September 2021

DECODING COLLECTIBLE NFTs

CryptoPunks were released in June ‘17. Only 10,000 of these unique collectible characters will ever exist. As of September ‘21, this collection has seen lifetime sales of US$ 1.3bn with Christie’s auction of 9 Punks going for US$ 17mn. Popular owners include Visa, Jay-Z, Snoop Dogg, and Odell Beckham Jr. 

But, why do these pop art pixel portraits hold any value?

In this month’s newsletter, we discuss the market trends for art and collectible NFTs and demystify the factors driving their valuations.

WHAT ARE NFTs?

Non-fungible Tokens (NFTs) are digital assets with blockchain-managed ownership. They can be collectibles, tickets, identities, music, legal documents, art, etc.  They could be visualized as files in JPEG, GIF, MP4, or any file format for that matter. 

MARKET TRENDS

This year saw a mini NFT season from mid-February to early May 2021 surrounding the sale of Beeple’s Opus for US$ 69.3mn, the launch of NBA Top Shots, and the resurgence of CryptoPunks. Since August, we’re witnessing another boom in the market numbers with new players like Art Blocks, Bored Apes Yacht Club, and Loot gaining traction.

FACTORS DRIVING THE VALUE OF NFTs

Just being an NFT doesn’t make an asset valuable. Many NFTs may lose significant value over time and be perceived as worthless. The price or the worth, as with most goods and services, is determined by what someone is willing to pay. And the willingness to pay in the case of art NFTs and collectibles is primarily driven by factors listed in the below table:

THE NFT PREMIUM

Collector’s Edition

• Digital natives want to use NFTs to store value, access exclusive services, or own them just to display it as a social signal. Each use case has a unique approach to raising the value of these digital assets and adding an NFT premium to them. 
• One perspective that we are watching is the active creation of the new status game. A person who was willing to spend US$ 100k+ on physical goods like a luxury car, watch, house, painting, jewelry, etc, and display it to a certain set of people in their network only, can now go digital and flaunt his collection via NFTs and reach a global audience. 
• Owning a million-dollar digital avatar with proven ownership and having it up as the collector’s Twitter profile picture. This is what gives digital collectibles an exorbitant premium.

Creator’s Perspective

• The on-chain nature of NFTs opens multiple avenues for creators to get a premium on their creation. 
• Royalties work seamlessly on blockchain because of the smart contract mechanism which ensures the creator is paid for any secondary sale of his art. 
• Another benefit of digital art for artists is the ability to access a global market and have the right price discovery of their work.

INDIA x NFTs

Amitabh Bachchan is dropping NFTs for his fans in November ‘21. Rajnikanth starrer Sivaji The Boss will drop NFTs soon. Terra Virtua is launching collectibles for the Indian Super League. Metakovan who paid US$ 69.3mn for Beeple’s Opus is of Indian origin. Wall is working with creators to galvanize the NFT movement in India. Zee Studio is a popular media house working with NFTs.

CONCLUSION

Due to their nature and relatively new use cases, the valuation of NFTs is an evolving and challenging area. The perception of owners and buyers, scarcity, access, and distribution channel, all influence its value. NFTs have no physical restrictions, and they have greater visibility and liquidity because they can be accessed and transferred instantly across the globe. We at Woodstock are optimistic and excited about this space, and we will actively track any advancements in this digital phenomenon known as NFTs.

Woodstock Articles

LET’S TALK – LAYER 2 SOLUTIONS

Layer-2 solutions are off-chain scaling technologies that help layer-1s achieve more scalability and cost-effectiveness. We believe that the future blockchains would be built with the currently available technology, the on-chain scaling solutions, and the off-chain modular legos, all tightly coupled into fast, secure, cost-effective, and user-friendly worldwide utilities. Please check out our blog post on layer-2s here.

THE DECADE OF DIGITIZATION AND DIGITAL ASSETS

COVID-19 precipitated the current economic crisis in 2020. Liquidity injection again emerged as a panacea. But, is liquidity injection a curse or a cure? It would be unfair to come to a conclusion without appreciating the origin of money, how money evolved, what is the current context, what are the consequences of the current economic system and how it is priming to make a shift towards a distributed financial system. We foresee the emergence of a flourishing and co-existing economic system led by the ‘Decade of digitization and digital assets’. Check out our views in detail in this article.

Woodstock In News

1. We started a webinar series on “Demystifying Digital Assets” to bring you up to speed with this nascent asset class and explaining why you should consider adding exposure to this space. You can register for our next webinar.
2. Pranav Sharma, Founding Partner of Woodstock Fund, was on the panel at The Crypto Summit by INC 42, and shared his insights on the crypto landscape in India.
3. Pranav also interacted with CNBC TV and shared his insights on Indian Startup ecosystem and VC Funding in blockchain.
4. Divesh Agrawal, Head of Investments Communication at Woodstock Fund, was on the judging panel for the final demo day of NEAR Accelerator Program.
5. Woodstock Fund recently restarted running validator and delegation services for the Elrond Network. EGLD holders can now stake their tokens to our staking provider using the explorer or the Maiar app on mobile. At the time of writing, the APR is above 12%. Please check it out by clicking on this link.

Market News 

• Chinese regulators intensified a crackdown on cryptocurrencies with a blanket ban on all crypto transactions and mining. This coupled with the Evergrande crisis caused a ripple effect in the market.  In September, BTC started the month at US$ 48k levels and made a high of US$ 52.8K before dropping to US$ 40k levels. 
• We continue to see strong support at US$ 40500 levels for Bitcoin and US$ 2700 for Ethereum. While Ethereum remains the dominant smart contract platform, there are several ecosystems in alt-coin markets that present highly asymmetric risk-reward opportunities. 
• Solana mainnet experienced 17hr downtime due to a large increase in transaction load which peaked at 400,000 TPS. These transactions flooded the transaction processing queue, and the lack of prioritization of network-critical messaging caused the network to start forking. This outage led to SOL token price to correct by 26% on 15 September.
• Visa develops an interoperability concept for central bank digital currency payments. The company has also deployed its first-ever sample smart contract on Ethereum’s Ropsten testnet.

DeFi

• Anonymous leader at decentralized exchange protocol Sushiswap — Maki — is set to step down from his position with the project
• Derivatives decentralized exchange dYdX beats out Coinbase’s spot markets by volume amid China crackdown. dYdX facilitated more than US$ 4.3bn worth of trades on 26 September, beating out Coinbase’s US$ 3.7bn in volume by nearly 15%.

NFTs

• Fantasy soccer NFT platform Sorare raised $680 million in a funding round led by SoftBank.
• Fractionalized Doge NFT valued at $225 million after SushiSwap auction
• NFT startup Dapper Labs raises $250 million in new funding

Market Dashboard 

*Updated on 1st October ’21

Key Market Assets/Indices

Market Movers

You can find the previous month’s newsletter here. 

Download PDF

If you were forwarded this newsletter and would like to receive it, sign up here.

Questions? Feedback? We’d love to hear from you! Simply reach out to us at contact@woodstockfund.com

Warm Regards,

Woodstock Team