Social Capital founder Chamath: NFTs are the next area where cryptocurrency is about to explode

This article was published on CryptoC by Chamath and translated by Zuo Yi.

In January 2021, the battle between retail investors and Wall Street institutions surrounding GameStop has been recorded in history. This intense battle lasted for three days, ultimately resulting in retail investors defeating Wall Street's big short, with GameStop's stock price soaring by 1550% within the month. The multi-billion dollar hedge fund Melvin Capital has closed its short position on GameStop, and the well-known short-selling firm Citron has also declared surrender, stating that it will no longer comment.

One of the leaders behind this retail-driven short squeeze against Wall Street giants is Chamath Palihapitiya, founder of the venture capital fund Social Capital and former Facebook executive. As one of the investors in the crypto space, Chamath Palihapitiya recently stated in an interview with Bloomberg that he is optimistic about NFTs as the next area of explosive growth in cryptocurrency and has built a substantial NFT investment portfolio.

With strong support from investors like Tesla founder Elon Musk and Chamath Palihapitiya, trading based on pure digital art forms has begun to gain attention.

Beeple's Everydays - The First 5,000 Days (2021), a non-fungible token (NFT) minted on February 16.

Are NFTs just a fad? Or can they truly represent the future of the art market?

Clearly, the art auction giant Christie's also wants to know the answer to this question. Later this month, Christie's will become the first mainstream auction house in the world to offer independent NFT artworks, with a piece created by Beeple up for auction. Although the author's name sounds like a character from a children's television show, you might be surprised to learn that his Instagram account has 1.8 million followers. The title of the work being auctioned by Beeple is "Everydays: The First 5000 Days (2021)." Since May 1, 2007, he has created one piece of art every day, accumulating a total of 5000 pieces. These works are pieced together to form this complete pixelated artwork.

Beeple's real name is Mike Winkelmann, and he has now gained the support of many celebrities, having created music videos for artists like Ariana Grande, Justin Bieber, Childish Gambino, "Spicy Chicken" Nicki Minaj, Skrillex, and Deadmau5. Beeple's artworks consistently sell for considerable prices; in December 2020, 20 of his works were sold for a high price of $3.5 million.

However, it should be noted that Christie's holds a significant position in the auction industry, so this time they did not provide a clear starting price for Beeple's work but instead offered an "unknown" valuation. The auction is set to take place from February 25 to March 11, with bidding starting at $100. Unlike the NFT auction of Robert Alice at Christie's in October 2020, this Beeple piece is entirely digital, meaning the winning bidder will receive a cryptographic file with no physical existence, and the transaction will be registered on the blockchain. Importantly, unlike the traditional art world, all sources of NFT purchases are public, immutable, and can be queried on the blockchain.

Noah Davis, an expert in post-war and contemporary art at Christie's, stated that the NFT trading market "has rapidly risen in the past few years—especially in recent months." A recent example occurred on February 14, when British graphic designer David Rudnick, known for high-profile collaborations with musicians like Black Midi, Nicolas Jaar, and Oneohtrix Point Never, announced the launch of a Valentine's Day NFT, which sold for nearly $20,000. It was revealed that the buyer of the "Valentine's Day NFT" was an anonymous bidder who paid 10.8 WETH (Wrapped Ether), equivalent to $18,600. David Rudnick's piece is titled "I've Been Dreaming of This for a Long Time," featuring a lewd rendering of a flower, and the NFT work was named "Stem" before being sold on the NFT marketplace Zora. The Zora platform offers artists a percentage of future sales, which differs from traditional trading platforms where creators often struggle to receive resale profit shares—David Rudnick, for instance, receives a 10% resale share on the Zora platform.

So who is buying this kind of artwork? Noah Davis responded that millennials make up the majority of the NFT trading market, and these individuals are mostly newcomers to the auction industry. However, he also revealed that there are many traditional collectors who are very interested in digital art among the buyers. Noah Davis added that the potential of the NFT market is particularly intriguing because it attracts three types of audiences in the art field:

1. Tech-savvy buyers;

2. Audiences focused solely on digital art;

3. Collectors who have long been attracted to cutting-edge new media art.

Among the first audience, the most notable are Elon Musk, CEO of SpaceX and Tesla, and Chamath Palihapitiya, CEO of Social Capital and former Facebook executive, both of whom have recently revealed investments in NFT artworks.

Reports indicate that Chamath Palihapitiya is building a large NFT portfolio that includes digital art and virtual trading cards, and he recently stated in an interview with Bloomberg: "I do believe that NFTs will be the next area of explosive growth for digital currencies and digital assets."

Recently, many media headlines have referred to Chamath Palihapitiya as the "undisputed king" in the special purpose acquisition company (SPAC) field, which seems to be opening a new window for the art market.

For some, the current market's immense attention on NFTs seems unsurprising, such as Jason Bailey, founder of the analytics database artnome and a digital art expert, who stated: "For quite a long time, the center of world culture and influence has been in the analog world, but it is now beginning to shift to the digital world, and the COVID-19 pandemic is undoubtedly one of the main reasons accelerating this shift."

Nevertheless, the art world typically reacts slowly. As Jason Bailey pointed out, auction houses are mostly built around exclusivity, centralized systems, and similar activities (like live auctions and art fairs), a method that is more favored by the "baby boomer generation" and has been in operation for decades.

However, Jason Bailey added: "The generation after the baby boomers is now preparing to benefit from the largest wealth transfer in human history. The younger generation's perspective is completely opposite to the values of the baby boomers; they prefer brands based on inclusivity, decentralization, and digitally native experiences. If Christie's and other auction houses view blockchain and NFTs as a fad rather than the future of the art market, they will miss a once-in-a-lifetime opportunity, as the next generation will not choose these old-fashioned auction houses."

On the other hand, the quality of artworks has always been a sticking point for some traditional art world participants. Jason Bailey stated that some may choose to opt out of NFTs because they dislike the works of a few artists, but this will not hinder the forward momentum of NFTs. Just like in the 1990s, some websites on the internet disappeared, but the potential of the internet was not affected.

The question now is how long it will take to complete NFT transactions, rather than just being bought and held. Perhaps only when the efficiency of NFT transactions is fully improved can we assess whether this market is truly ushering in a period of prosperity.