The Spear and Shield of NFT: Sales are Hot, but Ownership is Highly Concentrated

In 2021, NFT gradually expanded into multiple vertical fields, and trading volume grew extremely rapidly.

Data don’t lie——

• As of the fourth quarter of 2021, total sales of NFT collectibles and artworks have reached US$7.4 billion.

• From January 1 to November 5, 2021, the total sales volume of the NFT art market has grown from US$17.8 million to US$1.8 billion.

• From the beginning of 2021 to date, the total sales volume of the NFT collectibles market has also soared from US$55.5 million to US$5.6 billion.

• Reuters also reported that total NFT sales jumped from $1.3 billion in the second quarter to $10.7 billion in the third quarter.

• In April of this year, NFT artist Pak, who auctioned his work at Sotheby's for the first time, sold his work for US$16.8 million; shortly thereafter, Christie's sold the NFT work of artist Beeple for US$69 million.

Let’s look at another example, the NFT brand “Bored Ape” Bored Ape Yacht Club——

• On October 26, Bored Ape Yacht Club #8817 was sold on Sotheby's Metaverse NFT platform for US$3.408 million (approximately 819 ETH), setting a record high, which made the NFT market even crazier.

• The previous Bored Ape Yacht Club NFT work was auctioned in September this year, and the transaction price reached as much as US$2.9 million.

• It is worth mentioning that another auction that exceeded expectations took place in September. The 101 Bored Ape Yacht Club BAYC NFT (a collection of 107 NFTs, including 3 bottles of M1 mutant serum and 3 bottles of M2 mutant serum) created by Yuga Labs ended bidding on the Sotheby's website and sold for $24.393 million, far higher than the Sotheby's estimated highest price of $18 million. Yuga Labs' 101 Bored Ape Kennel Club BAKC (a collection of 101 NFTs) sold for $1.835 million, within the estimated price range ($1.5 million-2 million).

According to statistics from DappRadar, a dApp market data and distribution platform, the Bored Ape Yacht Club NFT art series launched in April 2021 has accumulated nearly $1 billion in sales this year. Pedro Herrera, senior blockchain analyst at DappRadar, said:

“Through NFT, we found that this may be the best period for the cryptocurrency industry. Driven by this, many newcomers are beginning to enter this field.”

The “hype problem” is real

In April 2021, the art and data science blog Artnome published an article stating that there is a correlation between the number of visits by registered collectors on the crypto art platform SuperRare and the sales price of NFTs on the platform, and that "the hype machine is real" because data shows that the more times a registered collector visits an NFT work, the higher the sales price of the NFT work will be.

There have been two spikes in the NFT market this year. Coincidentally, at these two points in time, searches for the term “NFT” on the Internet soared.

• The first time was on March 11, when Christie’s online auction site sold the highest price ever for an NFT work - Beeple auctioned his artwork puzzle titled "Everydays: The First 5,000 Days" for $69 million. This was the first NFT work ever to be auctioned at a major art auction house. It has to be said that this was a successful hype, the market was ignited, and the total monthly sales of the NFT art market soared from $32 million on March 1 to $83 million on April 1.

• The second surge occurred on July 31, when the annual sales of the NFT collection market increased from $1.2 billion to $4.65 billion. With the birth of the two most popular artificial intelligence-generated collectibles, CryptoPunks and Bored Ape Yacht Club, the frequency of searches for the term "NFT" on the Internet peaked, and those two works began to dominate the crypto art market.

NFT ownership has a centralization problem

In a column published in the New York Times in May 2021, Hungarian network scientist Albert-László Barabási presented the results of an analysis of transactions on the crypto art NFT market platform SuperRare. In the analysis, Albert-László Barabási deeply examined the number of art NFT transactions shared by collectors on the SuperRare platform. He defined "jointly owned art NFTs" as art NFTs bought and sold between multiple collectors through the SuperRare platform.

Not only that, Albert-László Barabási analyzed each piece of art as a "node" on the "network" of transactions between registered collectors on the SuperRare platform, so that he could understand how many of the same works different collectors actually own. The reason for his analysis is very simple, namely: art collectors usually collect and trade a certain type of art, whether it is a specific artist, style, genre or medium. Therefore, Albert-László Barabási believes that high-end art NFTs are actually purchased by a very small number of collectors.

It turned out that his "belief" was correct.

Albert-László Barabási found that there are four collectors on the SuperRare platform who own most of the NFT works. The number of NFT artworks they have collected is as high as 16,000, and the number of NFT collections among these four collectors is not much different.

