How NFTs will become a $40 billion market in 2021

2021 is a breakthrough year for NFT, and buyers spend almost as much on digital collections as traditional artworks.

At the beginning of 2021, only a small minority of cryptocurrency enthusiasts know what an unforgeable token (NFT) is.

But according to the latest data, by the end of 2021, nearly $41 billion has been spent on NFT in the market, making the value of the digital art and collectibles market almost the same as that of the global art market.

“Mason Nystrom, a research analyst at Encrypted Data Group Messari, said: “This year has witnessed the explosive growth of the NFT market from a sub-billion-dollar market to a multi-billion-dollar industry.

NFTs are essentially digital ownership certificates registered on the blockchain-a record that cannot be changed or tampered with.

These tokens are usually created or minted using smart contracts-self-executing contracts written into the blockchain code-and can be traded on the secondary market in exchange for cryptocurrency.

NFT mania became mainstream in March, when a collage of artist Beeple was sold at Christie’s for $69.3 million. This was the first NFT auction for the auction house. The artist named Mike Winkelmann responded on Twitter: “holy fuck!”.

Although it was first popular in the art world, corporate participants in the sports and music world-even the former first lady of the United States Melania Trump-also accepted this concept in order to fulfill the hype and find A new way for fans to interact.

The American Basketball League NBA has created its own NFT market for buying, selling, and trading video collections of its players, called NBA Top Shot.

Other popular products include NFT’s numbered collections, including CryptoPunks and Bored Ape Yacht Club, which stated that their NFT can represent their owner’s club membership status and can be used as an avatar on social media.

“The core value is still exclusivity,” Nystrom said, noting that expensive collectibles also provide buyers with access to gated channels on the chat platform Discord, as well as opportunities for parties and parties.

“He added: “They are country club style: there are high barriers to entry-the cost of capital-and you are in a high-net-worth circle.

How NFTs will become a  billion market in 2021

Advertisement for the CryptoPunk NFT in Manhattan © Dia Dipasupil/Getty

According to data from Chainalysis, a cryptocurrency analysis organization, in the year ended December 15, a total of 40.9 billion US dollars was invested in the Ethereum blockchain contract that is commonly used to create NFTs. If you include NFT minted on other blockchains, such as Solana, the total will be even higher.

In contrast, according to data from UBS and Art Basel, the global art market was valued at US$50.1 billion last year.

How NFTs will become a  billion market in 2021

Chainalysis found that NFTs have introduced a large number of retail investors into the cryptocurrency world, and small transactions of less than $10,000 accounted for more than 75% of the market.

But just like the cryptocurrency market, it is still dominated by a few large players, or “whales”.

Between the end of February and November, there were 360,000 NFT owners who held 2.7 million NFTs among them.Chainalysis found that about 9% of them – 32,400 wallets – hold 80% of the market value.

How NFTs will become a  billion market in 2021

Stephen Diehl, a software engineer who is skeptical of cryptocurrency, said that many whales “sit on hundreds of millions of dollars in cryptocurrency” from the cryptocurrency price boom and “hope to turn their cryptocurrency into more cryptocurrencies.” “.

Others say that they approach the market as professional traders and collectors. They said that a well-known NFT investor, known as Pranksy on Twitter, started with an initial investment of $600 in 2017 and now has an NFT portfolio worth more than $20 million.

They told the “Financial Times” that the projects they invest in are mixed, “some projects have a relatively large daily trading volume, and some projects are less attractive.” In addition to “hype” profitable projects, Pranksy said they have “specific works, which I plan to keep as long-term investments.”

So far, most of the new NFT collectors in the secondary market have not recovered their purchase cost. According to the analysis made by the blockchain analysis platform Nansen for FT, early collectors have learned from the price of NFT and the encryption used for transactions. Benefit from the rise of currencies.

How NFTs will become a  billion market in 2021

The unregulated space is also plagued by fraud, scams, and market manipulation, especially because the true identities of buyers and sellers are difficult or even impossible to discover.

Nansen’s analysis found that the suspicious activities of the CryptoPunk and Bored Ape series reached US$2 million in the 30 days ending in mid-December. For example, some NFTs are sold at a discount of 95% of the average selling price. This may be due to buyer and seller mistakes, tax cancellations, or other scams that exploit the ignorance of Xiaobai users.

How NFTs will become a  billion market in 2021

The researchers also warned that the market is likely to be exaggerated by wash trading-when a trader takes two sides in the transaction in order to give the illusion of demand.

“Rüdiger K Weng, CEO of Weng Fine Art, based in Germany, said: “You can buy and sell NFTs on a public platform to make it look like a lot of people are interested in the work, but in fact it’s just you pushing it up. price.

He said: “This situation also happens in the traditional art world.” But he added that if the manipulator entrusts a piece of art to Sotheby’s auction house and tries to carry out a laundering transaction, they will have to ask the auction house. Pay 25% of sales, making it an expensive business.

“With NFT, cost is only a small part of it,” he said, referring to the transaction fee required to mint or buy NFT, the so-called gasoline fee, which can fluctuate according to demand.

Nevertheless, there are still many supporters who believe that the market is maturing and will eventually provide a series of functions, such as allowing artists to collect royalties permanently.

“What can you do because it is software?” asked Benedict Evans, an independent technical analyst and former venture capitalist. He said: “This may be the artist’s share and subsequent secondary sales, etc.,” he specifically pointed out the early innovations around music copyright.

The so-called NFT financialization has already occurred in some communities-for example, using NFT as loan collateral, or decomposing the ownership of a single piece of work into smaller parts, the so-called fragmentation.

How NFTs will become a  billion market in 2021

NFT promotional video displayed on a billboard in Times Square, New York © Seth Wenig/AP

In the long run, enthusiasts hope that tokens will one day power any Metaverse or Metaverse (virtual world filled with digital avatars in the future) for e-commerce. Here, NFTs can specify the ownership of virtual goods, whether it is clothing for digital avatars or artwork on the walls of digital houses. Nike recently announced that it has acquired a virtual shoe company to cast virtual sneakers.

In any case, the future of the NFTs market will also depend on the position of regulators in this freely developing market.

Even among corporate issuers, there are concerns that NFTs have the same characteristics as certain digital investment vehicles and may therefore be regarded as securities by regulators.

Vinson and Elkins partner Devika Kornbacher said that companies that wish to issue NFTs often ask: “Is this NFT considered a financial instrument? Will it be considered a security of our company?”

At the same time, tax agencies such as the U.S. Revenue Service have not directly dealt with NFTs, but some experts believe that they may be regarded as “collectibles”, meaning that they will be subject to capital gains tax.

“For the industry as a whole, this is an urgent survival issue,” said Platin Vallabhaneni, a partner at White & Case law firm, of the upcoming regulation.

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