Smart people keep innovating, for collectors and investors alike

8 min readApr 6, 2021

NFT market shows normal signs of maturing. Wow this is fast.

Precis

We have made our point about valuation of individual pieces of digital art. I think collectibles and art pricing will be primarily driven by the sophisticated collector. Like with any bull market, there will be speculators who have no idea what they are doing but they have a right to participate.

Not surprisingly, artists and collectors are learning how to communicate with their audiences with more success. The investment landscape is maturing as well. This is a real market, not a fad.

Safe Harbour

Tom Kennedy has been remunerated by Liquid Avatar Operations Inc. in the past twenty-four months. He holds a Long position in Liquid Avatar Technologies Inc. (CSE:LQID) at the time of publication.

His research is intended for the sophisticated investor to assess market developments and company performance and make insights. His comments are in no way intended as a solicitation to trade in any securities. All comments are subject to Risks and Uncertainties outside of the control of the author.

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The new NFT Index allows investors to participate in a basket of value

Just as with other asset classes, many investors want to participate more broadly in the NFT space rather than acquiring individual NFTs. An index can also provide insight into market activity. In January 2021, developer Alex Gausman created a tool for investors to play the market broadly and with enhanced liquidity. Since inception on January 5, 2021, this index has risen approximately 10-fold from US$18.00 to over US$200.00 at the time of writing.

Figure 1: Introducing the NFTX — an index fund that is a proxy for NFTs.

An index gives us a different risk profile while supporting the ecosystem

To me, this chart shows a sharp increase in prices from launch to US$500.00, after which the index seems to have settled closer to the $200.00 level on lower but more consistent volumes. Over time, this portfolio should continue to mature and get bigger, increasing liquidity and broadening exposure to the NFT market for investor participants.

So the investor — note, not the collector nor traditional use case — is comfortable with a valuation around US$200.00 in current market conditions, and trading volumes are representing a more consistent pattern. This sets the table for a breakout on news or renewed excitement, as vehicles like indices gain popularity. Furthermore, it is impressive how quickly the market invented and adopted such a tool as an index so quickly after interest expanded in 2021. This speed of investor innovation demonstrates the readiness of these new digital asset classes to respond to market demand.

Without getting into the components of the index, which can spark a unique debate about validity, I invite the reader to visit: https://coinmarketcap.com/currencies/nftx/ to explore this index’s components.

Active users for March show continued strength, albeit less than the parabolic growth in February.

The weekly user base is a critical metric of the front-line of the NFT market. We would also note that the user base is very much still in the developing stage. The bulk of NFT activity, without considering financial volumes, remains in the original NFT platforms for smaller-dollar Cryptokitties and NBA digital basketball cards, and gaming features. To that point, Vancouver, Canada-based Dapper Labs just announced it had received US$305 MM in funding to scale its Top Shot platform.

I will add to that last point by offering that the advent of a significant private fundraise such as the Dapper Labs announcement is foundational for the support of the NFT medium. Not only does this involve kudos to the roots of the ecosystem in its original and most popular forms, and to the skilled pioneers at Dapper, but this also involves a reputational commitment from superstar celebrity athletes who are personally investing in the fabric of this market.

Figure 2: New Users stays strong — and are mostly driven by Top Shot

Innovation Keeps Coming as brilliant minds look at use cases

The potential being unlocked by NFTs keeps marching ahead. In music, the Eulerbeats model has the music industry rethinking royalties, and bringing the creator to the table with fewer middle associates. Pop rock band Kings of Leon released a music album, which in spite some hiccups demonstrates the adaptability to music distribution and experiences. Advancing the medium in art, an NFT was sold with a “secret” that unlocks at a later date, creating mystery and engagement with fans. The addition of augmented reality and virtual reality features is going to be “huge” according to industry evangelists. Oasis Digital Studios (a subsidiary of Liquid Avatar Technologies Inc.) and other talented creatives are bringing engaging and exciting opportunities leveraging AR and VR.

The Gaming world takes longer because of the level of detail and programming, but metaverses like the Sandbox are coming to life very quickly. The in-game channel for exchange of digital assets will continue advancing interoperability with other ecosystems. Digital Wallets for storage and control of digital assets will become ubiquitous and once they are, all of these adoptions most certainly should move into a hypergrowth phase.

Summary

One thing is clear to me and that is the potential for NFTs is driving smart people to curate sophisticated collections, and creators to thrive. Value is being created at a fast pace. Symbiotic creations like indices will allow investors to participate in advancing an ecosystem at their pace.

I will not be surprised throughout the rest of the year when applications for NFTs continue to arrive that highlight use cases we haven’t begun to think about yet, in terms of cultural progress, investment opportunity, and utility cases.

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