The speculative mania took hold in a niche, previously untapped sector, baffling onlookers as opportunists from afar sought to profit from a bizarre and inscrutable new market. Thousands of businesses materialised almost overnight and enormous sums of money poured into them from investors large and small as talk about “blockchain”, “democratisation” and “tokenisation” wormed its way into mainstream consciousness.
As the market exploded and major corporations began to join the flailing bandwagon, pundits began to wonder whether there was any intrinsic value—or any value at all—underlying the craze; public confidence soon waned as it became clearer that the whole thing was perhaps a bit much. The market deflated and a new generation of disappointed investors were left holding the bag.
Sound familiar? This actually took place in the summer of 2017, when thousands of completely unregulated ICOs (initial coin offerings) began to dominate the newly frothy cryptocurrency markets. Seeing Bitcoin’s precipitous rise, thousands of companies decided to hitch their fortunes to the cryptocurrency’s younger sibling, Ethereum, a self-described “world computer”, which offered the ability to fundraise by minting “tokens”—effectively shares—without regulation, scrutiny or any semblance of a viable product.
“Ethereum was basically a platform for illegal securities”
Amy Castor, journalist
Upwards of 80% of the sales wound up being glorified pump-and-dump schemes, with millions made and very little built, and the whole thing eventually fell foul of the US Securities and Exchange Commission. This year, these opportunists have moved onto unregulated pastures new: the world of high art.
It is difficult to overstate just how similar the mania around NFTs (non-fungible tokens) is to the boom of 2017. Over the past few months, many of the same cryptocurrency devotees who failed to realise their dreams of democratising/tokenising/decentralising finance have pivoted entirely to digital art, fuelling another boom that has seen Christie’s auction a digital collage for $69m, a tweet by Elon Musk garnering a $1.1m bid, and toilet paper brand Charmin peddle NFT-monogrammed loo roll. As before, the underlying value of the craze is dubious: “buying” an NFT does not generally confer actual ownership, but rather produces a certificate and a link to a URL of an image that can still nevertheless be viewed by anyone online.
While much of the action taking place in the NFT world has been chalked up in marketing materials as, uncannily, a “democratisation of the art world”, a major portion of the frantic buying is actually fuelled by boosters from the cryptocurrency world, some of whom have used the NFT boom as an opportunity to resurrect their flagging, 2017-era businesses. Take, for instance, the $69m sale by Christie’s of Everydays: The First 5,000 Days by the digital artist Beeple (aka Mike Winkelmann). Of 33 active bidders, 91% were new to Christie’s, and 64 % were either Millennials or Generation Z—buyers who were primarily the newly minted crypto rich, beneficiaries of spikes in digital assets. It also emerged that the pseudonymous buyer, Metakovan, was Vignesh Sundaresan, a long-time cryptocurrency entrepreneur who owns the NFT index fund Metapurse (of which Beeple himself has a 2% stake) and, yes, raised $47.5m in an ICO in 2017. That company’s token, the Lendroid Support Token, now effectively has no value.