NFTs are hot right now. Billions of dollars are flowing into digital art.
At first glance it looks suspicious. Very bubbly. Dot-com era levels of valuation.
It’s true. 99% of NFTs will have no value.
But let’s overlook today for tomorrow. Just for a moment.
NFTs are non-fungible tokens. Meaning they are unique and cannot be replicated. But Vijar, anything can be copied on the internet... Yes and no. Sure, on your computer, you can right-click copy and paste. But that doesn’t mean you own the original.
What’s the difference between the copy and original? Try selling your ‘copy’ online and find out.
But let’s break down the real use cases of NFTs: digital ownership.
One million users are coming online
Coinbase announced a new NFT marketplace this week.
Today Coinbase has 68 million users. 1.1 million people are on the NFT waitlist. This isn’t even 2% of the user base. This one blog post brought down the Coinbase website. User demand is very high.
For reference, there are only 265,927 active wallets buying NFTs in the crypto ecosystem today.
The NFT frenzy is not slowing down
Check out the graph below. NFT sales have grown 10x in three months! In part due to the Ethereum upgrade, another because of the great consumer demand.
But don't let the large numbers fool you. A majority (75%) of NFT sales take place below $1,000. Not a surprise given the number of new crypto wallets entering the space. We can't expect everyone to buy five figure NFTs overnight.
The real value behind NFTs: Ownership
Think about social contracts. The deed to your house, an insurance policy or any physical asset. The verification process. How you validate authentication and ownership. Each step costs time and money.
Now focus on the rise of social media and the internet. Try answering these questions:
- How much are internet companies worth?
- Why is software worth so much to investors?
- How do you value intellectual property?
These are simple yet difficult questions in the new digital world. But here’s what I know: Intangible assets are real and do not exist on the balance sheet.
How to value digital assets
There is no simple formula here. Intrinsic value is perceived by the user.
Don’t believe me? Have you seen a blue verified checkmark on Instagram? How much do you think one million followers are worth online? Hard to put a dollar amount on someone’s fan base. But it’s real.
The future of ownership is online. If I can’t verify ownership on-chain then it doesn’t exist. No more intermediaries or centralized authorities needed. And NFTs are the first step to providing digital ownership. Digital art is cool today but wait until utility tokens (i.e. tickets, contracts, etc.) become useful tomorrow.
What to watch and do
There are a few major players you need to consider. Today we have 400k players on Opensea, the largest NFT marketplace. With Coinbase onboarding +1 million users, I expect transaction volume will peak in Q4 2021.
But the question is what kind of transactions?
Well Candy Digital is one example. Fanatics, a sports apparel brand owned by Michael Rubin, launched this NFT partnership with the MLB. The company is now valued at $18 billion and dominates sports merchandise. It’s also worth mentioning that Fanatics hired Glenn Schiffman in August 2021, former CFO of IAC, a major public media holding company.
**Hiring a public company CFO is a strong sign that a private company may go public. I’d bet Fanatics will go public in early 2022**
With its new $350m capital raise and executive hires, Fanatics will make a significant impact in sports, gaming and ticketing. Each linked with an NFT product launch.
Keep Fanatics and Coinbase on your watch list. A lot more companies will follow their lead.