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Digital Art NFTs: Is the Hype Dead, and Where to Next?

Digital Art NFTs: Is the Hype Dead, and Where to Next?
  • Digital artists are switching to Hic et Nunc marketplace to mint and sell their NFTs.
  • The platform is based on Tezos and uses a more energy-efficient consensus.
  • Digital artists like Joanie Lemercier and Memo Akten have left Ethereum in favor of Tezos.

It all started with Cryptokitties. In 2017, the Ethereum-based application that issued cartoon artwork of digital cats managed to choke the network as people rushed to grab their own unique feline cutie. Many predicted it would spark a craze for NFT-based assets. 

It did, although the craze was a long time coming. Over recent months, the NFT trend has exploded into the mainstream. Despite having a wide variety of use cases, the main focus so far has been on NFTs as digital art. The most famous example by far is Beeple’s $69 million sale via Christie’s. However, Sotheby’s has also moved into the space, closing an auction of NFTs from digital artist Pak at $17 million. Phillips successfully shifted its first NFT from artist Mad Dog Jones for $4.1 million

But the crazy sums of money changing hands may not last. By all accounts, NFT sales dropped off in April. Crypto exchange Kraken’s monthly Intelligence and Market Outlook report shows that volume in April was down by 80% compared to February. 

Many are quick to point out that the bubble is bursting. However, that’s not necessarily the case. While the initial hype may be dying off, the Kraken report shows a good deal of confidence that “market participants are continuing to build and innovate within the world of NFTs.”

What does that mean for the NFT art markets, and where can we expect them to go next? Based on recent events and some expert insights, there are several directions.

A Market Dominated by Crypto Whales?

One clear trend has emerged from the recent high-profile NFT sales – the buyers tend not to be collectors of traditional art. One NYC art adviser recently told the New York Times, “Absolutely none of my clients are buying NFTs. I have people curious, but we are waiting to let the dust settle first.”

The NFT art phenomenon certainly appears to be led by wealthy individuals who aren’t your typical art collector – at least for the sales where buyers have made themselves known. For instance, the Beeple collection auctioned by Christie’s was scooped up by Vignesh Sundaresan, aka MetaKovan, a Singapore-based entrepreneur and investor. 

According to an interview he gave to CNBC’s Squawk Box, he was willing to hand over $69 million due to his belief that the NFT is a “very significant piece of art history.” 

He went on to state his belief that digital NFT-based art is only at the beginning of its journey: “Sometimes these things take some time for everyone to recognize and realize. I’m OK with that,” Sundaresan said. “I had the opportunity to be part of this very important shift in how art has been perceived for centuries.”

Justin Sun, founder of the TRON platform, is another wealthy crypto entrepreneur who’s embraced the NFT trend. Having missed out on the Beeple auction, Sun was quick to scoop up the Pak NFT auction led by Sotheby’s. He took to Twitter to announce that he had purchased a full set of NFTs for his firm’s JUST NFT fund. 

Max Moore, the representative from Sotheby’s who led the Pak sale, has also identified that NFTs are inspiring a new generation to get involved with art. “They are primarily younger and more digitally native than other collectors,” he told the NYT. “We wanted to establish an understanding of what is defining their taste and collecting style.”

Are NFTs Imitating Art?

This domination by wealthy investors could be a case of NFTs imitating art, as, in general, the markets for physical art tend to be dominated by a few wealthy collectors. Zeev Farbman, CEO of Lightricks, a unicorn startup that produces apps for visual creators, believes that there are many parallels to be drawn between art, NFTs, and the broader cryptocurrency space

Farbman noted via email that “The world of physical art shares many characteristics with the emerging world of digital art – speculation in the hope of profits, the elitism of the wealthy few and wanting to secure something exclusive, regardless of whether or not it has any real artistic value.”

If NFT art is to continue to be dominated by wealthy cryptocurrency entrepreneurs and investors, then there’s every chance it won’t sustain. There is only a small handful of individuals who fit that criteria, which is hardly a recipe for long-term success for NFT art as an asset class. 

But that’s not necessarily the case. According to a recent report from Artnet, most NFT sales are actually in the less-headline-grabbing region of $200. The fact is that the massive sales dominate newsstands, but they also skew the figures, bringing average values well above the median prices. So there is hope for those investors hoping to grab themselves a slice of the action without spending millions. 

“Similar to the crypto markets, it’s difficult to forecast if NFTs are a hype-drive bubble, or if they will cement themselves as a real marketplace,” said Farbman. “But I do know this – if NFTs do continue to draw interest from buyers and do continue to be adopted as an ownership and licensing mechanism, then the potential for NFTs to change the digital creative landscape is enormous, and it doesn’t matter whether or not the hype cycle has run its course.”

Choosing Sustainable Platforms

The sustainability point is indeed one that may deter many would-be investors in NFTs. Many NFTs are still minted on Ethereum, which operates the energy-intensive proof-of-work consensus. It recently came under scrutiny after artists, including Joanie Lemercier, who is also a climate campaigner, realized that their NFT drops were consuming vast amounts of energy. 

In Lemercier’s case, his drop effectively wiped out years of work to reduce his carbon footprint. He only discovered this fact thanks to another artist, Memo Akten, who has highlighted the issue by tracing the environmental impact NFT artworks. For its part, Ethereum is planning a move to a more energy efficient model, but Akten isn’t convinced, telling Wired that “People say that hopefully it will be fixed in a year or two, so it’s OK to be exploitative right now.”

For his part, Lemercier voted with his feet. He canceled his planned Ethereum NFT drops in favor of a more environmentally sound option. Hic et Nunc is an NFT marketplace based on Tezos, which runs on the more energy-efficient proof of stake consensus. Lemercier is far from the only artist to make the move. Others, including Kelly Richardson, Mike Tyka, and Memo Akten himself, have also opted for Hic et Nunc instead of Ethereum NFT marketplaces. 

Non Fungible Rhythms 

Overall, while the initial hype may be dying down, there’s still plenty going on in the digital art NFT space. Rather than a burst bubble, it seems more likely that the segment is settling into a more sustainable rhythm, introducing new art media to new audiences.

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