The value of all Art, including NFTs, lies in the eye of the beholder

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9 min readMar 18, 2021

Non-fungible tokens are establishing themselves in the mainstream, disrupting experts and launching valuation discussions. As with any market, buyers and sellers will ultimately be the judge.


As the debate rages over non-fungible tokens, it has become clear there are two sides. There are innovators who see vast potential, collectors and investors who are drawn in, and all manner of fans of these digital assets for a wide variety of reasons. There are also the detractors and naysayers, who speak to bubbles, valuation challenges, and bystanders who try to make facile comparisons to traditional asset classes and use words like “fad” to describe the presence of NFTs. That said, it takes buyers and sellers to make a market. I will also add this is not the first time either side’s bold call one way or the other reminds us of history repeating itself.

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Tom Kennedy has been remunerated by KABN Systems North America 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.

Please see the Disclosure Statements at the end of document.

Non-fungible tokens: A Primer

There is now a growing body of research and analysis on NFTs, reflecting their increasing relevance. However, most people haven’t even heard of them — yet. So, I will begin with a brief Primer, leaning on postings from the site

NFTs are tokens that are non-fungible, meaning not exchangeable equally for anything else. A bitcoin is worth one bitcoin, but an NFT is a unique digital asset and like a diamond or a physical baseball card, no two are the same.

An NFT can be likened to a file format that conveys digital ownership of a digital asset. Similar to the Mona Lisa as a painting, an individual entity “owns” the unique digital asset

The current record for an NFT sale was approximately $69 million in March 2021 for work by digital artist Beeple. This NFT was sold at a Christie’s auction in the same manner as other traditional art, giving a sense for how NFT’s can be transacted on the high-end. There are also NFT platforms where users can create, buy, and sell NFTs.

Valuing art of all kinds is a challenge

Voice of Fire or the work of Beeples? Which is “better”? There are many factors that affect the value of art, and any collectible, the most important of which is what someone is prepared to pay for it and what someone is willing to be paid to part with it. After that, scarcity value is a core driver, ascribing more value to rarer, unique items. To make my point about value in traditional art (I’ll use the term TradArt), I enjoy the following piece. However, I cannot justify personally paying a lot of money for it. Indeed, this painting was shown upside down for a period before that error was uncovered.

Figure 1: One of the most expensive pieces of TradArt in the world.

Voice of Fire by Barnett Newman. Source:

In order to have a strong opinion, you have to know enough about NFTs

Anything that is popular will attract interest from all sides for it and against it. I think there are a couple of relevant points to that. First, this means the most likely source of a correction in valuation (aside from force majeure like fraud or negative structural changes) is simply fewer buyers than sellers. There is no method for shorting NFTs (that we are aware of!) and so the market cannot crash due to bets against it — “no bet” is the only bet to the downside. Secondly, traders of financial or valuable instruments tend to be more sophisticated and layering on those knowledgeable enough to be trading NFTs shrinks the current pool far more. A third point would be that these collectibles represent transactions between few, like-minded people.

The TradArt market, with all of its similarities, is a US$60 billion market that we know of — meaning after removing the effect of black market or under-documented activity. I will continue to attempt to compare the sizing but at the moment it appears to be hovering in the >5% run rate range, which is certainly material yet with 10–20x growth potential to hit the same size transactionally. I have to admit this is very back of the envelope math in two relatively opaque markets at very different stages in their maturity.

Figure 2: The TradArt Market Globally.

Source: McAndrew, Dr. Clare. “The Art Market 2020.”

Crossing the Chasm: are NFTs reaching a material level of acceptance?

Source: The Block.

Harkening back to business academia, this does look suspiciously like Geoffrey Moore’s iconic yet simple chart, Crossing the Chasm. Doesn’t Figure 3 look like the earliest adoption period, prior to the “small chasm”? The early adopters are blockchain enthusiasts, pioneers, early users who were ready with their digital wallets and knowledge of the space. The Early Adoption segment is rounded out by Early Pragmatists and the small chasm could be a correction or lagging ecosystem changes. So, the next major phase, the real Chasm, hasn’t even begun, which is prior to becoming technological reality accepted by the masses.

Figure 4: One of the most expensive pieces of TradArt in the world.

Source: Moore, Geoffrey. Crossing the Chasm.

Clear risks to watch for in the short-term

Regulation will come in many forms, which will increase volatility as actors assess the impacts.

Regulation approaches in different countries will be both co-ordinated at times and completely decoupled at others. Different countries will impose stricter pre-emptive restrictions faster (for instance, China-type systems that are quickly enacted under the mandate of protecting stability in the financial system). Co-ordinated efforts with regards to AML policy will also gain priority if trading value remains high or grows.

Naysayers will exist for all kinds of reasons.

Anything this exciting will cause experts of all kinds, from influencers to thought leaders, to have an opinion. I’m reading dozens of them. These are intelligent, innovative people who are accustomed to fast change and cyclical developments.

Going back to the TradArt example, many people balk at prices that others find reasonable. Also, as I said earlier, in order to be a legitimate naysayer one would need to do a certain amount of homework on the asset class. Simply expressing that one doesn’t understand something doesn’t make it a farcical investment. There is no question the risk profile of NFTs is on the higher end, but I would argue owning anything with the aim to trade it short term comes with enormous risk as well. Remember, fraud is fraud and can affect the local corner store or the largest investment bank. Arguably there are elements of enhanced security and title with NFTs than many traditional collectibles.

NFTs will bear the risks of the broader markets generally, and cryptocurrency and technology markets. This includes headline risk and customer confidence in blockchain protocols.


I believe two things are here to stay. First, digital assets are only going to keep finding use cases, including and beyond art. Second, the unpredictability of NFT prices and volume volatility will continue to be very high, as buyers continually reassess their measures of scarcity, future values, and market acceptance.

© 2021 Thomas Kennedy. All rights reserved. See Disclosure Statement

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