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Can the NFT craze end two years after prominent Kiwis Dan Carter and others launched their new business?


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    LAWRENCE SMITH/Stuff

    Bala Sharma is a young thirteen year-old investor who has seen success in the NFT trade. He hopes to start his own investment fund at some stage.

    A new report has shown the majority of NFTs – the crypto-asset craze which swept up celebrities and investors at its peak in 2021 – are largely worthless.

    Analysis by dappGambl, a community of experts in financial tech, estimates 23 million NFT owners hold assets of little or no value.

    Non-Fungible Tokens (NFTs) include digital forms of art and music. In Aotearoa, New Zealand Rugby, NZ Post and Dan Carter’s Glorious Digital all minted high-profile NFT collections amid the boom.

    The research analysed over 73,000 NFT collections and found almost 70,000 (95%) were valued at 0 Ether (Ethereum, the cryptocurrency used to buy them).

    And according to Dr Yang Hu, senior lecturer in finance at the University of Waikato, there are currently “huge risks involved in investing in NFT”.

    “For a rational investor, they do not want to put all their eggs in one basket. I think the take-home message should be that NFT investing is very risky,” Yu told Stuff.

    GLORIOUS DIGITAL/INSTAGRAM

    Shareholder Dan Carter at a launch event for Glorious Digital.

    In 2022, the Financial Markets Authority (FMA) wrote that “while it's possible to have fun with NFTs, be careful”.

    “NFTs don’t have the same kind of protection that you’ll see with regulated financial investments. You make money trading NFTs when you find someone else who is willing to pay more for it than you did.” Binu Paul of the Financial Markets Authority said.

    Glorious Digital, whose site describes the brand as “joyous” and “life-affirming”, has several high-profile backers, including former All Black Dan Carter and former Solicitor-General Michael Heron KC.

    Glorious Digital, who did not wish to comment for this story, sells artworks which are not traded on Opensea – the standard NFT marketplace – but on the company’s own trading platform.

    The argument of a platform such as Glorious Digital is that they work alongside artists to create digitally authenticated original artwork.

    Their website says the brand builds “beautiful, on-chain and off-chain human experiences at the cutting edge of innovation” and Glorious has signed up big names including musicians Neil Finn, Six60 and Nathan Haines as well as artists Dick Frizzell, Lisa Reihana, and Heather Straka.

    Sotheby’s Bored Ape NFT collection has come to embody the drastic decline and downward turn of the NFT trade. Many celebrities, including Justin Bieber, Jimmy Fallon and Paris Hilton touted their statement-making NFTs from the high-profile collection in 2021.

    On purchase, Bieber’s NFT was valued at US$2.34m (NZ$3.95m) – it is now worth US$60,000 (NZ$101,000).

    Now, a class action lawsuit of anonymous NFT investors is suing Sotheby’s for using the names of high-profile celebrities to augment the price of the asset.

    Andrey Metelev/Unsplash

    The dappGamble report showed that 79% of NFT collections remained unsold.

    The launch of New Zealand fine art NFT endeavours such as Glorious plays out against an uncertain future for the digital art market, an existential debate over whether art is a creative pursuit or an asset class and the spectre of government scrutiny and legal threats.

    Owner and managing director of Vertech IT Services, Daniel Watson, has rung the alarm bell around the utility of NFT projects and investing in cryptocurrencies for Kiwi investors.

    “Like most people, I looked at it and thought – it’s just tulips,” Watson told Stuff. “There is a vanishingly small percentage of actually useful projects out there that provide an actual value.”

    As for Kiwi investors still looking to get into the digital art game, Watson warned the NFT marketplace is still the wild west when it comes to regulation.

    “We’re behind Australia, Europe and the US in terms of regulations and compliance requirements of cryptocurrencies and NFTs.

    “Everybody is looking to get their cash.”

    Abigail Dougherty/Stuff

    Former All Black Dan Carter helped start a global NFT business called Glorious amid the height of NFTs.

    A year ago, an NFT became one of the most expensive piece of art ever sold – a piece of digital art called “Everydays: The First 5000 Days” – which went for US$69.3 million (NZ$117.m).

    Celebrity speculators have lost millions of dollars investing in the volatile asset. A year ago, Canadian pop star Justin Bieber​ bought an NFT of a weeping cartoon monkey for nearly US$2.34m (NZ$3.95m). Ten months later the image was estimated to be worth US$118,570 (NZ$200,227).

    To weather downturns and have lasting value NFTs need to either be historically relevant (akin to first-edition Pokémon cards), true art, or provide genuine utility.

    New Zealand has already had high-profile incidents in the NFT trade, including then-20-year-old Hamilton resident Martin Stephen Van Blerk’s Pixelmon​ aimed at creating images of cartoon monsters that were the “highest-quality game the NFT space has ever seen”.

    The business suffered widespread criticism after it raised US$70 million (NZ$118.2m) and delivered several NFTs buyers called “amateurish” and “comically bad”. Van Blerk​ apologised and stated the images were “unacceptable” and had “let many people down”.

    STUFF/Stuff

    Justin Bieber and his Bored Ape NFT, which was bought for nearly $3.95m and is now estimated to be worth $200,000.

    Yu, however, characterised the NFT decline as more consistent with “a bubble burst” than a death knell for the Kiwi industry.

    “It’s dropped in half from the peak,” said Yu. “But I think they will still exist.

    “I don't think the industry is dying, but it has hit a bubble”.

    Yu said he believed “there will be opportunities”, but first there needs to be regulation to protect retail investors. However, NFTs are an asset class designed to skirt regulation and minimise government intervention.

    “Because we are in a very small market, I don’t expect quick regulations to come into effect,” Yu said.

    The study paints a more cynical portrait of the NFT industry’s future.

    “It becomes clear that a significant portion of the NFT market is characterised by speculative and hopeful pricing strategies that are far removed from the actual trading history of these assets,” the report said.

    “The situation may even be bleaker than these numbers suggest.”

    Sources


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