Life & Culture

NFTs, an overblown speculative bubble inflated by pop culture and crypto mania

Comedian Robin Williams once described cocaine as “God’s way of telling you that you make a lot of money.” This role may now be overridden by non-fungible tokens, the blockchain-based means of easily claiming unique ownership of replicated digital assets.

NFT’s latest mania involves impressive amounts of money being paid for “Bored Apes,” 10,000 avatars featuring variants of a boring looking cartoon monkey. Rapper Eminem (real name Marshall Mathers) last month paid around $450,000 in Ethereum cryptocurrency to get Bored Ape 9055 – nicknamed EminApe, because the khaki and gold chain looks like what Eminem wears. He allegedly joins over 160 NFTs in the rapper’s group.

The Bored Ape character appears to be derived from drawings by Jamie Hewlett, the artist who drew Tank Girl and virtual band Gorillaz. According to the creators, “Each variant is created from over 170 potential attributes, including expression, headgear, clothing, and more.” They say every monkey is unique “but some are rarer than others”.

So what does Eminem have now? He has an electronic copy of a photo he uses for him Twitter profile. But then anyone who copies it from the internet does. The only difference is that he has a record on the blockchain showing that he bought it. He will also become a member of the Bored Ape Yacht Club, a members-only online space whose benefits and purposes are not clear beyond being a marketing gimmick.


Eminem’s “Bored Ape” avatar on his Twitter profile.
TwitterCC BY

That’s about it. Intellectual property (as is) remains with the creators. He is not entitled to receive any share of trade proceeds from this character. He can only benefit from his purchase if he finds a “bigger idiot” willing to pay more for the NFT.

Which is unlikely. While the hype given to buying the rapper certainly appears to have boosted demand, the average price paid for Bored Ape NFTs so far in 2022 is around 83 Ethers (currently about $280,000 USD). Perhaps Eminem was willing to pay more for the person who looked more like him; But can anyone else?


sales activity
“Bored Monkey” sales activity from the NFT OpenSea marketplace. Prices are in “ether,” the unit of currency on the Ethereum blockchain platform.
OpenSea, CC BY

NFTs are a highly speculative purchase. The basis of the market is unique proof of ownership, which really only matters for bragging rights and the potential for an NFT sale in the future. Arguably, the NFT obsession combines the more attractive and greedy aspects of the collectibles and blockchain marketplace with celebrity culture.

The rise of a celebrity star

Eminem’s massive payments in particular have given credence to the idea that these NFTs have value. But he’s not the only celebrity who’s helped bring attention to the Bored Ape NFTs.

Others who share the hype include basketball stars Shaquille O’Neal and Stephen Curry, billionaire Mark Cuban, electronic dance music DJ Steve Aoki, YouTuber Logan Paul and late night TV host Jimmy Fallon.

Jimmy Fallon tweeted about buying him the bored monkey.
Jimmy Fallon tweeted about buying him the bored monkey.
TwitterCC BY

These well-advertised buyers effectively act as a form of celebrity endorsement – a tried and true marketing technique. It is a graphic example of the power of media culture in fueling “irrational exuberance” in financial markets.

There has been a shift away from traditional investments and sources of investment advice. With prices separated from any future cash flows, there is less interest in forecasting from technical experts. Instead, people are turning to social media and “doing their own research.”

A survey in mid-2021 (a survey of 1,400 investors aged 18-40) suggested that about a third of Generation Z investors consider TikTok videos to be a source of trustworthy investment advice.

This has opened up the field to celebrity influencers.



Read more: FinTok and “Finfluencers” are on the rise: 3 tips for assessing whether their advice is valuable


Much like Ponzi schemes

Although many of the NFT’s marketing projects are not illegal, they have some similarities to Ponzi schemes, such as those run by Bernie Madoff (who has been defrauding for decades by paying high “profits” from new investors’ deposits).

Cryptocurrency markets work basically the same way. In order for existing investors to profit, new buyers must be attracted to the market. So are NFTs, with something fictitious associated with digital assets.

Some insight into the value of this association compared to the economics of the NFTs themselves may come from the interesting (and also lucrative) experiment conducted by (now not so) “Young British Artist” Damien Hirst – himself a major self-promoter.

Hearst’s well-publicized “coin” project involved selling NFTs for 10,000 similar but unique dot panels. The development is that at the end of the 12-month period, those who purchased the NFT must decide whether they want the digital code or the physical artwork. If they keep the NFT the artwork will be destroyed.


file 20210830 31 1nz5tu6.jpg?ixlib=rb 1.1
The two Damien Hirst coins were sold within an hour of each other. “5083. Yeah, come for a ride, Sold for $45,966. 6307. We’ll Bring Our Kids, Really, Sold for $26,285.”
HENI



READ MORE: Damien Hirst’s Dot “Coin Art” Makes Just As Sense As Bitcoin


There is no core value

There is almost nothing that humans cannot turn into a market. But there are increasingly speculative bubbles in things that have no fundamental value at all. NFTs have joined Bitcoin and meme-based cryptocurrencies such as Dogecoin and Shiba Inu as examples of tokens that have no intrinsic value, which speculators buy only in the hope that the price will continue to rise.

Even Dogecoin, which began as a satire of these excesses, is now valued at $20 billion and is being promoted in Ponzi-like ways.



Read more: What is the underlying value of Bitcoin? That’s a good question


Some studies have suggested that tweets or Facebook posts can now drive stock prices. Elon Musk’s tweets seem to have a huge impact on cryptocurrency prices.

We now seem to be in a beast of all speculative bubbles. Asset creators like NFTs will do just fine. It is not very clear regarding the owners.

And the impact of NFT failures will not be limited to the NFT market only. Speculators, especially if they borrow heavily, may need to liquidate other assets as well. All this is likely to make all financial markets more volatile.

The larger the bubble, the larger the infection when it bursts.

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