Why crypto art and sports collectibles are suddenly so popular

The cryptocurrency world is in turmoil with discussions of digital collectibles, unique virtual tokens that can represent anything from art to sports memorabilia.

People have paid hundreds of thousands of dollars for these NFTs, or non-fungible tokens. An investor, Sheldon Corey from Montreal, Canada, told CNBC he paid $ 20,000 for one of thousands of computer-generated avatars called CryptoPunks.

CryptoPunks is not a new phenomenon – it was released by developers Larva Labs in 2017. But its popularity has exploded in recent times, generating $ 45.2 million in sales volume in the last seven days alone according to the NonFungible website, and inspiring broader crypto art. ” movement.

CryptoKitties, one of the original NFTs, generated $ 433,454 in sales last week, according to NonFungible. Digital chats, which were developed by a start-up called Dapper Labs, were once so popular that they clogged the ether network of digital currency.

NBA Top Shot, a platform created by Dapper Labs in partnership with the Basketball League, has attracted $ 147.8 million in sales over the past seven days, according to NFT data tracker CryptoSlam. The service allows users to buy and sell short clips showing game highlights from top basketball players.

The increased momentum for these tokens comes as bitcoin and other cryptocurrencies have rallied significantly in recent months, and at a time when people are spending more time indoors due to coronavirus restrictions.

NFTs are non-fungible tokens – meaning you can’t swap one NFT for another – that run on a blockchain network, a digital ledger that records all transactions in cryptocurrencies like bitcoin.

The difference with bitcoin and other tokens, however, is that each NFT is unique and cannot be replicated. Each accumulates value independently. Crypto investors say NFTs derive their value from their scarcity. They are stored in digital wallets as collector’s items. Beyond art and sports, people have also found uses for NFTs in virtual real estate and games.

Nadya Ivanova, managing director of BNP Paribas affiliated research firm L’Atelier, says collectible digital assets can be considered a better version of an MP3 file. Musicians have struggled to capitalize on their work in the digital age, and Ivanova says some are looking to NFTs to prove they own their work and find an additional source of income.

“It allows content creators to actually own the property rights to what they create, which allows them to enjoy it in different ways, which they cannot do with physical art,” a- she told CNBC, adding that crypto art is the strongest subsection. of the digital collectibles market.

The total value of NFT transactions tripled to $ 250 million last year, according to a study by NonFungible and L’Atelier. The number of digital wallets trading them almost doubled to over 222,179, while some traders were able to make profits of over $ 100,000.

“We are seeing a new generation of traders in the NFT market; people who are digitally native looking for digital native asset classes outside of established asset markets, ”said Ivanova. “These are people who have accumulated reputation and wealth and want to invest it in purely virtual assets like NFTs.”

Ivanova says the NFT market has matured. Famous auction house Christie’s has auctioned off an NFT-based artwork created by Beeple, a well-known digital artist who has created videos and graphics for celebrities like Ariana Grande and Justin Bieber.

A highlight of the NBA Top Shot video starring LeBron James recently sold for a record breaking $ 208,000. But sales can be volatile – NBA Top Shot and CryptoPunk trades have plummeted in the past 24 hours, according to NFT data tracker CryptoSlam.

The surge in the prices of these virtual items has raised fears of a repeat of the crypto speculative mania. It reminded some investors of the initial coin offering, or ICO, bubble in 2017, when several start-ups issued new digital tokens to raise funds. Almost none of the ICO projects exist today, and some have even defrauded investors for millions of dollars.

There are some parallels to the ICO frenzy – for example, celebrities like Lindsay Lohan and Mark Cuban recently sold NFTs.

“We had a very similar time in 2017,” Billy Rennekamp, ​​grants manager at blockchain research firm Interchain Foundation, told CNBC. “Every gallery was considering an NFT. All the top artists considered it. But there was too much risk when the market fell and it was embarrassing to be involved in NFT when the prices fell.”

“I wouldn’t be surprised if we went through another bull and bear market,” Rennekamp added.

Yet the companies behind these tokens don’t think it’s a fad.

“NFTs are here to stay,” Caty Tedman, head of partnerships at Dapper Labs, who led the NBA Top Shot project, told CNBC. “Flow will be the blockchain to enable adoption by mass consumers. The future is now.”

NBA Top Shot now has more than 100,000 active collectors and has achieved $ 215 million in sales to date, Tedman said. He is working on a digital collectible game based on the UFC Mixed Martial Arts League and has also attracted support from Warner Music to develop NFTs for music fans.

“The billions spent on Fortnite skins show the importance of our lives and our characters online, and how precious they are to people,” Matt Hall, co-founder of Larva Labs, told CNBC.

“What NFTs offer is a formalization of digital ownership, and a means for that ownership to be permanent beyond the life of a business, game or platform.”

Hall said Larva Labs takes no fees from users in its marketplace – although it does pay blockchain processing fees. “We own CryptoPunk like everyone else,” he added. “So as the overall market grows, those we own also gain in value.”

The cheapest “punk” available on CryptoPunks is currently worth $ 36,000, Hall said. Larva is working on a CryptoPunk successor, Hall added, without elaborating on the company’s plans.