Why buy NFTs? What are my opportunities in the NFT art collections market?

By now it should be clear that NFT art is big news. It should also be pretty obvious that this is beyond a passing fad. Simply put, NFT art is here to stay. Nevertheless, for a lot of people big questions still prevail, with many asking ‘why buy NFTs?’ in the first place, and ‘what are my opportunities in the NFT art collections market?’

To begin with, let’s look at the basics — why buy NFTs at all? In order to address this, we first need to consider what NFTs are.

Non-fungible tokens are unique digital assets that cannot be copied or altered. They use blockchain transactions to lock in certain things the NFT owner gets to keep, along with a smart contract. These things could be a piece of animated art, access to exclusive real-world events and experiences, a previously unreleased piece of music, or just about anything else you might think of.

Why buy NFTs?

The contents of the NFT itself are less important than how the tokens work. By using smart contracts, they guarantee a predetermined agreement will always be honoured. So, for example, if we wanted to mint a token containing original digital artwork, this might mean 80% of the sales revenue goes to the artist, and 20% is donated to a charity.

That’s easy enough to set in place without the use of a smart contract, but it’s much harder — bordering on impossible — to ensure every time the work is resold this continues to happen. NFTs offer fixed terms that guarantee funds are distributed among all parties, for the lifetime of the token itself.

It’s a point that Jay-Z recently made when discussing Tidal’s NFT plans. He was talking about music, but it applies to anything with royalties. When you buy an NFT, or mint your own, you guarantee a share of the royalties will be yours, forever. Sites like Rarible even allow you to easily set your own royalties.

 

A new form of signature

You can also rest assured nobody else owns the NFT, or its content, because by nature they are entirely unique. A non-fungible token is a bit like a digital signature, and we all know the significance of a John Hancock on physical works of art. And, even if the contents themselves are not one-off, the token is. So you can trace exactly where it came from and when, effectively removing the risk of fakes.

From the perspective of some in the traditional art world, the idea of buying digital artwork that can’t be framed and hung on the wall might seem strange. As such, the thought of being sold a fraudulent digital artwork sounds even weirder. But this discounts how much value has been created by NFT art collections.

What are my opportunities in the NFT art collections market?

The easiest way to explain this is by looking at some of the most successful NFT art collections and the amount these have sold for. ‘CryptoPunks’ is a good place to start as these were the first art tokens to hit the Ethereum blockchain.

10,000 randomly generated ‘punks’ were created with different traits. Some of those traits are commonly found across the series. Others are less widespread, while a handful are extremely rare. Naturally, the rarer the punk the higher value the token is likely to sell for. Most have a floor price set at around 5 ETH, which is roughly US$11,000 at the time of writing.

According to DappRadar’s NFT Sales Chart, ‘CryptoPunks #8805’ brought in $334,320 in the week beginning 21st June 2021. This tells you everything there is to know about the potential value of some tokens in this collection. Zombie, Ape, and Alien Punks are of particularly high value, because of their low numbers — respectively only 88, 24, and 9 will ever exist.

Not everyone has $300,000 spare to buy a digital collectible. But while ‘CryptoPunks’ may outprice some, we can learn a lot from their history. The collection first landed in 2017 and, crucially, all tokens were originally given away for free.

Yep, that’s right, they didn’t cost a thing. Now consider the price they sell for today. How’s that for a profit? The point is, for most people the real opportunities in the NFT art collections market are the same as those in the real world art market. If you can spot something that will one day be worth a lot, at a time when that value has yet to be realised, then you’re on to a winner.

Other Examples of Top NFT Art Collections

The list of NFT art collections, and NFT collections in general, continues to grow by the day. DCL Blogger has a great list of the most successful in terms of generating high value over the past few years. These include Decentraland, a massive virtual reality metaverse in which you can own land. In its first year, 2017, more than $20million US was spent on tokens linked to plots within this space. In June 2021, a single plot went for $1million.

‘CryptoKitties’ is another success story that began in 2017. In some ways, the hype here is more understandable than ‘CryptoPunks’ due to gamification. Again, it’s really about ownership, in this case cute fluffy cats in digital art form, each with particular traits, some common and others more difficult to find.

‘CryptoKitties’ differs from the punks in that you can ‘breed’ tokens in the hope certain traits are passed down to the ‘offspring’. Today, ‘Cryptokitties’ are being sold for anywhere between 30 and 200 ETH. That’s around $434,500 US at the higher value end, based on current exchange rates.

Of course, all these are already asking for a lot in terms of investment if you want to get involved now. As such, we’d recommend keeping an eye on these collections, which are much younger:

Wicked Craniums 

We reported on the ‘Wicked Craniums’ NFT drop last month. Again it’s a series of image-based characters, this time themed on the undead. The entire collection sold out quickly, which isn’t surprising considering the floor price of 0.06 ETH ($117) and what we know about how this type of NFT can exponentially increase in value very quickly.

Bored Ape Yacht Club

Affectionately known as BAYC, Bored Ape Yacht Club is on a similar tip to ‘CryptoPunks’ and ‘CryptoKitties’. Another series of generative artworks based on characters, around which identities are built with different traits, in this case, 10,000 ape avatars.

In addition to the avatar token, buyers get access to The Bathroom (pictured at the top of this article), where community members write messages or add pixels every 15minutes to a communal work of art that’s constantly evolving. Ape owners are also given full intellectual property rights of their NFT, so they can turn their token into far more than the original asset. So far this has included comic books, beers, and t-shirts.

Aspects like these are what’s called ‘utility’  — there is a purpose to owning the items in the series beyond mere ownership alone. For BAYC, that refers to contributing to a shared canvas, or developing a brand from your ape through original merchandise. Clearly, this resonates given the staggering growth in value, with each Bored Ape originally listed for 0.08 ETH (around $160) and some — for example #8023 — selling for 49.99 ETH (around $100,000) on secondary markets.