NFTs and Web3 as a whole had a hell of a year in 2021. It was the year that everyone realized that the world is being rebuilt digitally. However, they also learned that the infrastructure for that digital world was grossly underdeveloped.
Opensea couldn’t stay online during peak froth moments, nor could Coinbase. Even with all the bullish sentiment, some people just don’t get it or think Web3 and NFTs are a complete scam. Even some crypto native people (Hello Bitcoin Maxis) don’t buy into the hype.
And then there’s the right-click save your JPEG crowd. There’s so much I want to say to these people. I honestly want to grab them, shake them, and scream, “Right-click save this,” but I won’t do that because I’m a decent human being.
Instead, I’m going to write an NFT investment thesis you can send to them every time you struggle to find the words to explain NFTs. So without further ado, here is my NFT Investment Thesis for 2022 and beyond.
All I ask is one small favor.
Please send this post to the right-click save JPEG crowd every time they try to give you shit about spending too much money on NFTs. When you see tweets bashing Web3 or NFTs, feel free to tweet this thesis back at them as well.
Farokh is right! You can’t fuck with NFTs. The cats are out of the bag, and there’s no stopping them. Crypto is a tough sell for people, but it’s easy to get someone into crypto through art. Most coins outside of Bitcoin and Ethereum are speculative assets and gambling. There’s a new rug every second, and it’s easy for legacy finance donkeys like Jamie Dimon or Warren Buffett to come out of the woodwork and call them a scam.
But how can you call an image of a cute bored ape a scam? NFTs are a meme and are sparking mass adoption among the arts and culture scene.
NFTs speak directly to the human urges to signal status, collect, express themselves through art, and feel part of a tribe. So if you buy an image of a bored ape, you’re part of the bored ape tribe, and you flex as each ape rises in value.
NFTs are somewhat of a trojan horse for Web3. Call it the Web3 mullet – Art in the front and crypto in the back. I stole that from the Bankless crew.
Crypto and DeFi speak directly to finance.
DeFi is legacy finance without all the corrupt intermediaries and friction points of doing business with a bank.
However, finance is complicated, boring, and intimidating! On the other hand, art is fun and exciting. Unfortunately, we aren’t taught finance in school, and banks are purposely misleading because they want to keep you in the dark and yield farm your fiat for 10% - 15%.
I have a friend who worked at a bank and wrote a book on how fucked and rotten the deep insides of a bank is. But, unfortunately, even the bankers don’t understand how it all works until they get higher up the ladder.
And by the time you get that far, you’re old, made a bunch of money, and are in the frat, so why would you tell everyone the bank’s secrets? Besides, no one would listen to a crazy old boomer anyways.
Entering Web3 through DeFi is very intimidating, and we’re conditioned to let other people handle it for us. It’s not very sexy to talk about yield and interest rates.
NFTs and Mass Adoption
NFTs have sparked Web3 mass adoption better than Bitcoin or Ethereum ever could! That sounds crazy because NFTs came from Ethereum, but it’s true.
How else were we going to get arts and culture in Web3? Finance is boring, but art is fun and exciting. Celebs with millions of followers are buying bored apes and mutant apes. Tyga’s first NFT was a flipped punk.
NFTs are perfect for celebs because it taps into our innate desire to flex and feel a part of a tribe.
NFTs also speak to art, collectibles, gaming, live music, and sports. Here’s how much each of those industries generates per yr in revenue.
Gaming: $200 Billion per yr
Collectibles: $100 Billion per yr
Live Sports: $71 Billion per yr
Art: $65 Billion per yr
Live Music: $11.99 Billion per yr
That’s a market cap of $447.99 Billion per yr! And NFTs can integrate with all of those markets in an infinite number of ways to make them more engaging, efficient, and fun. I won’t even go into insurance, or real estate, which are boring but seem like a natural transition.
All forms of value will eventually be represented on-chain as an NFT. All forms of value that are moved on-chain will need a unique ID. Everything on the internet has a unique ID, and NFTs are the standard for organizing everything with a unique ID.
Everything with a unique ID on the internet represented as an NFT can be invested in or traded. That also means that NFTs could become the biggest market in the world.
The world is being rebuilt digitally. A digital world needs digitally native forms of money and digitally native forms of infrastructure. NFTs are a core part of that digital infrastructure in a digital-first world.
NFT Infrastructure is Underdeveloped
Opensea is one of the fastest-growing companies of all time and has a potential $100 Billion upside. But, unfortunately, Opensea couldn’t stay online during the frothiest moments. This signals overall NFT demand as well as how underdeveloped the ecosystem is.
This isn’t bad, but it sucks when it happens. It simply signals an opportunity and how much upside is left in the market.
We’re in the early days of NFT infrastructure, and the people who find a way to build and create will be rewarded.
NFTs reduce friction, but there is still a lot of friction in NFT infrastructure. Most of the liquidity is also concentrated on OpenSea, and there are only an estimated 4 million users in NFTs.
The market cap for NFTs currently sits at $14 Billion, but the upside is north of $300 Billion! The above stats are from Messari’s excellent 160-page report on crypto.
The biggest NFT market in the world runs through Ethereum, while other platforms like NBA Topshot are disconnected from the greater market. Solana, Algorand, and Avalanche are all gaining ground.
But they are all disconnected and lack the liquidity of Ethereum. That means there isn’t always a trader who will readily pay you for your illiquid JPEG of a donkey. Also, there is too much friction to jump from chain to chain, but that will soon change.
The more underdeveloped something is, the higher the upside. That means builders will spring into action and start creating solutions so liquidity can flow across the broader market.
“Despite the froth of today’s NFT market, this early flight from physical art to digital art could end up looking like 2013’s bitcoin “bubble”, which crashed 80%+ in 2014 but also marked the beginning of bitcoin’s decade-long ass-whooping of physical gold. Bitcoin’s market cap crossed 0.1% of gold’s in November 2013. Wouldn’t you know it? The “non-collectible” digital art market is now 0.1% of the physical art market. I predict that the digital art / NFT market crash will eventually be even more nauseating than the 2015 bitcoin bear market (because these are highly illiquid assets by definition), but the 10-year trajectory of the overall market will be the same: 100x+.”
This quote sums up where we’re at in NFTs more than anything. NFTs aren’t the next Bitcoin, obviously, but where we’re at is similar to how Bitcoin was in the early days of crypto. There will be euphoric highs and nauseating lows, but it will be up and to the right over the long run.
No, that’s pretty much it. Please send this to all your right-click save JPEG friends every time they troll you. Here’s a Twitter thread version of it as well.