Why collectibles for crypto art and sports are suddenly so popular

The cryptocurrency world is buzzing with talk of digital collectibles, unique virtual tokens that can represent everything from art to sports memorabilia.

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

CryptoPunks isn’t a new phenomenon – it was released by developers Larva Labs in 2017. But it has gained massive popularity recently, generating $ 45.2 million in sales volume in the past seven days alone, according to the website NonFungible, and inspiring a wider ‘crypto art’ “movement.

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

NBA Top Shot, a platform created by Dapper Labs in conjunction with the basketball league, has hit $ 147.8 million in revenue over the past seven days, according to NFT data tracker CryptoSlam. This service allows users to buy and sell short clips featuring match highlights from top basketball players.

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

NFTs are non-replaceable tokens – meaning you can’t exchange one NFT for another – that run on a blockchain network, a digital ledger that records all transactions of cryptocurrencies such as bitcoin.

However, the difference with bitcoin and other tokens is that each NFT is unique and cannot be replicated. Each independently builds value. Crypto investors say NFTs get their value from how scarce they are. They are stored in digital wallets as collectibles. In addition to art and sports, people have also found uses for NFTs in virtual real estate and gaming.

Nadya Ivanova, chief operating officer of BNP Paribas-affiliated research firm L’Atelier, says collectible digital assets could be viewed as a better version of an MP3 file. Musicians are struggling to take advantage of their work in the digital age, and Ivanova says some are turning to NFTs to prove ownership of their work and find an additional source of income.

“It allows content creators to actually own the property rights to what they create, allowing them to take advantage of it in several ways that they cannot do with physical art,” she told CNBC, adding that crypto art is the fastest growing subsection. is. of the digital collectibles market.

Last year, the total value of NFT transactions tripled to $ 250 million, according to a study by NonFungible and L’Atelier. The number of digital wallets she traded nearly doubled to over 222,179, while some traders were able to make over $ 100,000 in profit.

“We see a new generation of traders within the NFT market, people who are native by nature and looking for digital native asset classes outside of established asset markets,” Ivanova said. “These are people who have gained reputation and wealth and who want to invest in purely virtual assets such as NFTs.”

Ivanova says the NFT market has matured. The 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 images for celebrities like Ariana Grande and Justin Bieber.

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

The surge in the prices of these virtual items has sparked fears of a recurrence of speculative cryptomania. It reminds some investors of the first coin offering, or ICO, bubble in 2017, when multiple start-ups issued new digital tokens to raise money. Almost none of the ICO projects exist today, and some have even cheated investors into millions of dollars.

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

“We had a similar moment in 2017,” Billy Rennekamp, ​​grant manager at blockchain research firm Interchain Foundation, told CNBC. “Every gallery considered an NFT. Every blue chip artist considered it. But there was just too much risk when the market fell and it was embarrassing to be involved with NFTs when prices fell.”

“I wouldn’t be surprised if we go through an entire bull market and bear market,” added Rennekamp.

Still, 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 that enables mass consumer adoption. The future is now.”

NBA Top Shot now has more than 100,000 active collectors and has made $ 215 million in sales to date, Tedman said. It is working on a digital collectible game based on the UFC mixed martial arts league and has also attracted the support of Warner Music to develop NFTs for music fans.

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

“What NFTs offer is a formalization of digital ownership, and a way in which that ownership can last over the life of a business, game or platform.”

Hall said Larva Labs does not charge users of its marketplace, although it does pay blockchain processing fees. “We are CryptoPunk owners like everyone else,” he added. “So as the market generally rises, the ones we own are also becoming more valuable.”

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