about the darker side to NFTs?
There have been accusations of money laundering, tax evasion and even terrorist financing. You wouldn't happen to know anything about that would you?
What's so funny? We want to know if you're using your rare pepes to bankroll ISIS.
OK OK, you got me. Money laundering and so on can be done through random altcoins just as well as NFTs, I don't think there is going to be a problem here any more than there is with traditional art.
We'll see you around Cryptopathic - any last message for our readers?
Despite all the froth and regardless of where the market takes us, the potential for NFTs is huge. They serve as the perfect medium for tokens which can be art, collectibles, or tools with a defined function.
Their arrival and inevitable mass adoption will open up unprecedented levels of gamification across multiple industries, benefitting all parties, including the nefarious ones, and considering this isn’t even their final form, the future looks bright for the non-fungible token.
It’s down to you to find the best way to profit from this emerging asset class, but even if you don’t invest, it will surely be entertaining to watch.
Will the on-chain art industry be different from the traditional, or will we end up forking their corruption as well?
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