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“Don’t waste your time being envious of what you don’t have or who you want to be. Instead, focus on what you do have and who you can become.”
- April Mae Monterrosa |
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In today's issue: The NFT market has crashed. One year ago, we predicted this would happen. Here's a new prediction... This is the perfect time to invest in NFTs at bargain-basement prices. We believe in NFT technology, and we believe that some NFTs will have enduring value. Maybe 1%...
But how do long-term investors find the 1% that will grow over time? Read on. |
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| | | Must Read Today's most important story for crypto investors. |
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Fidelity Adds Ethereum Index Fund (CoinDesk): Here's more good news for long-term ETH investors. Fidelity, the financial services giant, is now allowing accredited investors to put money in Ethereum through a new index fund.
Among major financial institutions, Fidelity was early to the crypto scene, having launched their digital asset business back in 2018. Much of this can be attributed to the leadership of Abby Johnson, a true blockchain believer.
Johnson saw the potential of bitcoin early on. She ran a bitcoin mining rig in her office back in the day and has gradually reshaped fusty old Fidelity into a forward-thinking financial firm (read an inspiring profile here).
Investor takeaway: The Fidelity Ethereum Index has raised just $5 million so far, but the real potential is for Fidelity's enormous customer base to now have easy access to investing in Ethereum. That bodes well for the future of ETH. |
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| | | How to Value NFTs by John Hargrave |
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The NFT market has crashed. I predicted this a year ago, when everyone was going ape over Bored Apes (I'll always try to tell you the truth, not what’s popular). Today, with the NFT market down 60% over the last quarter and people liquidating their collections, I will once again say the unpopular thing: this is a great time for NFT bargain-shopping. While I saw the crash coming, I also predicted that NFT technology is incredibly valuable. I'm especially excited about the possibility of NFTs that will earn revenue over the long term (through royalties, rents, and so on). If you're new to NFTs (non-fungible tokens), they're like crypto collectibles. I have a few mental models that I use to think about NFT investors:
The guy who collects rare baseball cards and is constantly hustling them at flea markets. The couple who buys fixer-upper homes, restores them, then flips them for a profit. The guy who collects valuable domain names, then sits on them until he finds a buyer. The bookstore owner who dabbles in rare book sales on the side. People who collect and resell classic cars, vintage wines, or fine art. In theory, NFTs are like these one-of-a-kind assets. In practice, most NFTs are created by computer algorithms or amateur Photoshop users. That’s why I predicted the crash; most NFTs are simply bad art. That said, most art is bad, which is what makes great art so highly prized. Similarly, some NFTs really are valuable... Maybe 1%. So, how do smart investors find the valuable 1%? Our latest project is an NFT Investor Scorecard. Similar to our famous Blockchain Investor Scorecard, this will guide NFT investors through a few simple questions they can use to value an NFT on a 1-to-5 scale. We’ve looked through several years of NFT data and price history to come up with the following list of questions. We’d love your feedback on the ideas below. |
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| Rarity The primary value of any collectible stems from its rarity; a misprinted stamp, unique artwork, or the first of its kind. In the world of NFTs, we define two types of rarity: Artificial rarity, which is algorithmically driven. With CryptoKitties, for example, a computer algorithm randomly assigns traits, with some traits generated less frequently (like purple eye color). True rarity, which gives an NFT its one-of-a-kind status. Consider a Bored Ape owned by Eminem, for instance. That type of rarity can’t be manufactured. To determine rarity, NFT collectors can ask: How unique is this NFT? Is this NFT the first of its kind, the first in a series, or 1 of 1 produced? Does it have a unique story or a one-of-a-kind history? (Beware of computer-generated “rare traits.”) What is the creator’s reputation? Are they a household name? Do they have significant online influence or a strong following? Do they have a multi-year track record of success, or are they relatively unknown? How big is the supply? If part of a series, is there a trusted, fixed limit? Or can more in the series be created indefinitely? How much human effort was involved? Is it a one-of-a-kind painting, film, or song that took hundreds of hours and talent to produce? Or does it involve slight variations on a Photoshop template? What is the aesthetic value? This is perhaps the hardest question to answer. Does something about it speak to your soul? Will you still be happy owning this if the price goes to zero? |
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Before you buy digital art, spend some time in real art galleries first.
Utility Let’s call them NFWBs: Non-Fungibles with Benefits. Look for NFTs that can generate revenue. Whether through licensing and royalties (as with WOW) or building and developing (as with LAND), these NFTs can become mini businesses with their own income streams. Look for NFTs with IRL benefits. If you can use them in the real world, that may bring you more joy than a JPG that sits on a blockchain. To determine utility, investors can ask: Does the NFT come with additional benefits? Does it get you into high-value events or pave the way for a better in-game experience? Does it give you access to exclusive properties, clubs, or communities? Does the NFT give you IP rights? Can you legally license it for T-shirts or a Netflix series? Are all rights fully transferred to you? (See Galaxy Digital’s NFT Licenses: Fact and Fictions.) Does the NFT allow you to build on it? Like real estate, can you improve the property to increase its value? Or is it fixed like a JPG? Does it have a favorable location? The three most important factors for real estate: location, location, location. Is it in a favorable ecosystem, in a favorable neighborhood, or near other favorable properties? (This would involve metaverse or real estate NFTs only.) |
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Even in the Metaverse, location matters. Future Value Any collectible investment needs to consider future resale. Is it a passing fad like Beanie Babies, or does it have the endurance of fine wines? This is especially tricky with NFTs, since the market is so new. However, smart NFT investors can still ask questions like:
Does it have a strong history of ownership? Does it have a history of reputable owners (with each paying progressively higher prices) over the course of several years? Does the NFT have good liquidity? Will it be easy to resell on OpenSea or SuperRare? Is it part of a hot-selling collection, creator, or community? How many active users does it have? Is it built on a leading blockchain platform? Is it built on Ethereum (the industry standard) or some other chain? Is it stored 100% on-chain, or does it sit on a server somewhere? What is the scope of the NFT project? Is it part of a larger creative vision like Decentraland? Is there a credible, long-term roadmap behind it? What is the long-term potential of the market? NFTs come in many different flavors, from art to real estate to gaming. Look at analyst forecasts for your market and examples of top selling NFTs to date. We Welcome Your Feedback This is a first pass at the questions we think NFT investors should be asking before parting with their hard-earned money. We’d love to hear how you would improve these questions. Just send an email in response and we’ll report next week with your feedback.
Let's find the 1% together! With grateful appreciation to Zebpay, as well as William M. Peaster’s terrific series on valuing NFTs, Part 1 and Part 2. |
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Health, wealth, and happiness,
John Hargrave Publisher Bitcoin Market Journal |
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| Collectible plates are just NFTs for Boomers. (Courtesy rissottobianco) |
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Bitcoin Market Journal is a daily newsletter that makes you a better crypto investor. It is created by John Hargrave, Nick Marinoff, Steve Walters, Anatol Antonovici, Preetam Kaushik, and Daniel Joel.
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