The Problem with NFTs: The Mainstream Picture and an Image Problem
A few months ago, I listened to Patrick Boyle’s podcast that hosted Zeke Faux, the author of Number Go Up. In this podcast, they discussed the prospect of Zeke’s adventures with crypto. The general tone of the podcast is negative against cryptocurrency and Zeke discusses his experiences as a TradFi investor dabbling into the DeFi space for the first time. He bought a Bored Ape on Ethereum and called it Dr. Scum (not the bored ape pictured above). Zeke and Patrick didn’t seem too impressed with the financial products available in the crypto market generally and came close to ridiculing NFTs as a financial product specifically. This is a fair take from their perspective because their net worth is probably high enough, to a point where they don’t really have to pay much mind to the crypto markets day to day. Patrick Boyle himself is an established critic of cryptocurrencies. I first became aware of his YouTube channel when I lost some money in the FTX scandal. I’m not here to pick a beef with an established financial youtuber. I hide behind a Cow NFT avatar on social media, he wears his opinion on his sleeve. So that is fair enough, I like crypto despite some setbacks, he doesn’t. That’s fair enough and I will leave that there.
Listening to this podcast got me thinking. Why do people pay lots of money for NFTs? I use Hungry Cows NFTs to earn extra yield when liquidity mining on MuesliSwap. These NFTs have utility and so far as I am concerned are worth the purchase. They are not at the $US 20,000 price that Zeke paid for “Dr. Scum” though. I definitely don’t think they are worth the $ETH 14+ that the Bored Ape above is currently listed for.
Naturally, I also understand why millionaires don’t feel the need to play around on DeFi. They have businesses and assets in TradFi that already afford them a comfortable level of living. I get that. They eventually discussed the sense of community that is present in the crypto space generally, suggesting that it is usually blockchain or protocol related tribalism and that this is a phenomenon that is not present with TradFi products. This is a somewhat fair take, but a sense of community might bring value to our investments, DeFi is in its infancy and this is mostly a matter of perspective. That’s fine though, there are always naysayers when something new pops up. C’est la vie.
They also reference the failure of recent central exchanges such as Celsius and FTX and lump all of DeFi into the same bracket without disclosing the difference between CExs and DExs which was a bit misleading to the general public that likely serves as Patrick’s primary listening base. They gave Sam Bankman-Fried the character assassination that he deserves though and that is to their credit in this case. Generally speaking, I understand the skepticism from those that are outside of the space. I particularly understand it when it comes to NFTs and the prices that they command. Unless they are affordable to the everyman and have utility. I just wish that when a centralized exchange went down, TradFi dwellers would not demonize the entire cryptocurrency markets across all asset classes. Judge the Bitcoiner, not BTC as a financial asset. Looking at the chart below, BTC as an asset seems to be pretty successful at a glance, at least for those that invested early enough.
The mistake that I think those outside of the space often make is that NFTs represent future potential more than they represent real world value right now, utility NFTs excepted. If the blockchain contains a token representing the deeds to their houses in the form of an NFT in the future, I’m sure they will see the distinction between a legal representation of house ownership and a mutant ape JPeg. I get both sides of this, NFTs are a developing asset class and when compared to most TradFi financial products, they are in an embryonic phase of their development. That said, if whales in the crypto space believe that an image on the blockchain represents value to them, then they are free to believe what they wish. They are also free to exchange that value with others that also believe that it represents value. Even if it is an ape of whatever description.
I am a philistine when it comes to art appreciation and I do not really understand the purpose or value behind most art that I have seen on display. When I visited the National Gallery in London in 2022, I had fun but the art there was totally wasted on me. I get it, it’s rare and people buy into the rarity of the art that is considered to be of a high quality. In the image above, there is a painting that Britannica cites as a Jackson Pollock. He died in 1944 and his name and reputation carry value in art collecting circles. It looks like a mess that could be made by a child with a paintbrush and some time to kill… at least to my eyes… but what do I know? … Admittedly, this may reflect more on me than it does on those into art as an investment vehicle. Whatever, the value of art is in the eye of the beholder and the community that believes that these pieces of work have value. My vote is to give my niece a paintbrush and some paint and let her go nuts after a bottle of coke and some M&Ms…
Oftentimes, rarity and scarcity are the factors that constitute value in the most prestigious NFT collections in their current form on NFT market places like Open Sea or Magic Eden. The raw principle of this feels extremely similar to that of paying ludicrous amounts of capital on old paintings. The difference is that generative art is new, NFTs are new and blockchain technology is also new. New things take time to receive widescale adoption and so at present time, NFTs remain a niche. Particularly Bored Apes and all of their derivatives. I feel like every blockchain has its own version of this these days and as a result, these aren’t particularly unique as artistic expression. But that is my take as a self-confessed philistine.
My final take is this, I value Patrick and Zeke’s contributions to the world of TradFi. I think that they offer valuable insights and that they deserve the respect that comes with their success in that space. I also understand that they have plenty of examples of crypto natives to point the finger at and scapegoat. This is unfortunate. However, judging an entire market sector and its future potential by the actions of the few bad actors on its fringes, is an unfair judgement in my opinion. NFTs will likely come to have other use cases in the near future. RealT is one such example of real estate being tokenized and generating income similar to that of REIT. Property ownership is being fractionalized and pays a yield of approximately 8–9% on most properties. The tokens are not whole properties and each NFT represents about $USD 50 of value in fiat terms. This kind of business is new. DeFi is new and even Bitcoin is still in its teenage years. As a market sector, we have a long way to go and this is something that TradFi influencers are wise to point out. But not to the point of ridicule.
Disclaimer: this is NOT financial advice. I’m a cow and I like to eat cereal. Any knowledge gained from this post is merely incidental and you are responsible for your own financial decisions. Make investments wisely and make sure to do your own research.
