My NFT Journey — Recap of my first year of investing in NFTs
Investing in NFTs and going against my own beliefs did cost me $20k
About a year ago I started to dive into the world of NFTs and also buying my first NFTs. In April 2022 I had already written about it and also announced my intention to invest more in NFTs to increase my exposure.
That’s what happened, and I invested roughly $40k into various NFT projects in mid-2022, including Moonbirds, one of the top NFT projects. In this post, I would like to review my experience with investing in NFTs to date. My view of NFTs has changed quite a bit over time, and I have some specific thoughts about the future of NFTs. Ready? Now let’s dive in…
Going against my own beliefs…
Since becoming deeply involved with NFTs, I’ve learned a lot about Web3, the metaverse, and digital ownership. I’m excited and bullish about blockchain technology. I believe the technology has the potential to disrupt many industries over time and revolutionize the way people own and trade digital assets. It will also help more and more IRL assets to become digital.
I’m a member of a private Telegram group with some very smart and successful business owners where we usually discuss a variety of topics. Most of the members are heavily invested in NFTs. This is also how I got deeper into this space as well. The Moonbirds NFT project in particular is over-represented in the group. However, from the beginning I have criticized the insane prices of some of the popular NFT projects and really could not understand why anyone would buy such an NFT for $20-$100k.
My skepticism led to some deep discussions. I made a call in the group that the Moonbirds floor price would reach 10 ETH, when they were trading around 20–25 ETH. I then lowered my price target to under $10k, which the floor price has now reached as well. At some point, however, you start to question your own beliefs and think you can’t see the forest for the trees when other very smart people are bullish on NFTs or a particular project. After the Moonbirds floor price dropped from about 40 ETH to under 10 ETH in a few months, I eventually decided to buy two birds.
I wanted to increase my NFT exposure anyway and bought a very nice space bird for 12.75 ETH, a nude bird for 10.71 ETH and an Oddity for 1.2 ETH. So I invested about 25 ETH (~$35k) in the Moonbirds project. My overall thesis was that Moonbirds is basically a top 5 or possibly even a top 3 PFP (profile picture) project. I thought that a project like this will likely attract liquidity more easily than other less established projects and with Moonbirds Mythics they have an upcoming drop around the corner.
PROOF, the company behind Moonbirds, has several releases planned for 2023, so I expected we’ll see some temporary hype again at some point, especially since the supply of Moonbirds is severely limited due to nesting. Nesting basically means that you stake your NFT to get rewards over time. The result is a very thin floor and a spike in demand could have a significant impact on the floor price. This also means that the number of Moonbirds listed on the marketplaces is misleading, as many people are also trying to sell nested birds over-the-counter (OTC) to not lose their nesting streak. So far, the rewards for nesting birds have just been merchandise like a hat, socks, or fanny pack. Not really something that could be considered ROI, but most people seem to like it anyway.
My bet was that the Moonbirds floor price may pump up to 20 ETH and then I can sell one bird to have the other Moonbird basically for free. But even if that doesn’t work out, I had 2 Moonbirds and 1 Oddity, so I should get 3 Mythics and also some tokens eventually. I assumed Mythics would trade higher than Oddities, especially since they drop max 50 per day. I thought 3 ETH is a reasonable price for Mythics. That means 3 Mythics would also already mostly refinance 1 Moonbird bought around 10 ETH. That’s why I bought into the project, I thought risk/reward was reasonable and the plan was to get my money out when it makes sense.
But the more I thought about it, the more I felt uncomfortable with my decision. For months I criticized the high floor prices for the top NFT projects, and now I invested myself. In the end, it’s pure speculation, and as a holder, it’s unlikely that the investment will pay off unless the hype picks up again. But more on that later. I already felt I had made a mistake, but then the FTX mess happened, and that’s when I decided to reverse my mistake and sell the NFTs. This resulted in an unfortunate loss of about 7 ETH.
However, in the end, selling was the right thing for me to do. I had no conviction and also learned a few things about how PROOF handles the project. I don’t like that they don’t see the floor price and monetary value to holders as a priority, and I don’t like the CC0 licensing change either. Mainly because they changed the license after people had already bought in, but that’s another story in itself and I won’t go into it here.