Crypto analysis company Moonstream analyzed NFT transactions on the Ethereum blockchain between April and the end of September and released a report, which also found that there is a lot of inequality in the Ethereum NFT market - 16.71% of NFT owners control 80.98% of NFTs. In addition, most of these NFT purchases are for NFTs with more external utilities - such as utility tokens with domain name service functions - compared to NFT collectibles CryptoPunks that are easily sold for seven figures, these NFTs on the Ethereum blockchain seem to focus more on on-chain practical functions.

The report also found that among crypto addresses with NFT ownership, the number of addresses holding less than 10 ETH accounts for approximately 83.29%. Although Moonstream's data looks at the broader NFT market, the conclusions seem to be consistent with Albert-László Barabási's analysis, namely: For the higher-end, intrinsically valuable crypto art market, there is indeed a "whale club" that owns most of the NFTs. These whales are not numerous, but the relationship between them may be very close. At this stage, most of these NFT owners are collectors or trading platforms. However, the report reminds that due to the low entry barriers to the NFT market, there is a certain degree of correlation between NFT ownership payments and the external utility level of NFTs.

According to a market survey conducted by The Harris Poll and Adweek in April this year, 40% of the 1,088 participants surveyed said they were "familiar" with NFTs, and 81% said they knew about NFTs. The survey report wrote:

“In general, many Americans are still not jumping on the NFT bandwagon—only 12% of respondents said they have invested in digital collectibles. Of course, among millennials, the number is slightly higher: 27% of young people say they are currently investing in NFTs. Of course, millennials are also the group most likely to invest in cryptocurrencies, with 37% willing to invest in cryptocurrencies. It’s worth noting that those who consider themselves “collectors” are very eager to join the digital collectibles space, with 22% of this group saying they already own NFTs, and among collectors with an annual income of more than $100,000, the percentage of owning NFTs rises to 33%.”

As described in the Hiscox 2021 Online Art Trade Report, many senior people in the art industry have difficulty understanding the current market conditions due to the excessive value of CryptoPunks and Bored Ape Yacht Club artworks at auctions, which has led many people to not know what is hype and what is not hype. However, some traditional art concepts are also changing. According to a survey of art auction houses and online auction sites, 14% of art market platforms have begun to offer NFT auctions on their platforms, and another 38% of the surveyed art auction houses and online auction sites said they plan to include NFTs in auctions soon.

According to the report, some predict that the traditional art market and the crypto art market will likely eventually merge into a hybrid art market, in which physical art galleries can display crypto art, while traditional art will be digitized and sold online. For example, so far in 2021, at least four high-value crypto art auctions have been conducted on traditional art auction platforms. Perhaps one of the biggest signs that traditional art collectors are entering the NFT market is that traditional auction houses like Christie's and Sotheby's are conducting NFT auctions and bridging the gap between NFTs and art collectors.

The Hiscox 2021 Online Art Trade Report lists three major factors that have driven the surge in the crypto art market this year:

1. COVID-19;

2. Christie's and Sotheby's, the two largest traditional art auction houses, began to accept cryptocurrencies as a payment method. Using cryptocurrencies as payment is a way for the two auction houses to attract and cater to cryptocurrency investors;

3. NFT provides artists with a public ledger that can create proof of ownership and authenticity for their works. In addition to preventing theft and forgery, it also allows artists to collect royalties on the secondary NFT art market.

Will digital art go mainstream?

Today, the price of CryptoPunk NFTs has reached seven figures (in US dollars), but at the same time, the art and collectible NFT market still does not seem to have become mainstream, so people can't help but ask, what exactly needs to be done to be accepted by the mainstream?

In April 2021, a post on the art and data science blog Artnome wrote that one of the biggest achievements of crypto art so far is that it "breaks the illusion of contemporary art as a 'high-end' cultural space." Crypto art itself brings a way beyond the traditional art market, in which speculation seems to be as much a driver of artistic value as the work itself. "

Pedro Herrara, senior blockchain analyst at DappRadar, concluded:

“It’s important to draw a line between different types of NFTs. Of course, CryptoPunks are now the equivalent of Picassos in crypto art. As such, CryptoPunks are actually beyond the financial reach of most people. However, new and exciting NFT collectibles appear every day, and they all have the potential to eventually become as valuable as CryptoPunks, and the average price of these NFTs is currently basically under $400. Frankly speaking, you don’t need to have millions of dollars in your wallet to participate.”