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Bitcoin is up 63% year-to-date in 2024. Ether is up 70%. After surviving a winter filled with ridicule and told-you-so's, crypto has returned to both the headlines and the upper echelon of financial performers, rapidly gathering momentum and heeding none of the warnings of past cyclical busts. Cryptocurrencies are back like they never left.
While the currencies themselves took their lumps, the derision and mockery they endured paled in comparison to the celebratory funeral performed in memoriam of NFTs. Not since the Ewoks danced the night away around Darth Vader's burning corpse has a mainstream population been so thrilled to commemorate a death. And make no mistake: the vast, vast majority of NFT projects did die. A dappGambl report concluded that over 95% of more than 73,000 NFT projects had a market cap of zero. WAGMI (irritating NFT-speak for "we're all gonna make it") was wildly inaccurate. Less than 5% made it.
And yet, while uncles nationwide dance the lambada in celebration of their brave, Thanksgiving-table stance against cartoon pictures, select projects among the 5% are rising from their coffins like the Undertaker.
The sharp rise of Bitcoin is easily understood given positive market sentiment relating to ETF approval and the corresponding supply and demand imbalance. The arrival of ETFs has restored the crypto evangelist's view toward mainstream adoption, and the winter further concentrated available supply into the hands of those parties with the most conviction. As a result, growing demand, led by ETF fund flows, is forced to face a market landscape in which supply available for sale is limited and newly mined supply is scarcer still. Those circumstances, in addition to the longer-term bull case, create a powder keg for rapid appreciation.
The situation for NFTs, though, is more nuanced. No mainstream ETF flows are coming anytime soon, the overall supply of NFTs is incredibly vast, and the already small community of evangelists is even smaller now. But that doesn't mean some projects can't thrive.
Last week, we detailed the $16 million sale of a CryptoPunk, which more than doubled its last sale in 2021. But it's not just the rare "Alien" Punks mounting an extra-terrestrial comeback. Over the last six months, the CryptoPunks floor price is up 172% in USD terms per NFT Price Floor. While we can attribute much of that growth to the rise in ETH, it does still outpace the cryptocurrency. Plus, whatever the drivers, a current floor price over $200,000 suggests formidable demand for one of the first true community NFTs.
Like other projects, Punks suffered through crypto winter, with the floor price falling from a peak above $415,000 in 2021 to a trough below $53,000 in July 2022. Unlike most other projects, though, the pain somewhat abated from there, with the floor remaining relatively range-bound between $70-105k until last fall. As crypto regained momentum, so too did the Punks, and their resurgence was further buoyed by tight supply, a dynamic perhaps similar to Bitcoin's. Despite the sharp ascendancy in values, only 516 Punks have sold over the last 90 days. Nearly eight times as many Bored Apes have sold over the same period.
Because of their status as a foundational piece of the NFT ecosystem, a forerunner of all that would follow, it seems CryptoPunks are a magnet for demand from those who still believe in a bright future for NFTs as a vehicle. Their success, then, does not rely materially on a team's execution abilities, gaming applications, or airdrops (at least not to date). So far, their value is derived from something that can't be replicated, replaced, or tarnished. That could all change at a moment's notice, and one might argue the staying power is not at all comparable to, say, Michael Jordan's immovable position in basketball collecting. Skeptics can still offer most, if not all, of the traditional, low-hanging arguments against NFTs to contest the rationale for a CryptoPunk being worth at least $200k. Nonetheless, the market's continued validation of the project as one that stands elevated above peers is worth noting.
Not every project has enjoyed the same validation. Once more valuable than CryptoPunks, Bored Apes, which boasted the cool factor of celebrity ownership and experiential exclusivity, have not recovered with the crypto space. The 53% USD increase in floor price over the last 6 months is nothing to sneeze at, but relative to crypto broadly, it's not something for the Apes to beat their chests about either. Over the last 90 days, the average USD sale price is up about 17%; that figure is 89% for CryptoPunks. In ETH terms, that's a resounding loss in value for the Apes.
Some of BAYC's initial rise in value is attributable to consistent access to additional assets rounding out the Ape community, whether in the form of Mutant Apes, ApeCoin, or Otherside land. Ownership of an Ape meant access to more stuff in the ecosystem, and when the hype was at its highest, that stuff was valuable. Of course, the continued distribution of those derivative assets meant significant increases in supply, and for those assets to remain valuable, it would require the continued introduction of new demand. Crypto winter extinguished those hopes, making the premise of "more stuff" less appealing.
But the Apes - and Yuga Labs more broadly - have also been plagued by faltering execution. The Otherside game, where many of these assets would have value, has faced persistent delays, and the company's gaming efforts - those that have graced the public eye, anyway - have been panned. The gaming stumbles are demonstrative of organizational turmoil at Yuga, which saw Activision vet Daniel Alegre enter and exit as CEO of the company in less than a year.
As for the cool factor, that's tough to maintain amid falling values and reports of severe eye-burn caused by UV lights at a BAYC event. Nothing "cool" about damage to the eyes. Suddenly, the laser-eyed Apes seem kind of messed up, like Dale and Brennan's tuxedos when they botch the job interview in Step Brothers.
The struggles are emblematic of execution risk in collectibles. The more the value of a collectible depends on the execution abilities of human beings, whether via marketing, ecosystem building, or otherwise, the higher the risk. Executing the lofty BAYC vision, which sounded promising to many 2-3 years ago, has proven challenging. CryptoPunks, even though their brand is also owned by Yuga Labs, do not face the same challenges.
Execution risk isn't always a bad thing. Sharp, targeted execution can be the difference between floundering in the icy waters of crypto winter and waddling toward a brighter future - just ask the Pudgy Penguins.
When members of the "Huddle" feared a rug-pull in 2022, with the project's founding members struggling to execute the vision they laid out originally, it was clear change was needed or the "Pengus" too would join the 95% of zeroed-out projects. That's when Luca Netz acquired the brand and began building the igloo that would insulate the Penguins from a bear market. Netz and team have built the brand carefully and strategically, all while maintaining a focus on creating the infrastructure for members of the Huddle to enjoy licensing revenue from the use of their Penguins.
Most notably, Pudgy Penguins toys recently earned an extension of a partnership with Walmart, which delivered more than $10 million in sales across over 750,000 toys sold. The characters are resonating in the real world, but the grander vision points once again to an open, digital meeting ground called Pudgy World; QR codes sold with the physical toys will enable customizations and unlocks in the game. Such a vision has yet to achieve success elsewhere, and the risk remains significant. As quickly as something becomes cool, it can fall out of favor with poor execution.
For the moment though, tactful execution has propelled the Penguins to new heights. At the time of that changing of the guard in 2022, the Penguins' floor price was under 1 ETH, while BAYC's lingered in the 60s. Today, they trade close to parity at 13-14 ETH (mid $50,000s).
Typically, one expects a phoenix to rise from the ashes, not a penguin, but there's nothing typical about NFTs, is there? They're not rising in lockstep, though, and the rising crypto tide isn't lifting all boats, many of which were already left destroyed on the ocean floor. Those that do rise are relying on more watertight construction or superior navigational skills. As always, NFTs may not be for everyone, particularly as collectibles, but there are lessons to be learned regardless. To the extent a collector is financially motivated, they should be aware of the execution risk present in the collectible of their choosing and confident in the parties responsible for managing that risk.
Failure to do so can result in getting burned, both in the wallet and - apparently - the eyes.
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