Digital Assets: The Long Game

The nonfungible token market is a mess, but some remain bullish and will hang on despite the risks.


Earlier this year, CNN hyped its “Vault” initiative to capitalize on the popularity of nonfungible tokens (NFTs), like many other big-name companies. Collectors paid thousands for digital commemoratives of significant news events—a space launch, a presidential election or Nelson Mandela’s release from prison. In April, CNN’s director of emerging products, Jason Novack, touted the potential of NFTs and claimed they were “a strong source of revenue.”

Not strong enough. Six months later, CNN decided to “say goodbye” to the Vault. The “six-week experiment” had run its course, but Vault would “live on,” the news network announced. Investors were livid. Some felt like the rug was pulled out from under them and clapped back at CNN for calling it a six-week experiment when it was never advertised as such. Others scratched their heads at the vagueness of the announcement: How exactly would Vault “live on” if the entire community was being shut down?

“Poor choice for a company of this size,” one collector posted on a thread. “No one will welcome CNN entering Web3 if NFTs ever blow up again.” Web3 is a new version of the internet based on blockchain.

That’s a big “if.” After all, NFT enthusiasts currently find themselves in a harsh reality. The looming global recession, a volatile stock market and the sting of a so-called crypto winter—where the value of virtually every major cryptocurrency plummeted—have essentially chilled the once-hot trend of NFT collecting.

The third quarter of 2022 saw $3.4 billion in NFT sales. That’s down 60% from $8.4 billion in the previous quarter, according to data firm DappRadar. The average price of an NFT decreased by a staggering 92%, from $3,894 to $293 between May and June alone. And on the NFT marketplace OpenSea, September transaction volume nosedived more than 90% from a January peak of roughly $4.85 billion.

“Interest in existing NFT collections has waned significantly over the past six months,” says Matthew Hougan, chief investment officer at Bitwise Asset Management.

The stakes are high for Bitwise. Last year, when NFTs were trendy, Hougan’s team launched the Bitwise Blue-Chip NFT Index Fund because clients were demanding a way to allocate to “the emerging space of NFTs.” The San Francisco–based firm was first-to-market with a fund of this kind—one dedicated solely to accredited investors who wanted a piece of the NFT action. Bitwise even assembled a team of 76 finance professionals dedicated to just NFTs. It tapped talent from firms like BlackRock, JPMorgan Chase, Meta Platforms, and Alphabet  to manage the fund.

The logic is sound: Clients who don’t want to avoid stress when investing in Web3’s decentralized blockchain-based technology can rely on Bitwise to handle the allocation. And for Bitwise, it’s lucrative—it costs a minimum of $25,000 to invest in the firm’s Blue-Chip NFT. “It can be hard to allocate as an individual,” Hougan says. “You must set up wallets, negotiate to trade and securely hold your assets.” Also, given the high price of any individual NFT, it can be difficult to build a diversified portfolio by yourself unless you are wealthy.

But 2022 is bleak compared with last year. Many companies dealing with digital assets face serious financial difficulties, including bankruptcy. Among the most notable fiascos was the collapse of TerraUSD (UST), which imploded the value of its LUNA token. Nevertheless, Hougan remains bullish. He predicts that the corporate finance world will continue to explore various use cases, drawing an equivalence to the early days of the internet.


During the dot-com bubble of the mid-1990s into the early 2000s, fortunes were made and lost with lightning speed over a few years. “What was the right strategy?” Hougan asks. “Ignoring it until it was ