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NFTs (Mostly) Fall Off the Map
Whelp. It was only a matter of time before those pixelated JPG files fell back to earth.
Since November, the sale price of the average CryptoPunk NFT has dropped from $500,000 to $200,000 according to NonFungible. It turns out there’s only so much that’s special about 24×24 8-bit art.
As I wrote back in January, “NFTs suck. When digital art becomes a status symbol of overpaid Silicon Valley executives, negative sentiment towards the technology could spoil the market for everyone else.”
So much schadenfreude to go around…
Not every NFT project has suffered such losses. Prices for metaverse play Decentraland (MANA-USD) have risen 12% since I highlighted it in January. And Nike’s (NYSE:NKE) RTFKT NFTs continue to perform well. These better-differentiated projects focus on harder-to-replicate assets.
But as the market’s appetite for risk continues to fall, investors will find fewer places to hide. For those looking for real safety, cryptocurrencies are starting to offer the only shelter in the blockchain world.]
3 Cryptocurrencies For the Alt-NFT Investor
There are some remaining pockets of hope for tokenization. Axie Infinity (AXS-USD) has made an entire business out of selling Pokémon-style tokens. And it turns out many consumers will pay for art they enjoy — provided it’s reasonably priced and easy to purchase.
But the NFT hype got ahead of itself. The moment momentum traders started driving prices of digital art, they created a self-reinforcing cycle where high prices led to ever more buying.
And what did these investors get? With regulations lagging years behind, any “property rights” that the NFTs conveyed were easily skirted by a right-click-save. No police officer is going to knock at your door for using a fake NFT profile picture on Twitter (NYSE:TWTR).
Up Like a Rocket, Down Like a Stick
These factors make it a good time to stay away from high-risk assets, at least for now. In 2020, eager investors could plow their $1,400 Covid-19 “stimmies” into propping up low-quality stocks, cryptos and collectible NFTs. The rise of social-media investing also brought a steady stream of new money into the market just as the world was coming out of a Covid-19 recession.
There’s no equivalent backstop today.
Instead, investors on r/WallStreetBets are talking about giving up on the investment game. Run a Martingale strategy long enough, doubling your bets on each loss, and it’s only a matter of time before you go broke.
That means zero-value NFTs and meme coins alike will struggle to achieve 1,000x returns. Now that a tank of gas costs almost as much as a full day’s salary, younger investors are no longer plowing money into speculative bets like Dogecoin (DOGE-USD) or Bored Ape NFTs. No meme coin makes my top 5 list for 2022.
Instead, higher-quality cryptocurrencies are now winning the crypto game. They don’t have the same rocket-like returns as their meme coin brethren. But most will slowly grind higher over time. And in the short term, that’s the protection that blockchain investors need.
Bonus Picks: XRP (XRP) and ImmutableX (IMX)
But before we take a closer look at our slow burns, investors looking for bigger bets still have some higher-quality options to choose from:
- XRP (XRP-USD). The SEC’s case against Ripple Labs is starting to run into serious issues. If the regulator failed to provide Ripple with “fair notice” that the distribution of XRP was prohibited under securities law, the revelation will rip a $1.3 billion-sized hole in the SEC’s argument.
- Immutable X (IMX-USD). This week Warner Brothers announced it would release its “hybrid” NFT trading cards of its DC comics on Immutable X. The company joins GameStop (NYSE:GME) and Nike’s RTFKT in choosing the Australian-based firm to handle its tokenization needs.
My no. 1 crypto pick for 2021 remains a top choice for its relative stability and growth potential. Despite the rise of “Ethereum killers” Solana (SOL-USD) and Cardano (ADA-USD), Ethereum (ETH-USD) retains an 80% market share in NFTs. Layer 2 applications like Immutable X still turn to Ethereum first, rather than any of its competitors.
All of this matters. Bitcoin (BTC-USD) has managed to remain the top dog in crypto by being the most widely-accepted coin, despite its decade-old technology. Ethereum’s head start in tokenization means it will do the same.
Crypto exchange token FTX (FTX-USD) replaces Crypto.com coin Cronos (CRO-USD) as my next top choice.
