I’d never join a country club.
Golf seems like an expensive waste of time, the food isn’t that great, and I’m not trying to network with any of the people there. On top of that, the country club in the town where I grew up has a six-figure initiation fee and still doesn’t accept women as members. Hard pass.
But I will spend thousands of dollars on a cartoon image of a monkey that I could download for free. What gives?
If I owned these apes I wouldn't need to credit this image (via The New Yorker)
A Killer Bundle
“Gentlemen, there’s only two ways I know of to make money: bundling and unbundling.”
I am a native of the digital realm. I spend 12 hours per day on my laptop – working, coding, writing, hanging out on Twitter, Slack, Discord.
For those of us already living in the Metaverse, NFTs combine several distinct value propositions:
A display of wealth. Premium NFTs are the digital equivalent of driving a Ferrari or wearing a Rolex. If you spend the majority of the day online, you can make an impudent show of your NFTs far more often than your luxury physical goods.1
An elite social network. With a CryptoPunk or a Bored Ape as your Twitter avatar, you gain prestige and legitimacy in the crypto world. This unlocks a network of people who otherwise may not interact with you. Contrast this with private art collection – as far as I know, there is no Discord for people who own original Picassos.
A signal of good taste. Picking the right NFT project to back early on gives you tastemaker status. You liked it before it got cool.
A limited collectible. Baseball and Pokémon cards are just printed pieces of paper. Yet people pay thousands of dollars for them. Similarly, Supreme makes a fairly basic T-shirt. But people wait overnight in line for the next drop. NFTs induce the same behavior.
The excitement of roulette. Much like trading options on meme stocks, there is the chance that your your investment will 10-100x in value in a short period of time. This gives NFT collectors the anticipation of art appreciation, on steroids.
In other words, NFTs are one of the best bundles ever created. They vastly expand the traditional bundle of art collection, while layering on the dopamine rushes of social exclusivity and a good wager.
And that’s just on the demand side. On the supply side, NFTs are a no-brainer. An additional revenue stream for creators? A cut of secondary sales? Giddy up.
But This Is Stupid
Yes, it is. So is traditional art. Art is just a delusion we’ve agreed to share.2
Is this rabbit worth $91 million?
Matt Levine criticizes NFTs for having almost no consumption value outside of participating in a bubble. Sure. But if that is your bear case, you need to extend that to all markets in 2021. The days of me buying a stock because I think the present value of its future dividends are higher than its current share price are long gone. Reflexivity reigns.
The strongest bull case for NFTs is that the bear case is boring: you can right-click and “save as” to get access to any NFT’d image you want, and yet people pay for the social status of being able to claim they’re the true owner. This is, of course, quite silly, but it’s obviously silly and people still pay for NFTs. A bear case the bulls are perfectly aware of is no bear case at all.
So what is the true bear case of NFTs? I’m not sure. But people are engaging with NFTs with a fanaticism that rivals a soccer hooligan’s support of his club or the devotion of the Hells Angels to Harley-Davidson.
I won’t bet against that fervor.3