Crypto Windfalls Are in the Tokens Driving the Digital Art Boon
An ethereum token sits in this arranged photograph in Danbury, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

Crypto Windfalls Are in the Tokens Driving the Digital Art Boon

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While digital art is having a moment after Beeple’s shocking $69 million sale of a NFT-backed piece earlier this month, copycats hoping to cash in might want to focus on the tokens themselves instead of the collectibles.

Since “Everydays: the First 5,000 Days” set its sales record, the prices of dozens of non-fungible tokens that track ownership and sales prices of digital art have surged -- boosting the market almost 10-fold to $20 billion, according to crypto data tracker CoinMarketCap.com. That dwarfs even Bitcoin’s meteoric rise in the past few months.

The surge is happening even as observers question whether NFTs, which also are used to control the number of copies in existence through unique identifiers, are the inevitable evolution of the collectibles market or the latest leg in a growing speculative bubble. Several apps and websites are now even also offering NFT-backed loans.

“NFTs are a useful idea that will survive, but the current trading mania and extensions like lending will likely fade soon,” said Aaron Brown, a crypto investor who writes for Bloomberg Opinion.

That’s not a scenario that coin investors are betting on. Theta Token, used to validate transactions on the namesake corresponding network, has quadrupled this year to reach a market value of $10 billion. The project, focused on peer-to-peer video streaming, plans to let entertainment companies issue NFTs, such as “a piece of all-time classic characters or moments from their favorite shows and movies or a part of an upcoming blockbuster,” according to the project.

Chiliz, a token to buy fan tokens that in turn can be used for voting in polls of sports clubs like FC Barcelona, has seen its value rise 23-fold year-to-date to $3 billion. It recently announced plans to launch NFTs with professional sports teams, so users can buy these items with Chiliz coins.

Then there are also tokens that offer a path to owning of NFTs: Whale, which is backed by a wallet containing thousands of NFTs, lets users “rent” NFTs from the collection, and to purchase exclusive digital swag or even NFTs from the pool. That coin has doubled since mid-February, a boon for its creator and biggest holder, who goes by WhaleShark.

“People are looking for exposure to NFTs and investing in platform, specific use NFT tokens as well as asset based tokens is a way to get into the space without having to hold specific NFTs,” WhaleShark said.

The problem is, coins like Whale are highly illiquid. Its 24-hour-trading volume is about $1 million, despite a $214 million market value.

Lenders are also beginning to issue NFT-backed loans, which essentially let owners use their NFTs as collateral. Stani Kulechov, chief executive of liquidity software provider Aave, expects that market will reach $50 billion by year-end. Project NFTfi, around since last summer, has shepherded around $1.8 million in loans, with collateral such as virtual cats from CryptoKitties and parcels of land in the virtual world of Decentraland.

“NFT collateralized loans bring additional liquidity to the notoriously illiquid NFT markets,” said Stephen Young, chief executive officer of NFTfi. “Our users have done everything from covering margin calls to paying the rent while going through some tough financial times.”

Still, he noted, default rates range from 10% to 30% -- but then, lenders aren’t complaining with demand surging.

©2021 Bloomberg L.P.

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