Where is Paris Hilton when you need her? After boosting non-fungible token investments on late night US chat shows, the reality star has gone quiet. NFTs, the most speculative of speculative assets, are crashing. The value of an index developed by cryptocurrency researchers is down 78 per cent from its high point last October. That is a steeper drop than tech stocks and bitcoin.
This is awkward for celebrity hawkers and the companies that spent months talking up NFT projects. Many are only just unveiling those plans now. Earlier this month, Instagram announced that it would let collectors share their NFTs on its platform. A week later, Spotify said that it was conducting a trial that would let artists promote their NFTs. A few days after that, trading platform Robinhood unveiled plans to let users hold NFTs in a standalone wallet. All the while, sales were stalling.
The speed of the market turnround is arresting. At the start of this year, it felt as if most of the meetings I had with US tech companies somehow involved cryptocurrencies and NFTs. A shift into the mainstream was happening at lightning speed. Martha Stewart had listed pictures of her farm as NFTs. Dolly Parton was selling NFTs of her new album. The Miami start-up behind Bored Ape Yacht Club — probably the most recognisable NFT collection — was valued at $4bn. NFT sales, close to $41bn last year, were seen as a jumping off point for even bigger gains in 2022.
Now? Silence. Was this just a bubble at the tail-end of the tech rally? Was it a grift all along? Or could institutional interest be proof that the digital wild west lives on.
There is a lot of noise on both sides. Crypto’s true believers seem unable to accept reality. But critics can be equally unreasonable. There will always be cheering when something that most people did not participate in — but which made a few very rich — collapses.
Cynics will say tech company interest in NFTs was opportunistic and embarrassingly slow. Projects may be quietly shelved if the market does not pick up in the next few months.
But corporations latching on to new ideas always tend to move slowly. In a big organisation, sign off takes time — a problem in volatile digital markets. Facebook asked former PayPal president David Marcus to develop its digital currency plans during the crypto boom of 2018. He left the company in December 2021 in the middle of a full blown crypto crash. More recently, financial services giant Fidelity announced that it would help customers put retirement savings into cryptos just as prices were in freefall.
But it is also possible that companies will help NFTs move from expensive cartoon monkey jpegs and other digital collectibles into something more sustainable. The analogy I have heard twice in the past month is Pets.com, the infamous online pet supply company that collapsed in the dotcom crash. The company failed, but ecommerce lives on.
Could something similar happen with NFTs? Perhaps, but not necessarily in their current form.
In spite of billions of dollars of investment and celebrity froth, there is still haziness around NFTs. Why pay for digital artwork or video clips that anyone can look at online? The answer is that NFTs facilitate ownership of the official version. It is unique — non-fungible — digital data. Scarcity value should translate to price. But only if other buyers agree. Many have evaporated in the downturn. Phishing scams are rife.
Right now there is not much to do with NFTs other than show them off as a profile picture. So NFTs with some sort of real-world perk (or a connection to a well-known artist) are popular. Director Kevin Smith’s new film will only be available to viewers who buy a KillRoy NFT, for example.
The dream is that NFTs will prove that cryptocurrencies and blockchain technology are useful — something that has always been a sore spot for crypto advocates. NFTs are really digital contracts, a way to verify ownership of something via permanent record keeping without the need for a middleman. They could, in theory, be used for anything.
Believers see the current sell-off as transitory. They’ve seen recovery before. Andreessen Horowitz, a Silicon Valley venture capital firm known for championing digital assets, has called the downturn a “price-innovation” cycle. Last week it announced that it was investing in Tally Labs, a media company intent on turning one of the Bored Apes into intellectual property for books, films and other formats. Think Harry Potter but a cartoon monkey dressed as a valet. He already has a Hollywood agent. Bestselling author Neil Strauss is writing his memoir. NFTs won’t need celebrities if they become one themselves.