Are NFTs A Bubble? | Know The Telltale Signs of A Bubble
Considering the rapid rise in popularity of NFTs, some have become skeptical and started asking, “Are NFTs a bubble?”
People have always spent large sums of money on various collectibles.
This category also includes NFTs, the current collectible craze.
NFTs have gained popularity in recent times.
NFT fans believe that they are fixing a big problem with the internet.
Artists are not paid to distribute their content on the internet.
On the other hand, critics see the NFT madness as yet another speculative frenzy that is certain to weaken at some point.
So, are NFTs a bubble?
Let us talk about them now.
Table of Contents
What Are NFTs?
NFTs are a new type of digital asset.
Ownership of these assets is recorded in a blockchain – a digital book similar to the networks that support bitcoin and other cryptocurrencies.
However, unlike most virtual currencies, they cannot be exchanged for anything.
Each NFT is unique and cannot be reproduced.
One could see them as an encryption alternative to the rare Pokémon cards.
The rise of the Internet over the years has essentially meant that anyone could view images, videos, and songs online for free.
Today, people buy NFTs out of the belief that they will prove ownership of a virtual item thanks to the unique blockchain.
Blockchain – a decentralized digital “book” that records transactions.
Since everything is done in blockchain, the ownership and authenticity of the goods they represent can be quickly confirmed.
Thus, when an artist sells an NFT-turned artwork, the buyer buys a unique item representing the good (artwork).
It can prove that it is authentic and belongs to him through the blockchain.
An excellent example of this is NBA Top Shot.
An NFT platform based on the American Basketball Championship allows users to buy and sell short clips showing snapshots of the game.
However, basketball is not the only sport that penetrates cryptography.
Sorare, the French start-up, allows users to collect and use official and licensed soccer cards in fantasy games.
Sorare announced that it had raised $ 50 million from investors some time ago and continues to do so.
NTF’s Are Famous All Over the World
To better understand how well the NFT’s market has become worldwide, we will list 3 of the most popular NTF sales lately, listing the amounts spent.
On October 20, 2020, a Miami-based art collector, Pablo Rodriguez-Frail, spent about $ 67,000 on a 10-second video artwork he could watch for free online.
It sold it last week for $ 6.6 million.
According to Reuters, the video of the digital artist Beeple, whose real name is Mike Winkelman, was “authenticated” through blockchain.
Which functions as a digital signature that confirms who it belongs to and that it is “original work”.
Returning to the NBA Top Shot, we notice that the most expensive purchase is $ 208,000 for a snapshot of Lebron James.
While its average trading of collectibles at $ 120,000.
It is no coincidence that Dapper Labs’ servers (the developer of Flow) fall every time they make new pack releases with recent highlights and sale price $ 9.99 – $ 99.99.
Phenomenon Jack Dorsey
Jack Dorsey, CEO, and co-founder of Twitter, first tweeted in 2006 and now wants to auction that first “tweet” as NFT.
The message, which reads “just setting up my twitter,” received bids that exceeded $ 88,000 in a matter of minutes.
Older bids for this particular tweet show that it was released in December 2020.
However, the “auction” gained more attention after Dorsey’s new message last Friday.
So far, the highest bid for the tweet reached yesterday, Sunday, at $ 2.5 million, according to CBS.
If you are wondering how to buy a tweet, Valuables explains that the message will continue to be available on Twitter.
Still, the digital certificate will be issued and will only apply to the buyer.
NFTs are digital files and digital signatures to authenticate who owns photos, videos, and other online media.
According to Valuables, owning any digital content can be described as “a financial investment of emotional value and an opportunity to build a relationship between collector and creator”.
For example, such as an autographed baseball card.
Valuables, which launched three months ago, allows users to purchase a digital one-tweet certificate.
It can only be issued once and signed by the developer using cryptography.
When someone buys a tweet, they can resell it on the same site or display it in an online gallery.
Why Are These Items So Popular?
