The market for non-fungible tokens (NFT) has been maybe the most speculative extreme of the cryptocurrency bull market. At the same time, just like many previous speculative frenzies in areas like airlines, railroads, or Internet stocks when these were pioneering technologies, there is also the feeling that behind the greed and froth there is a kernel of potential to be truly disruptive.
However, this has been totally lost amid the rush to make a quick buck among celebrities and promoters. It's eerily similar to the initial coin offering (ICO) market which emerged in 2018 with the vast majority of projects becoming worthless and many just quick money grabs. However, a handful has become so successful that they dwarf the failures.
So, traders and investors should certainly keep an open mind to this possibility.
However, we are approaching the part of the cycle, where we are starting to see the froth come out cryptocurrencies and NFTs. This is despite major institutional money coming into the sector in terms of investing in the infrastructure as well as an increasing number of companies and celebrities who are launching new NFTs.
Every market is about supply and demand. The problem with digital currencies or goods is that supply can easily be ramped up which puts a long-term, negative pressure on prices. Even in assets with production constraints or lag times, supply eventually increases to meet demand. The same thing happens in NFTs at a much more rapid scale which means steep losses for those who buy at the peak of the hype cycle.
The latest example of this is an NFT that was minted by Jack Dorsey of his first ever tweet from March 21, 2006, when he wrote, "Just setting up my twttr". There was a bidding war for the NFT between Tron founder, Justin Son, and cryptoentreprenuer, Sina Estavi.
Estavi won the bid for $2.4 million in March 2021. Recently, he posted it for sale at a price of $48 million. It failed to generate any interest with the largest bid being $280. Later, bidding did pick up with the current highest offer at $12,000.
This is simply another reminder of what can happen buying assets at speculative extremes but the risks are even more magnified for digital assets.