A friend recently asked me my opinion on whether NFTs will be the first bubble to pop when the market tops out and we enter a bear market.
I myself got into crypto in 2020 around the Bitcoin halving, I had previously owned Bitcoin and had knowledge of it since it was invented, but 2020 was when I really developed an interest in Crypto - the entire market and the innovations that have been taking place such as DeFi and NFTs.
So not having “gone through” a bear market myself or witnessed the formation and popping of a bubble, you’ll have to take what I say with a pinch of salt and accept that it is my opinion at this point in my crypto journey.
In my experience, most people don’t get Bitcoin or cryptocurrencies. I think this is because people don’t understand fiat currencies or finance in general. It’s a hugely complicated topic that is intentionally made more complicated so that only the wealthy (and therefore more educated) in our population understand it and benefit from the privileges it offers. This makes people disinterested in cryptocurrencies. I’ve experienced this with my family and friends and when I talk to them about Bitcoin they get this glazed look or immediately state they “they just don’t understand it” and therefore make no effort to understand it. It’s a self-fulling prophecy.
However I’ve witness something different happening with NFTs; people at work have started to talk about NFTs and why they’re selling for so much. I work with people who for the most part, are very conservative and trust in their existing system. They think like most that crypto is used for criminal activities and / or it’s a bubble that will eventually pop and it’s too risky. Many people also think “they missed the boat” with Bitcoin and there’s no point in buying now - I’m pretty sure they were saying the same thing back in 2017 when Bitcoin hit 20k, I’d bite your hand off for Bitcoin at 20k now (just take my money!). I’ve bought most of my Bitcoin above $30k as have most institutions. It’s actually more attractive for “smart money” to buy Bitcoin now than it was in 2017. In a weird way, it makes more sense financially to hold a proven asset at $60k than an unproven asset at $20k.
For the average person, I believe NFTs are simultaneously more confusing and more understandable than traditional cryptos. People are so much more intrigued by how a digital piece of art can sell for $69m, it’s baffling to them that something digital can hold such value. But at the same time, it’s more understandable because at least they can understand that someone out there might pay this much for a piece of art, even though it’s digital. Whereas with Bitcoin, they just can’t understand why anyone wants to own it, it’s not like it has any artistic value, any sentimental value or, in their minds, any use / utility.
The same is true for Baseball Cards, Americans have collected the physical versions of these for years and already accepted a long time ago that things really don’t have to hold any true value but can hold value because they’re a collectible, and crucially, they own it.
This brings me onto Digital Ownership which I believe is at the core of the NFT craze and yet over-looked and misunderstood. For me NFTs are all about Digital Ownership because that’s what the cryptography provides us. A trusted, verifiable and mathematical proof that we own that particular (and sometimes unique) item. For a long time one of the benefits and yet problems of computers is that things can be copy-and-pasted and this is one of the things that cryptography solves for us. The Bitcoin network solves the double spending problem and makes it so that people can’t just copy and paste digital money. NFTs are the same, sure someone could download the image of your NFT and create their own out of it, but it doesn’t have the same cryptographic signature and you can prove it’s not the original.
This is very important to humans, knowing that something is an original. If you owned a piece of fake rare art but believed it to be real, you would treasure and guard that rare piece closely and put huge value in it. But once you are told it is fake, the magic disappears.
So what does Digital Ownership really mean? Well, what does ownership mean? Does it mean that you have the right to do whatever you want with the thing you own? Keep it, guard it, change it, destroy it… sell it?
I believe yes, true ownership means I should be able to do whatever I want with the thing I own. If I owned a genuine piece of rare art I should have the right to burn it if I wish, it’s mine, people wouldn’t be happy and it would be a stupid thing to do, but that’s my right because I own it.
I like to take the example of a Netflix subscription; if I own an annual subscription to Netflix, do I truly own it? I would argue no because let’s say I have 6 months left on my subscription and I don’t want it anymore, I can’t go and sell the remaining 6 months to someone else. However if Netflix sold their subscriptions as NFTs I could go and sell to someone else and Netflix would likely get a commission from the sale. This is bad for Netflix’s current business model but business models will emerge that take advantage of this new paradigm even if Netflix doesn’t and I believe we’ll have another Blockbuster on our hands. This will have far reaching impacts into every industry where you have creators of content, everywhere that is touched by copyright too. Music, Film, Literature, Art, etc.
So I can see both sides of the argument, on the one hand, my colleagues and the average person getting interested and involved in something new like NFTs signals a market top. Retail is here. The bubble bursting is imminent. Furthermore, these people have the weakest hands and at any slight sign of weakness in the market they will sell to protect their already limited savings.
Yet on the other hand, I see NFTs as the counterpart of the true free-market. Bitcoin, Cryptocurrencies and DeFi are one side, the financial side, the settlement layer that enables the free market. But really, and I’m sorry to say it, none of us really want to own Bitcoin, we just want to own it right now so we can buy real things with it later or make enough money to pay our bills so we can buy real things like precious items or experiences like holidays with the family.
In an increasingly digital world, more of these “real things” we are buying are digital items like streaming subscriptions, digital art, digital collectibles, digital worlds like apartments in VR games, digital concert tickets that enable us to attend real life experiences, digital plane, bus, train tickets, digital deeds or contracts for properties. The list goes on. This is the new free-market and NFTs are in a class of their own, the early interest from the average person is a clear sign to me that this is as big as Bitcoin. From this point of view, is it even a bubble or the start of something greater?