The pandemic and the health crisis played a significant role in the NFTs.
In the past year, the total value of NFT transactions quadrupled to $ 250 million.
This is according to a study by nonFungible and L’atelier, the research firm.
At the same time, significant amounts from reduced expenses and travel.
Meanwhile, all of the above coincides with an era where bitcoin and other digital currencies have risen in value.
Thus, bitcoin covering about $ 1 trillion in market value last month.
But NFTs are not a new trend.
They appeared in 2017.
They mainly aimed at speculation.
According to Nadia Ivanova, CEO of L’Atelier, said NFT market in 2020 has matured.
As for artists, NFTs allow creators to trade directly with their fans globally while getting rates every time NFT is sold.
On the other hand, many investors buy NFTs as another lucrative investment.
They are hoping that they will be able to repay a much higher amount than they originally paid.
Of course, many people also keep them as collectibles.
Meanwhile, NFTs have enticed celebrities such as Mark Cuban, Lindsay Lohan, and Gary Vaynerchuk.
While large companies have also been involved with NFTs.
Nevertheless, a particular space is met with strong skepticism from some artists and investors.
Critics see it as another cryptocurrency craze similar to the initial 2017 coin bids that will eventually lose their value.
Finally, many NFTs are valued in Ether – the Ethereum blockchain digital unit of measurement.
Is Raising ETFs The Beginning Of A Bubble?
Before analyzing the possibility of NTF being a bubble, let us list the stages of a bubble and how the NTF market can be an example of a bubble.
It occurs when investors “fall in love” with a new standard such as technology or interest rates at historically low levels.
A classic example of a shift is the Fed rate cut from 6.5% in May 2000 to 1% in June 2003.
During these three years, the mortgage rate fell by 2.5 percentage points at historically low levels of 5.21%, sowing the seeds for the housing bubble.
Prices are rising slowly at first.
It gains momentum as more and more market participants lay the groundwork for the boom phase.
During this phase, this asset attracts extensive media coverage.
The fear that someone will miss a unique opportunity in their life further stimulates speculation.
During this phase, attention is lost, and prices soar.
Valuations reach extreme levels during this phase.
For example, during the 1989 Japanese real estate bubble, land in Tokyo sold for $ 139,000 per square foot or more than 350 times the value of a Manhattan property.
When the bubble burst, real estate lost about 80% of its inflated value, while stock prices fell by 70%.
Liquidation Of Profits
Smart money talks about paying attention to warning signs and proceeds with sales to ensure profit.
However, estimating the exact time a bubble will burst can be difficult.
In the panic phase, asset prices reversed and fell faster than they had risen.
Investors and speculators want to cash in at any cost.
The Probable NTF’s Bubble
An expanding number of Wall Street experts see the elevated costs of everything.
From values to Bitcoin, to new homes, to the taking off estimation of recently opened organizations, are apparent indicators that the monetary framework has again been reset like what occurred in 2000 and 2008.
Money manager Jeremy Grantham believes that it’s surprisingly more dreadful than that.
There’s a high probability that the next move will equal the accident of 1929 in seriousness.
Ray Dalio, the world’s most prominent private asset chief of Bridgewater Associates, says that their restrictive markers show that while we are not yet at levels seen not long before the 2000 and 2008-2009 accidents, we are getting dangerously close.
Furthermore, with the drawback this week, alongside the sharp auction in many great organizations that have multiplied or more over the past pandemic year, there’s a rising melody saying the blasting has arrived.
In any case, is it valid?
The stocks have gone up in total 80% after they dove in the pandemic’s initial stages in March 2020.
Moreover, the bitcoin has gone up, and Tesla has taken off just about multiple times over.
And afterward, there is the SPAC that has become a multi-billion craze.
First of all, let’s take a historical look at two bubbles that marked the markets’ history.
Undoubtedly the strangest and craziest economic crisis humanity has ever experienced is the “Tulipomania”.
