The NFT Space Is Still Small Even By Crypto Standards
By Josh Bobrowsky
Saturday Podcast
Yesterday I had a guest on my weekly Twitter spaces (podcast). He is a friend Mike @mikhailgurevich who runs a $250 million private equity fund focused on crypto and other assets.
Most of the people who follow my weekly show are heavily focused on the NFT space. When we all get together it feels like the space is much larger than it actually is.
One of the main focuses for the week was the huge news that Yuga Labs acquired WeNew. For those not familiar here is a link to the story
What happened
In short the largest NFT company, acquired a close operating partner who was also one of the 50 largest NFT brands.
One of the audience members asked Mike what he thought of the deal and his answer was simply “I didn’t even know it happened.”
It took me a moment to process, a guy who is a full time professional in the crypto space didn’t even know this big deal occurred.
After a moment of thinking I realized that as an institutional player, NFTs aren’t really on their radar yet.
Taking a step back
Thinking about this I began to realize how small our market is. Yesterday’s daily sales volume on OpenSea for all NFTs was only $6.4 million dollars.
To give a contrast the 24 hour trading volume of Polygon cryptocurrency (Not NFTs) was $230 million. Polygon is the 10th largest cryptocurrency by market cap.
As an additional data point here is a random stock I picked, Bumble (the dating app), which has a $4 billion valuation and a daily trading volume of over $35 million dollars. See below (just multiply volume by price).
Low Trading Volume
To be fair the trading volume of NFTs will likely almost never be as high as trading volume of stocks or cryptocurrencies due to creator royalties and marketplace fees.
If you assume an average combined fee of 5% between marketplace and creator royalties it is easy to see how a $4 billion market cap like Bumble could not sustain daily trading volume of $34 million as it would pull $1.7 million in fees out per day.
To break that math down a bit further, if that volume occurred 365 days a year like cryptocurrency it would cost traders $620 million per year.
Thus, these are not completely fair comparisons.
At the other end of the spectrum the global art market. The art market is roughly $65 billion per year.1 However, fine art is far less liquid than NFTs. This breaks down to about $175 million per day. High end art both has higher fees and often requires physically moving objects and insurance.
Neither comparison are perfect but it should give a sense of scale when also accounting for liquidity.
NFTs being early
It is easy to over-estimate the size of our market because we talk about it a lot. Many of our friends are deeply into NFTs, and the people around us hear about them a lot.
But, the space is still early and its important for us to take a step back and be open to future changes.
Being small is neither good nor bad, but it likely will increase variance vs a more established market.
Conclusion
The NFT space is early, and while recent pullbacks are challenging, that isn’t necessarily a bad thing.
As always nothing here is financial advice, these are only my opinions and how I view things
Cheers
Josh Bobrowsky
https://www.statista.com/topics/1119/art-market/#topicOverview