The Breakdown - Are NFTs the True Store of Value?

Starting point is 00:00:00 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, Abra, and FtX, and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, January 28th, and that means it's time for the weekly recap. And on this weekly recap, we are discussing the all-important question. Are NFTs the true store of value? Before we get into that, if you are enjoying the breakdown, please go subscribe to it, rate it, review it, or join the Discord. That's where we discuss everything that we talk about on the show, plus a heck of a lot more.

Starting point is 00:00:50 If you are interested, you can go to the link in the show notes or go to bit.ly slash breakdown pod. Finally, a disclosure, in addition to them being a sponsor, I also work with FTX. So, if you are in the crypto industry, you had a painful last weekend and not much better a week. But you also probably noticed something weird. To explain that weird thing, let's start with a few tweets. Moon Overlord writes, Not gonna lie, feels like crypto is about to completely implode. It's getting ugly in every corner, except NFT land where people are just viving and buying JPEGs.

Starting point is 00:01:28 Frank Shapiro over at the block says people who keep saying crypto hasn't been a hedge have clearly not been looking at the NFT market. Thus far, NFTs have proven to be the strongest macro hedge. Convince me I'm wrong. Sue from Three Arrow's tweets told some Tradfai guy today that Cryptonatives hedge against uncertainty by accumulating NFTs. He thought I was kidding. I said, check the tape. So what the hell is going on here? Well, let's recap with what's been going on more broadly. At the end of last week, Bitcoin just broke down from around the $42,000 level where it had been hanging racing down below 36,000 on Thursday night before reaching lows below 33K during the weekend. It has also struggled to recover strongly. At the time of this recording, it's trading near the

Starting point is 00:02:14 37K mark, which is still down over 12% from trading levels from early last week, and down over 46% from the all-time high last November. Ethereum has done no better, losing its $3,300 level at the beginning of last week and plunging to a low of $2,200, basically wiping out a $1,000. third of its value in a few days. This drop puts Ethereum down more than halfway from its all-time high above 4,800, and it's struggled to recover from the lows as well, now trading around 2,400, which is more than 25% lower than levels last week. This drop, of course, has not been limited to crypto. The small-cap Russell 2000 is now down 20% from its peak. The NASDAQ took an immediate 5% drawdown to start the week, being over 15% off from all-time highs, and the S&P index is down

Starting point is 00:03:00 almost 10% on the year. Basically, it is a down-bad bananza, with the exception of NFTs. Just to take one example, the floor price for a board ape barely budged over the last week while the rest of the market's tank, drawing down only 5% before making a full recovery and now standing at about 95-Eth, which is 15% higher than it started last week at. It's more crazy than that, however, this has been the best month for NFTs ever in terms of overall volume. OpenC volume topped 4 billion for the first time ever, which is up nearly 20% from its previous August high. Another NFT marketplace looks rare vampire attacked OpenC, meaning they airdropped governance token to OpenC to try to lure users away and had 1.93 billion in trading volume in

Starting point is 00:03:46 its first month. Google trends are showing that NFT search volume is higher than crypto for the first time ever and is also growing super fast in Asia. On top of all this, there's also been a ton of fundraising and generally positive activity. Pleaser Dow is raising $69 million, clearly doing a bunch of stuff that investors think has enterprise value. They've named someone to handle the fractionalization and release of the Wu-Tang album Once Upon a Time in Shaolin, for example. Paris Hilton and Jimmy Fallon compared their board apes on his show this week, and on the same day that YouTube CEO Susan Wojiki issued an open letter saying that YouTube is looking into NFTs as a way to help creators monetize content, two of YouTube's top executives left for Web3

Starting point is 00:04:28 Opportunities. Ryan Wyatt, the former head of gaming, is going to Polygon, aka Maddock, as CEO of Polygon Studios, and Jamie Byrne, the former senior director of creative partnerships, is leaving for a leadership role at NFT platform Bright Moments. Nexo is a trusted and easy-to-use crypto platform, where you can buy cryptocurrencies at the touch of a button, and start earning up to 17% annual interest. is paid out daily. They support all of the major assets on the market and even allow you to swap one asset for another or borrow cash against your crypto without selling it. Nearly three million people in over 200 countries trust Nexo with their digital assets. So whether you're

Starting point is 00:05:10 just getting started or you're a season pro, get the most of your crypto today with Nexo at nexo.io. Today's episode is sponsored by Abra. Join over one million users and conquer crypto with An all-in-one, simple and secure app where you can trade over 110 cryptocurrencies. Get 0% interest loans using your crypto as collateral and earn interest with up to 14% APY on stable coins and 8.15% APY on Bitcoin. Visit Abra.com or download the app or download the app from the Google Play or Apple App Store today. Abra, Conquer Crypto. The breakdown is sponsored by FTX. FtX is the safe, regulated way to buy and sell.

Starting point is 00:06:00 Bitcoin and other digital assets. Trade crypto with up to 85% lower fees than top competitors. FtXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. You can trade NFTs with no gas on FTXUS and gas is subsidized when you withdraw off the platform. Help support the breakdown and visit FtX.us today. That's FtX.us. So what is going on? Well, first of all, we need to dig a little deeper into the quote, keeping their value narrative. Remember how I said that the floor price of a board ape hasn't just not gone down, it's actually gone up, being 15% higher than it started last week at? That's true, but it's true in ETH terms. In dollar terms, we have a bit of a different story. The BAYC floor

Starting point is 00:06:52 in dollars dropped alongside ETH prices at the start of last week initially, before recovering slightly and detaching from the ETH price movement in the middle of last week to recapture levels at around 270,000 for a fluorate. The floor price then hit lows of 180k over the last weekend, which was down over 30% during the week, taking that same brutal drawdown in dollar terms that the rest of the crypto market suffered. However, the floor seemed to recover much more strongly than Ethereum, reclaiming the 270K level for the second time in a week, with one giant green 30% candle to start this week. Price has been choppy during the week, but the floor prices stayed above 240K for now. Other series like doodles, cybercongs, and mutant apes have a similar story, taking 30 to 40% drawdowns in dollar terms initially, but recovering more strongly than Ethereum.