My little Moonbirds adventure was definitely a costly lesson, but I deserved it. I don’t regret selling the NFTs, because I shouldn’t have bought them in the first place. I’m a little disappointed in myself. I criticized the NFT craze all along and still got sucked into it and lost money. I should have listened to myself, but at some point you wonder if you can’t see the forest for the trees, and from time to time I also can be an idiot and make mistakes. I estimate that when everything is sold, my NFT adventure will have cost me around $20,000. Overall it’s relatively irrelevant since it’s only a tiny percentage of my total investment portfolio, but it’s still a lot of money.
Some other Moonbird holders have tried to convince me to hold on to my birds, but I am no longer convinced and wanted to allocate my capital differently. However, I can understand why some people hold on to the birds, especially since most holders are sitting on significant losses, but “hopium” is not really my investment strategy. I’m too rational for that. One of the most important lessons in investing is to cut out losers and let winners run. I have done quite well with that approach over the years.
I had an investment thesis, and that thesis has been wiped out by lack of conviction and recent developments. There is a pretty good chance that we will see Moonbirds trading significantly lower in the long run. There is no reason why Moonbirds could not be trading at 2–3 ETH or less in a few months. The Mythics drop could even be a drag on the Moonbirds floor price due to the large supply (20k) and lower price entry point for new buyers entering the space. Mythics also have DAO voting rights and may be better looking as well.
PROOF has also announced that they will launch a token at some point. It remains to be seen if and when there will be a token and how it will be structured. Because of the regulatory environment, I think the token could become something very different than what people have come to expect from other projects based on previous tokens. In my opinion, any significant price increase would be an exit opportunity as I doubt it will be sustainable.
In terms of tokenomics, I think it’s possible to create a sustainable ecosystem, but it’s really difficult. It’s a balancing act between inflation and deflation, and most projects just don’t have the economic and financial background to deal with the market dynamics. Even central banks can’t get it right anymore. Doing tokenomics is basically playing central bank. What central banks do with interest rates, token-issuing projects have to do with burning mechanisms, etc. It’s really difficult, and so far no project has been able to do it right.
If it weren’t for nesting and the “hope” that nesting will bring significant ROI to holders in the future, the Moonbirds floor price would probably be much lower by now already. There is barely liquidity, and the reason is nesting and people that are underwater with their NFTs waiting for “better times” while putting out cult like tweets to attract exit liquidity.
But to be fair, most other NFT projects have also either stagnated or the founders have disappeared altogether. In that regard, PROOF is definitely doing a much better job, but that doesn’t make it any better from an ROI standpoint. I really think they want to build something great, and I think the team has good intentions overall. I just don’t think it will be of much benefit to the holders (in financial terms). I think the team was completely overwhelmed by the success of the project and didn’t expect a pump of this magnitude after the launch. Now they are dealing with all these people who either want to get their money back or make a profit. It’s not an easy situation, and they obviously can’t just print money for holders.
People bought at insane prices and it is what it is. I think for the most part you can rather blame the buyers or the whole NFT ecosystem (which was a huge speculative bubble at that time) than the team at PROOF. But at the end of the day, this doesn’t make the situation much better for the average person who now is holding the bag.
Are NFTs investments or just digital products?
In my opinion, it is a common misconception in the NFT space that when you buy NFTs you have made an “investment”. In the end, most NFTs are just digital products and the holders are not investors, but customers. Lately, people who have invested in some projects have learned that the hard way, too. Of course, there are always exceptions, and art NFTs are a whole other story in themselves. But when you buy NFTs, you hold no equity and no claim on anything except of enjoying your NFT. People “hope” that their NFTs will become popular and that someone else will eventually pay more and that they might get some perks in between. But that’s basically it.
The NFT space has suffered greatly in recent months. Many NFT projects have lost a large part of their “value” and the trading volume on the well-known NFT marketplaces has dropped by more than 90%. People are holding on to their “investments” because they assume that “what comes down must go up again”. Many holders compare NFTs to cryptocurrencies like BTC or ETH, and therefore hold with “diamond hands”. But the truth is that this comparison is flawed in many ways. NFT projects are more like many small startups and these are often built on hot air. Most of them will not survive and will likely go to zero. As a holder, you have no stake in the project. Many people got burned and are unlikely to return. Most NFT projects have significant execution risk and are likely to fail over time.
Many projects are nothing more than a fancy story, hype and hot air. For founders it is (or was) a great way to get funding, but for holders, especially for the expensive projects, a lot has to work out for them to get a decent return. Especially now that most of the hype is gone and the speculative craze has come to an end. Most of the current NFTs will probably be completely irrelevant in a few years. If it even lasts that long.
