I was musing on two very different topics this weekend, so I decided to split them into separate posts, with this one focusing on Art. The other is discoverability in NFTs, a huge problem and a ripe opportunity for entrepreneurs. Watch for that later in the week.
Generative Art Breaks Away
If there’s one sector in NFTs that has outperformed this year, it is Art. Particularly Generative Art. There is enough empirical data to conclude that this trend is not just spurious. Something structural is underpinning the NFT art market’s strength.
Just look at these recent all-time highs (ATH) in a bear market:
Matt Kane’s Gazers hits a new ATH in USD ($41,000)
Chromie Squiggles hit a new ATH in ETH (17E)
Tezos NFT sales volume hits new ATH in Q3 2022
One obvious reason: NFT art collectors comprise a wealthy, sophisticated subset of the crypto community. They have positioned themselves better than most in this market downturn, perhaps because of experience or access to information. People purchasing art today are relatively affluent and not worried about their jobs or daily expenses. They are diamond hands.
But more importantly:
Art thrives in low Belief Rate environments.
In a bear market, belief in everything suffers. And just as the discount rates hit companies with a higher percentage of their cash flows further in the future harder, the Belief Rate hits companies making bigger, more speculative future-looking bets harder, too. — Packy McCormick, Discounting Belief
I love the idea of Belief Rates coined by Packy, and it’s a mental model that helps me make sense of the world today.
Today’s world = High Discount Rate + Low Belief Rate.
There is far greater skepticism about startups being able to fulfill their grand visions and ambitious roadmaps compared to 1 year ago. I see this on my Twitter feed, Discord chats, and Telegram groups — people constantly question things they once took for granted, demanding unrealistic progress updates.
This explains why PFPs have fallen so hard these months. PFPs run on the fumes of belief that they will develop material IP, which can be sustainably monetized in the future. PFPs are still on the search for their unique cultural moments. The same goes for many GameFi NFTs whose actual games are still months to years away from being released. These are highly speculative assets. We have just been given a cold reality check.
Art is different. Tyler Hobbs launched his Fidenzas in June 2021. That was it. It was complete at its genesis. Collectors purchased the Fidenzas because it spoke to them, and they wanted to own a part of it. Of course, there have been speculators betting they can sell it to someone else at a higher price: most of them have been weeded out in the bear market. With art, there are no promises of brand partnerships or a metaverse game.
Art Is About Appreciating Beauty
The only belief required in Art is this: Somewhere in the world, other people will appreciate and value its beauty as much as (or more than) you do.
Art could be metaphorically equivalent to utility or healthcare stocks in traditional markets. I expect high-quality Art from culturally-significant artists to continue outperforming other NFT sectors while we remain in a bear market where Belief Rates are low.
DCinvestor had a great take on which NFTs could become generational store-of-value assets:
On the other hand, once Belief Rates start to rise again, PFPs, GameFi, and other more speculative NFTs are likely to outpace Art. It’s worth watching closely for this change in sentiment. My best guess is that it could happen sometime in late 2023 to early 2024, as we start to see an influx of novel products and new users in the NFT space.
I authored a deep dive into generative art at Delphi Digital earlier this year, explaining why I believe Gen Art will be the defining art movement of this century.
None of this is financial or investment advice.
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The belief rate link did not work for me. Thanks for sharing your thoughts. I am assuming the belief rate is something like sentiments?
What influx of novel products do you see happening in late 2023 and early 2024? Did you perhaps see in a project's roadmap?