Starting point is 00:07:40 So the point here isn't so much that NFTs are dramatically up while the rest of the crypto markets have drawn down over 40%. But NFTs are not down 40% from all-time highs in either ether dollar terms. They've proven much more resilient than I think anyone would have imagined. A few people wrote about this. Delphi Digital wrote, Marquis NFT brands have stayed resilient amid all the macro uncertainty. While ETH has fallen 35% since the start of the year, NFTs have grown in price in ETH terms. Since NFTs are denominated in ETH, they are still exposed to the price changes of ETH. Noam Levenson wrote, people don't realize but what is happening right now with the NFT-ETH price is profound.

Starting point is 00:08:19 NFTs are holding their value in terms of ETH. Many expected that when crypto crashed, NFTs would crash harder. But NFTs are the first micro-Etherium-based economy. In this microeconomy, eth is a stable asset. At a certain point, the price of eth in relation to fiat has no effect on Ethereum-based assets. People want to accumulate ether so NFTs are still attractive no matter if crypto is bearish. Now, there is another possible set of interpretations to all of this, which has to do with market structure. NFTs are super illiquid, and that means if there's no bid, i.e., there's no buyer, a floor can't be repriced so things could appear more resilient than they

Starting point is 00:08:56 actually are. Brad Mills, who admittedly is a Bitcoin maximalist, writes, when crypto prices crash, the bids disappear for NFTs. The NFT holders don't see their net worth drop and interpret this as few. I'm glad I bought JPEGs. At some point, the bids completely disappear and it probably goes to zero like the illiquid ICO coins in 2018 and 2019 did. A less cynical but still true take comes from VTLLR, who writes, you can't panic sell when you're all in into illiquid NFTs. An even less cynical take comes from Mr. Bibbles, who writes NFT should be the hedge in a down market. Big money can't short it, not like Fed Policy or stock market makes a difference in the price of our galactic space monkey derivatives. I think this idea of not being able to short it is potentially a meaningful part of this story.

Starting point is 00:09:40 There's also an interpretation of NFTs that view them as somehow immune from regulatory forces, which are potentially causing nervousness in other parts of the crypto market. Otto Sueen tweets, ironically, I don't think Biden-Fudd affects NFTs all that much. too many big companies are already getting in. Maybe NFTs could be a hedge for crypto-only folk. Dylan Oral tweets, how would crypto regulation in the U.S. affect our JPEGs? I've noticed NFTs almost being used as an asset class as a hedge against crypto markets during this market pullback. What happens when we get some legislation in the mix? So what is actually going on at the end of the day? And the short answer is, I don't know, but I have a few different interpretations or at least

Starting point is 00:10:19 things that make sense to me. First, I will say that I believe that down in U.S.D. terms, but up in ETH terms, is still resilience. It doesn't mean that all of a sudden NFTs or some macro hedge, but it does suggest something about the dynamics of the crypto market. I think that's not something that should be ignored. Second, I do believe that a big part of that, quote-unquote, resilience is illiquidity. The fate of NFT collections that the community has moved on from is that they just don't sell at all. There's no meaningful trade volume, and with no meaningful trade volume, there's no real price discovery. If you can't sell because no one's buying, the value is effectively zero, but based on the way that we

Starting point is 00:10:58 look at floor price, it's going to show up is something much higher than that. Third, I believe that in down times, we're likely to see a stronger power law distribution of quality NFT assets. It wouldn't surprise me if there is a class of crypto-native buyers, especially those who came in through the door of NFTs, who see long-term culturally significant collections, like Cryptopunks or like Bored Apes, as a long-term. term store of value type of play. Unironically. If you have that mindset, it could be that the flight to safety in NFTs isn't trying to sell a bunch of your newer speculative bets to get into stable coins, but moving more of your NFT net worth into the blue chip collections. Four, it is very

Starting point is 00:11:43 clear to me that overall trading volume growth is impossible to ignore. No matter what you think of the individual collection floor price argument, the fact that OpenC had its best month ever, the rest of the crypto market was hemorrhaging is something that is absolutely worth noting. Five, to me, this suggests that there are forces for decoupling, that the market between regular cryptos and NFTs are moving potentially farther apart, with different but overlapping trading and holding bases, and this is happening even while crypto and macro are moving somewhat closer together. Six, I think that we probably, though, don't want to overstate this case too much. Keep in mind for reference that the total volume of NFTs,

Starting point is 00:12:24 traded this month is less than half of the overall volume on FTX alone just yesterday. It is totally possible that there is still a lot of energy within the NFT space because it's still such a niche relative to crypto as a whole. Seven, that is not a dismissal of how interesting this is and how potentially significant as a trend it could be. I'm just as you guys know, not a fan of hyperbole. And so hopefully this breakdown helps you situate and understand and come to your own conclusions. I want to say thanks again to my sponsors, nexo.io, Abra, and FTX. And thanks to you guys for hanging out. I hope wherever you are, you are having a great weekend. And until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Are NFTs the True Store of Value?

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