The Breakdown - A Beeple Artwork Just Sold for $69M: NFT Bubble or Everything Bubble?

Episode Date: March 12, 2021

Everyone paying attention knew that Beeple’s Christie’s auction was likely going to set a new high water mark for NFT sales. Fewer would have guessed that it would lead to the third-highest auction price for a living artist in history.  On this episode, NLW breaks down: How interest in NFT is at an inflection point Why it’s not just digital art but sports collectibles as well How the traditional collectibles markets are also exploding  Why people think growing NFT prices might be a sign of an everything bubble -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com  

Cash and cash equivalents are guaranteed to lose value. Subsequently, everyone gets pushed farther and farther out onto the risk curve. Everyone is looking to move their money into assets to avoid the loss of value inherent in those negative real rates. And it means that things that used to be perceived as risky are actually taking the role of less risky assets or even save havens. In other words, bonds become useless, stocks become bonds, venture capital become stocks, art and NFTs become venture capital. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world.

The breakdown is sponsored by nexo.io and Casper and produced and distributed by CoinDes. What's going on, guys? It is Thursday, March 11th, and that sound you hear is the sound of people's heads absolutely exploding. A few times in previous episodes I've mentioned the Beeple auction going on at Christie's. This is the first time the famous auction house has auctioned off a completely digital good. They had previously included NFT versions of some physical items that were up for auction, but this was the first time it was just an NFT. Well, the final bids are in and the price paid for Beeple's the first 5,000 days was $69,346,000,000,000,000,000, $2,250. First of all, the folks over on Wall Street bets are in utter disbelief that the price wasn't

$69,420,069. Second of all, crypto-Twitter is absolutely friggin losing their minds. This is a crescendo, perhaps the first of many, but definitely the first of the NFT mania sweeping the world. I've given the background before, but in short, NFTs are non-fundable tokens. Non-fundable means that rather than every token being like every other token. In other words, each Bitcoin is like each other Bitcoin. They're mutually interchangeable. Each tether is equivalent to each other tether. These are cryptographically unique tokens. That uniqueness lends them well to the actual owning, quote unquote, of the original quote unquote, of a creative work like a piece of art. And if T's have been a part of the crypto space for years, I mean, remember CryptoKitties? But over the last few months,

and especially the last few weeks, they have had a major breakout. There have been two really important categories within that. The first is actually in the sports collectible slash trading card space. Last year, the team that brought you CryptoKitties launched NBA TopShots in conjunction with the NBA. These are effectively a new type of trading card but featuring efficiently licensed video highlights. Now, I was watching this and things started reasonably, but they have really picked up over the last couple months. Last month, NBA Topshot processed more than $250 million in the same. sales from 100,000 buyers. More than that, it minted a whole new group of whales. A Wall Street

Journal article today was called The Wales of NBA Top Shot made a fortune buying LeBron highlights. They were the early to the hottest NFT market and their collections are now worth millions of dollars. They take a look at people like Michael Levy, a 31-year-old financial analyst who spent $175,000 over six months, whose collection is now worth $20 million plus, or Andy Chorleyan, a 27-year-old old dev, who back in his younger days traded Pokemon, bought sneakers, but then more recently bought 3,800 NBA Topshop moments that are now worth a collective $15 million. I think it's really important to point this side of the market out because in many ways it is a completely different demographic than the Cryptopunks art type people, and frankly

the people interested in Beeple, at least on an artistic level. But I also think it's worth noting that collectibles in general are going crazy. Golden Auctions is a huge trading house for cards, memorabilia, etc. On March 7th, Golden tweeted, Prior to 2020, there were only 10 cards that ever sold for $1 million plus in history. Last night, we sold five cards for a million dollars plus. Clearly, there is something going on in the sports card collectible market as well. And on a smaller level, I track a small index of Magic the Gathering card prices,

just to keep track of what older cards in that space are doing, and it's up 414% in the last year. This is going to be relevant for our discussion in a little bit about what's really underlying what's happening in NFTs. But for now, let's get back to the art. There has been a ton of focus here. First, people were gobsmacked by the price of crypto punks, which are selling for thousands, sometimes even tens of thousands. Hash masks were more of the same, but all in all, these things felt pretty well contained within the crypto space. They were insider games, insider speculation, and insider collectors. Over the last few weeks, that shifted.

