Note: This is not financial advice, and the views expressed in this blog do not represent the views of my firm Sfermion.
The non-fungible token (NFT) markets have accelerated at a pace faster than even I have predicted, and I am an ultra NFT bull. I even staked my entire future on them in 2019 by launching an investment entity focused solely on the asset class. If you are an NFT-related startup, please DM me on Twitter.
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Why did I decide to stake my future on this tiny emergent asset class? Because the opportunity is absurdly large.
Let’s look at some quick stats and trends
There are 4.66 billion Internet users
The average American spends ~7 hours per day online
Crypto as an asset class is becoming widely adopted
Central Bank monetary inflation has people looking for alternative investments
Combine the above with a global, uncensorable 24/7 financial system and the ability to monetize every single digital good via NFTs, and you have the makings of the world’s largest market. Forget China opening up to the West in 1978 - if you thought that was a large potential market, the market size here is every single internet user. That is 4.66 billion people today, and the number is constantly growing. So how do you sum this all up? Simply put, the Internet-of-Goods is here, and it will radically transform the global economy.
Let’s dive deeper into the NFT markets to show the potential opportunity and just how early we are.
Since June 2017, when the first NFTs on Ethereum launched, there has been over $200m total traded in these markets. That may not be very impressive for a market that is nearly four years old, but it is interesting if you inspect the total traded figure more closely. Back in 2017, 2018, and 2019, the monthly trade volume would rarely get above $1m-$2m, barring some launch of a new project (the CryptoKitties launch bucked this trend for a few months). The total number of NFT users is hard to measure, but was also quite tiny - somewhere in the range of 10k-40k total users. Fast forward to February 2021, and things look radically different. Monthly trade volumes are hitting ~$40m, and the total number of users (again, hard to measure) is estimated at around 100k people.
Think about that: there are roughly just 100,000 total users in the NFT markets right now, and we are already seeing monthly trade volumes hit $40m! A single game like Minecraft has ~131 million users. That means if the NFT user population grew by ~130,000%, then we would be on par with a single game. Imagine the monthly trade volumes then. And this market is so exciting because it is not limited to a single game, like Minecraft. NFTs encompass a wide range of assets, such as:
And so many more
What this tells me is that we are at the very beginnings of this market, and it will grow to an immense size.
Macro Picture For The IoG
Now to address a question I have been getting a lot: Are these markets overinflated? NFT markets may just be one giant bubble, but I do not believe so. I do believe that there might be some locally inflated NFTs, meaning specific assets are vastly overvalued, but I also believe the opposite - that certain NFTs are severely undervalued. The reason I do not think that the NFTs markets are a bubble is threefold:
NFTs represent a new emergent market of assets. These types of assets did not exist before, and whenever an entirely new market is created, there is massive growth.
Many NFTs are subjective in value, meaning there is no method to fundamentally value the assets. How can someone claim that X piece of art is truly worth $1m?
Markets all over the world are inflated. Central banks are printing fiat currencies like there is no tomorrow, which is increasing the value of assets worldwide. NFTs are like assets on steroids because they are new and easily accessible.
With the Fed claiming that they won't raise rates until 2023, the party is on for the foreseeable future. Of course, there could be a crypto bear market, which would definitely affect NFTs, but overall their growth would continue. The reason being NFTs are not a pure money game, unlike many other cryptocurrencies. People buy and trade NFTs for several reasons, like needing the asset for a game, liking the art, or wanting a final NFT to complete a collectible set. The decision is not strictly, “Will this asset accrue more value in the future?”
That being said, we can't deny the fact that NFTs are booming in a crypto bull market. Many NFT market participants are people that have crypto wealth, and NFTs are the new digitally-native status symbols. Instead of splurging on a Rolex, just purchase a Zombie CryptoPunk and change your Twitter profile pic. I often catch myself clicking deeper into any Twitter profile that has a CryptoPunk as their avatar because I assume they know a lot about NFTs.
Whether they be IPs, status symbols, valuable assets, or simply gaming weapons needed to defeat the next boss, the Internet-of-Goods is here to stay and will be the next big market.
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