I think most holders of NFTs should ask themselves, apart from speculative hype, how they would benefit financially in the long run. Considering that holders only own their NFT, not equity or any part of the NFT project itself or anything else to which they are entitled, what do you think justifies paying thousands of dollars for the NFT? Other than the speculation that someday someone might pay more for it? There is no revenue sharing agreement on the project, and for many projects it also remains to be seen if they deliver what was promised. The Web3 space is fast moving and competition will eventually become more intense. The NFT hype is over and the overall market is now facing reality.
However, there will be a new batch of NFTs, and the technology is also evolving. These new NFTs will probably be launched by some big companies and well-known brands. The hype will return for some projects, but I doubt everything will magically recover. There is no reason for it to unless there is justification for it, like real long-term value for holders that justifies the price. Tomorrow’s stars are probably not yesterday’s stars.
Will the speculative NFT hype return?
Due to the historic low interest rate environment we had for years, most asset prices reached historic highs, leading to various asset bubbles. This applies to stocks, bonds, real estate, precious metals, luxury items (e.g. Rolex watches) or alternative investments like cryptocurrencies and NFTs. Some also refer to this as the “everything bubble”. When central banks began to change course, most asset prices began to decline as expected.
This is especially true for high-beta risk assets such as cryptocurrencies and NFTs. Like many growth stocks, these more speculative assets have declined the most in a rising interest rate environment. For NFTs, this means that liquidity and trading volume has dried up completely for many projects, and even the popular “blue chip” NFT projects have declined significantly.
One observation I have also made is that whenever the ETH price pumped temporarily, NFT floor prices basically dropped in line with the move, but when ETH corrected, NFT floor prices often do not recover by the same amount. This appears to be a race to the bottom. Overall, NFT floor prices are constantly drifting lower (with some exceptions).
Since liquidity for NFTs is rather low, I think price discovery for the high-end NFT projects is somewhat similar to the real estate market. Real estate doesn’t usually crash, but slowly declines, and that takes time unless a black swan triggers panic selling. Sellers offer their properties at the prices they want until they realize it’s not working out and buyers are hesitant. Then they begin to gradually lower the price. I have a feeling that we are currently seeing something similar with most of the top NFT projects, although most of the smaller projects, except for the blue chips, are already pretty dead.
I think an important lesson in investing is to look for intrinsic value. On that basis, I’m pretty sure we’ll never see the previous highs of most NFT projects again. The hype is over and rarely comes back when the tide has turned. But I think that in time there will be new projects that will generate hype.
The NFT hype was triggered by speculation and the “Greater Fool Theory”. People bought NFTs for insane sums based on some fancy story and in the hope that someone else (a greater fool) would pay more. That is now over, and what is left is wishful thinking. Now most holders are “long-term investors”, but you can’t really compare holding NFTs to holding other actual investments for the long term, like Microsoft stock.
As I mentioned earlier, most NFTs don’t entitle you to anything except to enjoy your NFT and use it as you see fit (on social media, for example). But that’s basically it. NFT projects can be discontinued today, and there’s nothing you can do about it. It would be different if you had equity, or if the projects had a profit-sharing arrangement with the holders. Then you would at least get some kind of dividend, which would also allow you to calculate some kind of intrinsic value. But in the end, the holders have nothing but a JPEG with ownership on the blockchain and the “hope” that the project will somehow create long-term value for them.
It’s like investing early in a startup, and most startups fail over time. But with startups, you own at least part of the company. With most NFT projects, you only own a promise and maybe a fancy image. I think in the future we will not see these highly overpriced NFTs anymore, but they will become a commodity that is very affordable for most people. Just think of regular digital assets (in Second Life, for example) that trade for a few dollars each. There may be exceptions, of course, like highly exclusive art by famous artists, but the speculative frenzy with PFPs and most other shit is probably over for the foreseeable future. Which is actually a good thing in my opinion, since the hype has also generated a lot of FUD.
It’s also worth noting that influencers played a big role in the creation of the NFT bubble. NFT influencers were basically front running regular people, shilling their bags on social media (often without proper disclosure) and then dumped their holdings when the project pumped. One big problem that makes this even possible is the way new NFT mints are distributed. Instead of giving everyone an equal chance to mint, the bulk of the supply is allocated to a specific group of people or influencers based on allow lists and white lists. This, of course, creates conflicts of interest. Influencers have made a lot of money this way, which they then used to line their pockets with BAYC, CryptoPunks, and other blue chips that stayed pretty stable while other people lost all their money. In my opinion, there should be lockup periods for people on WL / AL. That wouldn’t solve the problem completely, but at least it would be a step in the right direction.