We saw a Biple's Sell on Nifty Gateway for more than 6 million. We had musicians jumping in. Justin Blow, who performs as 3LOW, sold a set of 33 NFTs for over $11 million. Grimes made just under $6 million. Kings of Leon released an album last week with full NFTs. We've seen more sports stars jump in with Gronk releasing a bunch of NFTs, and then we've had brands seemingly determined to ruin the party for everyone. like Taco Bell, who released a set of NFTs last week as well.

Of course, alongside the hype, the backlash has increased as well. I mentioned on yesterday's show that there is a huge group who are now fighting on environmental grounds. Just to give you a sample of some of those tweets, the biggest thing the NFT shit tells us is that we have an extremely short amount of time to destroy the capitalist system before it scorches all life from this earth in pursuit of a 3% rate of return. Here's another one. The NFT thing has drawn a line in the sand between the artists who are annoying for evil,

minting NFTs, and artists who are annoying for good. Cyberbullying people minting NFTs until their mentions are so exhausting they stop. Like, we're all annoying, but it's how we use our powers. Finally, let's do one more. I've been retweeting things here and there, but my stance on NFTs is final. It's horrible for the environment at a very critical time in the climate crisis. Therefore, if you participate in it, I will judge you freely and gladly and no longer support you. So I tweeted this out yesterday and got a huge number of responses of people who have seen similar things. And keep in mind, these aren't like random accounts, or at least these tweets are getting hundreds and hundreds of likes and responses and retweets. So it seems clear that there is this

counterlash happening even as we speak. All in all, the point is that even before today, things in this space were getting pretty heated. But then the Beeple auction closed. Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly what you need. borrow against your digital assets at just 5.9% APR, earn passive income with yields of up to 12%, and swap between more than 75 market pairs with the instant NXO Exchange. Try the NXO Wallet app to get the whole 360 degrees of crypto banking. Get started at nexo.io. Until now, blockchain technology has been a series of compromises.

No Layer 1 protocol exists in the market that supports everything enterprises, developers, and consumers need from decentralized applications. Mead Casper. Casper provides the blockchain ecosystem with a solution that makes no compromises around decentralization, security, or performance. Learn more at casper.network. So Beeple, whose real name is Mike Winkleman, was on the Pomp podcast the other day.

Pomp told him that he thought the auction was going to hit 50 million, and Beeple laughed in disbelief. Well, as it turns out, Pomp wasn't bullish enough. As I mentioned before, the final tally was above 69 million. And so I've been tweeting about this all morning and just wanted to share the highlights of some of the community's response. First, there is still a big contingent of people who are the, This is just a JPEG set. This is the group who simply cannot fathom why someone would want to own, quote unquote,

something that is infinitely replicable. And what's more, where the owner has no practical ability to control that replicability. For them, the very idea of unique digital art is an oxymoron. Digital is a medium that doesn't allow for uniqueness in the important sense of the word. Because it can be so easily replicated, even if a blockchain creates an approximation of a certificate of authenticity for that supposed uniqueness. Frankly, I think it's an understandable position, and I don't fault anyone for having it. Digital uniqueness in the context of NFTs does not come with scarcity in the traditional offline sense, nor in many ways rights in the traditional offline sense.

It is not then a one-to-one approximation of uniqueness and provenance from meat space, but something that is sort of new and on its own terms. That means it has to be engaged with on its own terms, and for some it simply won't make sense. I think, however, when we're looking at NFTs right now, the position of those folks that this is just a JPEG clearly does not matter to the market. As in, it seems pretty clear from the early evidence that there are enough people who do buy into this version of uniqueness that NFTs are offering, that there is an explosive market forming here. Now, I'm going to explore some other explanations for how that market is coming together

and in particular why prices are as high as they are. But I do think, especially given the top shot stuff happening at the same time, it's pretty hard to write this off as entirely speculators, even if speculation or some other motivation is clearly part of the particular intensity right now. I will note as well that this is the line that the New York Times went with, titling their piece about Beeple, JPEG file sells for 69 million as NFT mania gathers pace. This feels to me to be on the part of editors basically willfully obtuse and as such pretty dismissable. And I guess just one more point on this before we go to the second line of conversation I've seen a lot on Twitter. There are just a lot of folks out there who have qualms with the

specific art, as in they don't like the Beeple piece itself. I don't think that. I don't think in the context of this show, I need to go that deep into that phenomenon. But it is something that NFTs are clearly inheriting from the traditional art world. I mean, think about Warhol. He painted tomato soup cans and people are still debating whether it's art. The second line I've seen a lot on Twitter has to do with money laundering, which is another inheritance from the traditional art world. There has long been a sense that fine art is a great way to launder money. Auction houses tend to be very accommodative to anonymous buyers in large-cast deals, so some simple money laundering might follow a pattern such as, buyer buys a painting for X million dollars in a place like Geneva,

