Welcome to the latest edition of Bull Case Bear Case. As always, the goal is to give investors a clear, balanced view of both sides of the coin. Today, we preview an NFT from Beeple's Everydays Collection.

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Beeple Everydays: Into the Ether NFT

Rally

6/7 @ 12:00PM ET

Valuation: $68,000

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‍Bull Case

• Blue-chip NFT artist. Perhaps the most mind-blowing fact about Beeple is this: his Everydays: The First 5000 Days, which sold at Christie’s for $69 million, is the third most expensive artwork sold by a living artist. That puts him in the company of names like Koons and Hockney, and the sale quickly entrenched Beeple as the pre-eminent digital/NFT artist. His rise to prominence was quite organic, beginning with releasing free VJ loops, eventually working on concert art for celebrated musical artists, and launching his daily artworks, done in Cinema 4D. Some of those works were eye-catching enough to be featured in the Louis Vuitton show at Paris Fashion Week. As the Everyday series gained more notoriety, so too did Beeple’s status as a pioneer of the NFT art space, culminating in March 2021 with the still mind-bending Christie’s sale.  That sale was followed by another sale at Christie’s in November of 2021, when his HUMAN ONE sculpture for $29 million. Beeple has already been showcased alongside the likes of Francis Bacon in museums, and it’s likely that as institutions seek inclusion of contemporary, digital artists on exhibit, his name will be one of the first considered by curators. 

• Brighter prospects for art than avatars? The lines may have been blurred between the two categories in recent years, particularly by the most fervent of avatar & pfp believers. Still though, NFT art is a distinct category, and the data bears that out. The listed ratio of Beeple’s Everydays 2020 Collection is just under 3%, and it's common to see other NFT art collections at that level or below. The vast majority of avatar projects have a listed ratio of well over 5%. This means that at any given moment, a greater portion of PFP project owners have listed their asset for sale and are willing to move on from it. That can be indicative of a more short-term, speculative orientation, and of course, more supply relative to demand is generally less supportive of values. Supply of PFP projects has increased dramatically, as new project after new project promising differentiated utility (that feels very similar to the other projects’ utility) captures the NFT collector’s short attention span. Many of those projects have suffered in recent months. If the utility ultimately proves minimal and the value is reduced to the art, over the long term, the appeal of works crafted by a truly reputable artist in the space seems like it would be vastly greater than the Doodles, Squiggles, Moonbirds, and Azukis of the world. 

• Offered below acquisition cost, ETH off of highs. According to the offering circular, Rally purchased this asset for a USD cost of $75k on April 25th. At the time, ETH was close to $3k, meaning the price in ETH was ~25. Due to the falling cost of ETH since (down about 37%), Rally will offer the asset at $68,000, meaning that the sourcing fee will be negative. The original valuation according to filings was to be $85,000, making this a 20% discount to those levels. The opportunity to buy at a moment when ETH is well off of highs is perhaps more appealing, with some of that ETH risk already off the table. However, the question for prospective shareholders will be whether the discount is sufficiently palatable given the tumult in crypto markets. Read on…

Bear Case

• Valuation under heavy pressure. Unfortunately, despite the markdown from Rally, the valuation of $68,000 remains well above current levels for Into the Ether NFTs. The most recent sale on OpenSea is Rally’s for 25ETH on 4/25, before additional crypto carnage in May. At prevailing ETH levels though, that’s about $48k. Today, you can find Into the Ether listed on Opensea for 22ETH and 24ETH, or about $42-46k. If those were to be purchased, the next remaining listings would be at 30ETH, 30ETH, and 35ETH. Those range from $57-67k, coming closer to the valuation here. Still, given the volatility in the overall crypto space, investors may proceed with caution with the valuation at a 62% premium to the current lowest list price. 

• ETH introduces additional volatility. From its all-time high in November, the value of ETH in USD is down approximately 60%. It’s down approximately 45% from an early April peak and another 37% from Rally's date of acquisition. With NFTs denominated and primarily transacted in ETH, shareholders of this asset will largely be beholden to the swings in the cryptocurrency. To put the vulnerability in context: in ETH terms, the floor price of the Everydays 2020 Collection is down approximately 32% over the last 30 days. In USD terms, that loss swells to 51%. As noted above, the volatility can strike both ways, and it is preferable to enter with ETH well off highs...though the valuation issues detailed above somewhat mitigate that advantageous position. 

• Unprecedented rise leaves room for risk. Beeple is both the beginning and end of the list of artists who have achieved a $60 million+ sale in their first appearance at Christie’s or Sotheby’s. While that sale at the peak of NFT intrigue leaves a lasting impression, there’s no assurance that Beeple will be able to follow on that achievement in the years ahead, and moreover, no assurance that the NFT series will maintain/gain value. Though the listed supply of the series is superior to many PFP projects, the performance during the drawdown has largely been comparable, suggesting that to date, the art has been subject to the same whims as the broader NFT market. Beeple has developed an esteemed profile as an artist in this era, but it seems his works may not share the same performance characteristics as artists in traditional mediums, who see works turnover less frequently and have them carefully managed and placed by gallery representation and auction houses. In that regard, the NFT medium of the art, allowing quick transacting with fewer middlemen, acts as both feature and bug. The Beeple market may also face supply challenges should successful artists in traditional mediums pursue the NFT channel, but you could also make a “rising tide lifts all boats” argument for such an occurrence.

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