We talked to crypto-art investors to figure out what’s driving people to spend millions on NFTs, despite no guarantee their value will increase
In the past month, people have spent over $1 billion on digital assets, according to data from CryptoSlam.
Crypto art has been around for over half a decade, but for many people outside of the crypto world, these digital assets, known as non-fungible tokens or NFTs, have seemingly come out of nowhere.
So, what's driving people to get in on the NFT mania, investing anywhere from hundreds of dollars, to in some cases, millions? Crypto art investors say it's a combination of several factors, including the pandemic, as well as the rise in bitcoin prices.
In the past few months crypto artists have been drawing more attention than ever before to NFT marketplaces with flashy sales.
Last week, digital artist Mike Winkelmann – more commonly known as Beeple – made history when he sold a crypto art piece for nearly $70 million. Other artists like Grimes and 3LAU have also made millions in a matter of hours dropping crypto-art collections.
On Monday, at the mere suggestion of Tesla CEO Elon Musk selling his own digital asset, bids for the piece topped $1 million, before Musk turned down the offer.
Creators and buyers alike have seen significant profit from crypto art. In February, Miami-based art collector Pablo Rodriguez-Fraile first showed just how lucrative the market can be when he resold a piece by Beeple for a nearly 1,000% increase over its original price.
Why are people buying NFTs now?
Rodriguez-Fraile told Insider the surging price of Bitcoin, impact of the pandemic, and distrust in the US dollar created a perfect storm.
Last week, Bitcoin hit a record high, topping $60,000. Since the pandemic started more people have been saving money. 59% of people with an income over $100,000 significantly boosted their savings in 2020. As faith in the US dollar seems to be at an all-time low, NFTs could be another way for people to invest.
"People have long used art to store value," Rodriguez-Fraile told Insider. "Crypto extends easily into digital art. This is just a more modern approach to investing in art and using it like someone would use gold or bitcoin."
He thinks the NFT boom was accelerated by the pandemic, but ultimately inevitable – a product of the tech boom that younger generations would have eventually driven anyway.
For many artists, especially in the music industry, multi-million dollar sales by 3LAU and Grimes have captured the spotlight and created a sort of gold rush, but for buyers the reasoning is less clear.
Will NFTs maintain their value?
Investor Gary Vaynerchuk, the CEO of VaynerMedia, told CoinDesk he believes NFTs are operating under a bubble, but it doesn't mean they won't have staying power.
"A lot of people talked about the internet being a fad," Vaynerchuk said. "In reality, the internet was this game-changing revolution of technology, but a lot of the early projects were just overpriced on the excitement."
Even Winkelmann admits NFTs are likely overinflated.
"If it's not a bubble now, I do believe it probably will be a bubble at some point because there's just so many people rushing into this space," Winkelmann told CoinDesk.
What do you get when you buy an NFT?
When someone buys an NFT they gain the rights to the unique token, but only on the blockchain. If someone buys a image or meme, they can own it on the blockchain, but they have no control over rights to its distribution.
When you buy an NFT in most cases you're not buying content, but rather a token that connects your name with the creator's art on the blockchain.
However, the digital tokens operate on the same deflationary principles as bitcoin. NFTs cannot be duplicated, can be easily authenticated, and are immutable, but there's no surefire way to know whether they will maintain their value over time.
Billionaire Mark Cuban told Insider buying NFTs is about scarcity.
"The buyer knows how many will be made and has blockchain proof of ownership," Cuban told Insider.
Cuban has been a proponent of NFT investing, from buying NBA Top Shot clips to investing in Mintable, a community-controlled digital-asset marketplace.
The CEO of SuperRare, another NFT site, told Insider people are motivated to buy NFTs because it provides a unique connection to the creator that does not exist with any other art form.
Crypto art has also spawned entire communities online. Robert Martin, a senior content strategist at Kapwing, told Insider there's a lot of pressure right now to buy and even create your own NFTs within the crypto community.
NFT buyers are not necessarily fans
Music Industry expert Cherie Hu told Insider an artist's fan base does not dictate their NFT sales. How could it? How many fans would be able to drop thousands if not millions of dollars on a single digital token?
Musician Justin Blau, known by his stage name 3LAU, and André Allen Anjos, known as RAC, have been members of the crypto community for over half a decade. They told Insider a lot of their buyers are already investors in the crypto world. As artists they make a point of buying other creators' NFTs as well.
"The crypto community creates and sells these artworks for each other," Hu told Insider.
While NFT investors hardly account for a large portion of a creator's fanbase, involvement from outside the crypto community is on the rise.
Platforms like NBA Top Shot are spreading awareness and present broader audience appeal. Hu told Insider that she believes the NFT space will continue to grow, but will need to become more accessible in order to generate mainstream appeal.
NFTs still face several barriers to mass adoption. Most NFT marketplaces require buyers to use a crypto wallet. Only about $70 million people – less than 1% of the world's population – have a crypto wallet, according to Blockchain.com.
Creators and buyer also have to deal with gas fees associated with minting and buying a product off the blockchain. These hidden fees can cost hundreds of dollars.
Co-founders of NFT platform Nifty Gateway, Duncan and Griffin Cock Foster have been working to make digital assets more attainable for the general public. They are one of few platforms that allow users to buy NFTs off the site using their credit card.
"We're trying to make a space where anyone can be an art collector," Griffin Cock Foster told Insider.
Rodriguez-Fraile said NFTs represent the future of the art world.
"A few years from now this could just be how people own art," he told Insider.
Read the original article on Business Insider