Big companies borrow from the penny-stock playbook with NFT news
The crypto industrial complex has certainly given the markets one shiny object after another. Is it just a hype game?
All that glisters is not gold—
Often have you heard that told.
Many a man his life hath sold
But my outside to behold.
Gilded tombs do worms enfold.
Had you been as wise as bold,
Young in limbs, in judgment old,
Your answer had not been inscrolled
Fare you well. Your suit is cold—
William Shakespeare, Merchant of Venice, Act II Scene 7
The market for ICO token offerings, Robinhood and the meme stocks it promoted, the Coinbase rollercoaster, SPACs, and NFTs have at least one thing in common: They’ve all been shiny objects for various investors, the media, and the general public, picked up off the pavement and played with.
For a while.
But in each case these trends have come and gone leaving the wallets of most investors much lighter.
It was no different with the craze over non-fungible tokens, or NFTs, which until recently were having a bubble. What is an NFT? Money Magazine has a nice definition for the uninitiated:
A Non-Fungible Token, or NFT, is a digital contract representing ownership of digital media like art, music, videos, memes and even real-world objects like designer sneakers and real estate. Non-fungible basically means unique. Something like a dollar bill is fungible because if you trade a dollar bill for another dollar bill, you end up with the same thing.
Each NFT has a unique code or address that exists on the blockchain, an online digital ledger or database that records transactions. Think of this as a digital certificate of ownership. If you buy the image of a Bored Ape or a video clip from NBA Top Shots, each carries with it a unique code indicating it’s yours. You access your NFT through a private key which links to the blockchain and indicates proof of ownership. If you want to get technical, NFTs are unique because of the computer standard ERC-721.
At the beginning of 2022 mentions of NFTs on public company balance sheets or in their income statements was still nil. A February Financial Times OpEd from McKenna noted the “hot market for NFTs, or non-fungible token art,” and asked, How should companies record NFTs in their accounts?
David Larsen, an alternative asset specialist at Kroll, told me there is still very little secondary market for NFTs. So how will companies put a Bored Ape NFT on the balance sheet?
Media has noted that that the collapse of Bitcoin has, in general, taken related crypto projects and companies with it. CNBC on July 13:
The two words on every crypto investor’s lips right now are undoubtedly “crypto winter.”
Cryptocurrencies have suffered a brutal comedown this year, losing $2 trillion in value since the height of a massive rally in 2021.
Bitcoin, the world’s biggest digital coin, is off 70% from a November all-time high of nearly $69,000.
That’s resulted in many experts warning of a prolonged bear market known as “crypto winter.” The last such event occurred between 2017 and 2018.
But there’s something about the latest crash that makes it different from previous downturns in crypto — the latest cycle has been marked by a series of events that have caused contagion across the industry because of their interconnected nature and business strategies.
In May, Owen Thomas of Protocol put together a very nice chart to go with these words:
The crypto crash has hit nearly every token and knocked even some stablecoins off their peg. But the carnage hasn’t been even. The luna token associated with the Terra blockchain lost almost all its value amid a run on its paired UST stablecoin. Bitcoin, ether and even dogecoin proved hardier than newer coins. The question now is when the market will find its bottom.
In the first major test for the NFT market after the Bitcoin crash, the WSJ wrote at the end of June, “Last year Christie’s sold nearly $150 million worth of NFTs. This year? So far, it’s only sold $4.6 million in NFT art.”
The number of users and total NFT sales continue to bottom out.
Keep reading with a 7-day free trial
Subscribe to The Dig to keep reading this post and get 7 days of free access to the full post archives.