The upstart exchange has beaten Crypto.com at its own game. By launching a masterful ad campaign and focusing on high-value crypto traders, FTX has retained its popularity even as Crypto.com has slid. The re-emergence of Crypto.com’s cringeworthy TV ads certainly hasn’t helped their case.
FTX’s competitor has also suffered its share of self-inflicted wounds. Last week, Crypto.com gave its EU customers one week to return all loans after regulators began cracking down on the business.
Meanwhile, FTX has gone the exact opposite direction. The exchange gave every Ukrainian user $25 the day after the Russian invasion, and the Ukrainian government has since partnered with the exchange to establish a crypto donation site. No surprise that FTX Europe received approvals to work in Switzerland this week.
Terra (LUNA-USD) continues to be a top diversification pick for The Moonshot Investor. Last month, the ecosystem of coins announced it would establish a $1 billion Bitcoin reserve, a sign that it’s willing to compete head-on with Tether (USDT-USD) in the Bitcoin trade. LIUNA has since added another $1.1 billion to its Luna Foundation Guard (LFG) reserve fund to help maintain the UST peg.
“If there is any confusion left at this point, we will keep growing reserves until it becomes mathematically impossible for idiots to claim depeg risk for $UST” tweeted Terraform Labs CEO Do Kwon last week.
There are some medium-term risks. A decline in UST popularity will set off a chain reaction of liquidations, particularly among those who bought in on the promise of 20% staking returns. And the SEC has long been investigating the legality of Terra’s mirrored assets.
So make sure to sell Tether if prices drop more than 20% in a single week.
But in the short-run, high levels of uncertainty will keep investors in safe-haven assets. And Terra has become their currency of choice.
EtherRocks Crash Back to Earth
Last August, Tron (TRX-USD) CEO Justin Sun spent $611,710 to buy an EtherRock NFT. The jpeg image looked exactly like… okay it literally was a picture of a rock.
By the time Axios published the story several hours later, the cheapest EtherRock had risen to 321.12 ETH, or $1.05 million.
Silly stories, however, have a habit of unraveling into even sillier endings.
Last week, Twitter user “Rock dust” claimed to have accidentally sold an Etherrock for less than a penny. The user had accidentally listed EtherRock #44 for 444 wei instead of 444 ETH ($1 million). A bot immediately snapped up the offer.
“Is there any hope? Am I GMI? [Ed. note: gonna make it] Can snipers show mercy?” The user tweeted.
The internet responded with a predictable mix of disbelief and mockery. “They say it is better to have rocked and lost rock than to have never rocked at all,” wrote one user. “pls remove rock for ur profile picture, its ilegal [sic] if u no own” trolled another.
From a certain perspective, the EtherRock owner was fortunate. “My net worth was nothing before the rock,” they would report. Unlike Mr. Sun, they hadn’t spent a half-million dollars buying a jpeg.
But for the millions of investors who have lost money on NFTs, these revelations highlight the absurdity of it all. When art experts struggle to explain why an EtherRock should be worth 444 ETH instead of 444 wei, we know we’ve fallen down a strange rabbit hole indeed.
Where Have All the Meme Coins Gone?
Investors might have noticed that I’ve broadly stopped talking about meme coins.
That’s on purpose.
Picks like GoesUpHigher (GUH-USD) and Shiba Inu (SHIB-USD) are now swimming against the tide. In a world where 99% of tokens are basically worthless according to BscScan, young investors only have so much patience before they get tired of losing money.
Instead deep value stocks have taken over. This week my #2 pick Volt Information Sciences (NYSEAMERICAN:VOLT) surged 100% after receiving an all-cash offer for its shares. And drilling companies from Indonesia Energy Corp (NYSEAMERICAN:INDO) to Houston American Energy (NYSEAMERICAN:HUSA) have become social media’s newest infatuation.
Tokenization’s Beanie Baby moment will eventually return. Carbon credits… collectible cars… even a company’s HR department could theoretically be converted into tradable tokens. So though investors today are better off switching to higher-quality picks for, there will be a day when NFTs become hot once again.
P.S. Do you want to hear more about cryptocurrencies? Penny stocks? Options? Leave me a note at firstname.lastname@example.org or connect with me on LinkedIn and let me know what you’d like to see.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.