Now what is the outlook for NFT prices? Will NFTs recover and will we see another NFT bull market? I think it really depends. Some NFT projects like BAYC or CryptoPunks are certainly special. The Bored Apes are probably the most well-known NFT collection, known even to people who don’t know about NFTs because of the media coverage and the many celebrities involved in the project.
In my opinion, a BAYC is the only PFP that is a real status symbol. Punks just aren’t that well known outside of the NFT thought bubble. But it’s hard to say if you see a ROI as an owner when you invest $100,000 — 500,000 in a BAYC NFT. For what it’s worth, I think these high-value NFTs will continue to drift lower over time and then eventually level off. But time will tell.
In general, I think that the NFT space will continue to evolve and that there will be new collections that will create hype. In my opinion, it is unlikely that everything will recover. The NFT space is too fragmented for that and every project is different. I see NFT projects like startups: 1% will probably survive and 99% will go bust. But again, it’s important to point out that NFT holders have no stake in the project and are not entitled to anything except what the project is willing to drop, be it socks, a fanny pack, other NFTs, or a few events here and there.
NFTs are here to stay, but the hype is likely over. The way I see it, the ICO hype didn’t kill cryptocurrencies, and the NFT hype won’t kill NFTs. But in my opinion, we won’t see new ATHs for most NFT projects anytime soon, maybe never again. I think NFTs will become a commodity and there will be a massive supply as basically every major brand will launch NFTs and they won’t cost much. There is no shortage of PFPs and with new drops, existing NFT projects are also diluting their own collections. The time of high-priced NFTs is probably over (with a few exceptions), and what remains is huge execution risk for projects that promised utility.
The future of NFTs
If you’ve read this far, you’re probably under the impression that I think NFTs are scams and doomed to fail. But actually, it’s just the opposite. I believe that NFTs will have a great future and that they will play a role in many industries. I just think that the days of most high-priced NFTs costing thousands of dollars are over. I think it’s really important to differentiate.
I think NFTs will become more like commodities (with some exceptions, like art by very famous artists) and they will be very affordable for most people. Let’s take Fortnite as an example: people in a game won’t pay $20,000 for a digital asset, but just a few dollars. This will probably be the standard for NFTs in the gaming industry and in the metaverse, unless there is really something that justifies paying much more (intrinsic value).
The same is true for music or other forms of entertainment. Punks and BAYC had a first-mover advantage and created a lot of hype around NFTs when everything was still new and people assumed that this success could easily be transferred to other projects. People paid insane amounts of money to “speculate” on the success of a project, or basically on the increase in value of the NFT (even though they only owned the NFT, not part of the project or a stake in a company).
In the future, there may still be expensive NFTs for highly exclusive access to events, experiences (e.g. meet and greet with pop stars), NFTs from luxury brands for customer engagement with special perks or the like, just as people paid huge sums for these kinds of things before NFTs even existed. But I think the hype around projects that are just based on hype and speculation is over now. NFT projects need to provide real value that justifies the price people are paying for them. And a JPEG and some hoodies and caps are not enough for that. At least for me, it’s not worth $20k.
I think it’s fair to say that the majority of NFT activity in the future will take place within the projects of the big brands and corporations, because that’s where the users are. In the current NFT thought bubble, it’s sometimes easy to forget that for ordinary people on planet Earth, a Starbucks NFT with some perks and nice brand experiences is more useful in everyday life than, say, a Moonbird. People have lives, they enjoy the products and brands they love.
It’s strange to think that this will be different when NFTs become mainstream. This is also one of the reasons why NFTs in gaming will be HUGE! Imagine TakeTwo launching GTA6 with NFTs, or possibly a whole metaverse around the game. There are many possibilities around the big brands. In the future, there will be a massive supply of NFT projects. That’s one of the reasons I think the insane prices we’re still seeing on some projects right now are unsustainable. The projects that scream the loudest or have the widest reach will be where the users are. This is no different than online marketing we see today. Ultimately, NFTs will be primarily a marketing tool for brand awareness and user engagement. End users will be eager to engage because of the ownership and decentralized nature of NFTs. That makes engagement worthwhile. Interesting times are ahead.