It continues to hold the scepter as the first historically recorded economic bubble!
So when the tulip was first introduced to the Netherlands in the early 17th century, the beautiful flower coming from faraway Turkey immediately became popular, although it remained expensive.
Not that this limited the Dutch consumer frenzy, enough to talk about proper “tulip mania”!
The Downfall of “Tulip Mania“
The demand for tulips of different colors exceeded the supply.
And the prices of the bulbs of rare varieties soared.
Simultaneously, as tulips are being grown in some regions during the year, the Dutch launched a new kind of market.
When tulips were no longer available, consumers could secure pre-emptive and always indemnity rights when the bulbs reappeared in Buy.
That’s when the clever speculators came into play.
They drove the price of the flower to shock levels.
Until in 1630, a single bulb of a rare tulip variety (160 varieties) was enough to endow a bride!
Bulbs are said to have been exchanged for carriages.
In 1633-1637, some tulips were sold at ten times the average worker’s annual salary.
While in 1636, a particular bulb cost up to 4,600 forints, at the same time that a sheep only 10 forints!
And then (February 1637) came the vibrant bubble burst.
The first doubts were expressed on the Amsterdam Stock Exchange as to whether the price of the tulip would continue to rise.
That was, almost overnight, the price of the tulip collapsed because suddenly everyone wanted to sell and someone to buy.
Countless Dutch families were devastated, and the country’s economy entered a period of a deep recession, dragging with it many fortunes.
This is because homes, estates, and businesses were sold or mortgaged to save money for their owners to buy bulbs.
Bulbs could be quickly grown and offer even more valuable bulbs, as tulips were immediately purchased and sold at a higher price, again and again, without even having sprouted from the soil.
In 1993 the world became acquainted with the new Mosaic browser, which gave access to many people in the internet world for the first time.
With Mosaic on the market, Personal Computers began to change from something luxurious to something more substantial and valuable for every home.
Thus, with this technology available, new opportunities were created that brought new companies to the fore.
One such company, Netscape, decided to offer its browser for free instead of the paid Mosaic.
Within a year, the Netscape browser became so popular that it pushed the company to go public with its Initial Public Offering (IPO) starting at $28.
Within the same day, it skyrocketed to $75!
The success of Netscape in the stock market shook the waters around the world.
Many people who saw the opportunity, this great success, and had just started using the Internet, wanted to profit from this new “gold mine”.
The Rushed Investments
As time went on, more and more investors rushed to invest in new Internet companies.
Many of these companies, which were forced to make a profit, were turned into public ones by issuing IPOs mainly on the Nasdaq stock exchange.
Instead of aiming for profit, these companies did the exact opposite by spending vast sums of money on advertising, with the primary goal of gaining their market share as quickly as possible.
Although these moves were irrational and these companies were unprofitable, for some reason, no one cared.
In 2000, the US Federal Reserve, now calm that the Y2K Computer Bug problem announced its plans for the rapid increase in interest rates.
The announcement sent the market into turmoil as analysts disagreed on whether tech companies would be affected by higher borrowing costs.
Other than that, a few days later, Japan was in an economic crisis!
With such a global event, investors’ confidence was shaken, and many started selling in panic.
With no interest from investors to buy at increased prices and the colossal sell-off, the Bubble burst!
By the fall of 2000, the prices of “internet” shares had fallen by 75%!
The majority of Dot-Com companies started closing one after the other, with a few exceptions.
So, are NFTs a bubble, and are the two bubbles connected to NFT’s market?
The answer is that no one knows what the future holds.
On the one hand, the supporters of NFT believe that this market is here to stay.
This is something similar they believed in the crypto market.
However, critics of this market believe that we are in the first stages of the bubble and how NFTs are the new bubble in the market.
So, strike while the iron is hot!
Have the opportunity to know more about NFT.
Know your work/art and its uniqueness.
Do not hesitate to sell you digital art or content.
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