immediately has it moved to a free port, a high-security storage place, anonymously sells it to someone else who's able to move it directly from that freeport. Boom, money laundered. In 2013, the economist estimated that the Geneva freeport might hold up to $100 billion worth of art, also then functioning effectively as a tax haven. And before you say, no, no, no, this is all theoretical. Well, the Mexican government passed a law in the early 2010s, requiring more info than previously about art buyers and capping how much cash could be spent and sales dipped 70% in less than a year because the biggest buyers of art in Mexico were, in fact, at that time, the cartels. So anyway, perhaps not

surprisingly, a lot of folks have jokingly or perhaps not so jokingly said that this was a heck of a way to Lauder money. A third aspect of the discussion which I've seen, which is definitely the most interesting to me, is the connection to the perceived depreciation in value of fiat currency. So here's how Preston Pish put it. He retweeted my tweet about the overall price of the people and said, wonder what kind of events would provide knowledge points that a global fiat currency collapse is underway? So the logic here is that we're not witnessing an NFT bubble. Instead, we're witnessing an everything bubble based on the larger macro environment.

Specifically, the ever-expanding money supply coupled with artificially low interest rates and, in fact, negative real rates. In that world, the negative real rate world, cash and cash equivalents are guaranteed to lose value. Subsequently, everyone gets pushed farther and farther out onto the risk curve. Everyone is looking to move their money into assets to avoid the loss of value inherent in those negative real rates. And it means that things that used to be perceived as risky, are actually taking the role of less risky assets or even safe havens. In other words, bonds become useless, stocks become bonds, venture capital become stocks, art and NFTs become venture capital, or something like that. I did a whole show a little while ago about why it is not Bitcoin that is

acting like stocks, but in fact stocks that are acting like Bitcoin's safe haven role. And this is all a part of that conversation. This everything bubble argument is a lot more compelling to me than some of the more dismissive dismissals like money laundering. If only because setting a new record for NFT sales that is guaranteed to make big media outlets strikes me as a pretty high profile setting for money laundering. So if this is part and parcel of an everything bubble and people moving out of fiat, what does it mean for the NFT bubble specifically? Is there one? I've been through enough of these crypto cycles to know that there is a part of that to this. There are a ton of people buying and bidding on absolutely anything because they think crypto stuff is going to be valuable,

not because they love the specific art or project. You also see this in the fact that everything is expensive right now. It's not just a power law distribution of things where some things are really expensive and some things are almost valueless. Put it differently, there is a world in which people could command extraordinary premiums, but random 8-bit crypto punks weren't selling for $7 million, but that's not this world, so buyer beware. My biggest warning to anyone who's looking at this market from an investment standpoint is not that there isn't something interesting here. here to learn about, to watch the trend lines on. It's just that it feels like it's impossible for things not to be overpriced right now because of how much attention there is and because of how many

people are moving in to take advantage of some sort of greater fool market mania. But I do still think that there's something bigger happening than just an NFT bubble. This everything bubble feels like a part of the explanation that we have to consider, especially when you look at asset prices, when you look at all the other collectibles skyrocketing, as I mentioned, just seems like people are looking for alternative places to park their money. And so net net, I think NFTs are interesting in multiple ways simultaneously. They're interesting if for no other reason that it's impossible to deny that right now they are the mainstream aspect, at least from a retail perspective of this crypto market. I don't love this, as historically the stuff that goes mainstream tends to ruin the party for

Bitcoin. And my hope is that there's a sufficient distance between Bitcoin and digital collectibles for them not to have the same vicious overlap and self-reinforcing destruction that something like ICOs did. I also think, as I said, that NFTs are interesting as emblematic or evidence of an everything bubble that has larger macro forces at play. Finally, however, they are interesting as a different path to monetization for artists and musicians. I tweeted out, I got to say, artists getting rich does not bother me. Whatever part of this is mania, at least much of that right now is rewarding artists and musicians who have been historically last in line to benefit from the whims and whimsy of the markets. People has now received the third highest auction price for a living artist in history after only Jeff Coons and David Hockney.

In response, he tweeted, holy fuck. And while I think that's right, I hope he enjoys the hell out of it. In the meantime, let me know what you think. It's certainly an unignorable moment, so I'm really looking forward to your hot takes. Hit me on Twitter in the YouTube comments. You know where to find me. Until tomorrow, guys, be safe and take care of each other. Peace.