Right now, most holders still see their NFTs solely as an investment and therefore focus on what their NFTs are worth. I think that in the future, NFTs will no longer be anything special. The market will be flooded with them and people will focus on what benefit the NFTs bring to their lives (Art NFTs are different, of course) rather than what they are worth, since there is not much upside for regular NFTs anyway.
Imagine a person who grabs a Starbucks coffee every day and loves the brand. That person would certainly be interested in NFTs that offer regular discounts or access to special events. I have so many ideas about how brands could leverage this new technology. Imagine Starbucks letting people pay with their wallet and recognizing which Starbucks NFTs you own during the checkout process so you automatically get a discount or special perk (like a chocolate cookie), or even having NFTs that change visually with each purchase. I mean, if I can come up with something like this in 5 minutes, I bet big brands have a whole team of experts much smarter than me with better ideas… so much potential!
It’s all about brand interaction, customer loyalty and user engagement. These types of NFTs won’t cost much, they will be traded like commodities and we will likely see a lot of these types of projects from various brands. Think memberships, loyalty programs, event tickets, ownership of IRL assets, etc. You can basically tokenize anything and put it on-chain. NFTs are excellent marketing tools and NFTs for brands are basically the “gamification of marketing”. They increase customer engagement, brand awareness, and brand loyalty while providing benefits and some sort of utility to the community of holders.
Owning NFTs will be no different than previous memberships or loyalty programs. I think there will be an oversupply of NFT projects. Yes, there will probably still be some very exclusive and expensive NFTs and status symbols. It may be CryptoPunks, it may be BAYC, or it may be something else entirely. However, I bet that most people would rather buy a $100 PFP from Apple (including a nice wallpaper for their iPhone or Apple Watch) than pay thousands of dollars for a PFP, money that most people in the world don’t have anyway.
I also think that in the future, once the metaverse is widely adopted, people will prefer to use their individual avatar for their digital identity rather than some generic PFP. Yes, the fancy PFPs were a huge hype and the floor prices went through the roof. But I personally believe that this trend will eventually end. The Web3 space is evolving rapidly, and the metaverse will likely be much more personalized. That will be the time when brands will shine, selling their NFTs as digital items and accessories for your personal avatar. Then your digital LV sneakers on your personalized avatar will be the status symbol and not some generic stuff that doesn’t really show you. Who wants to be a damn bird or monkey forever anyway?
The technology is here to stay, and NFTs will probably have a great future, especially now that the big brands are entering the space. But I think most NFTs in the future will only cost a few dollars. At the end of the day, NFTs are products (at least NFTs that are not considered pure art), not investments. Especially not the ones with a crazy price tag and high execution risk. I think prices for these kind of NFTs will continue to come down over time. But obviously I don’t have a crytal ball, time will tell…
Conclusion: Back to the roots…
I’m very bullish on NFTs (the technology), but for the current batch of NFTs, I don’t think we’ve seen the bottom yet. Some NFT projects are still priced on hype and speculation, and that needs to deflate as it just doesn’t make any sense. I have sold most of my NFT exposure and I’m in the process of selling the rest (with a few exceptions). I think it’s important to let common sense prevail and realize that most NFTs are not investments.
Most NFTs are hyped digital products with limited supply. If there is another speculative hype, holders will probably be able to recover some losses, and otherwise it has been an expensive lesson. However, I doubt that most NFT projects will be able to provide significant financial value and a decent ROI to holders. There is huge execution risk, especially in NFT projects that have promised utility.
For my part, I prefer to focus on my actual investment portfolio and earn income through dividends and selling options. I prefer more traditional investments, but I’ll likely still buy some NFTs, not as an investment vehicle, but as a product or experience to enjoy. I also invest in companies that are building the metaverse or leveraging NFTs, including gaming companies. In addition, I have reinvested the proceeds from my NFT sales in GBTC (Grayscale Bitcoin Trust) and ETHE (Grayscale Ethereum Trust).
My main thesis on GBTC and ETHE is that the massive discount to spot price is an overreaction of the market due to fear and uncertainty over regulation and the FTX mess. I think this will resolve over time. As you probably know, I’m not a BTC and/or ETH maximalist, so I would consider myself neutral. But given that no one knows how this is all going to end, I think it’s not a bad idea to have some crypto exposure in a well-diversified investment portfolio. With this in mind, BTC and ETH are probably the most obvious picks.
The information in this article is intended for educational purposes only and should not be construed as investment or tax recommendation. Trading and investing involves substantial risk of financial loss, in some cases even above the amount invested. Past results are not indicative of future returns.
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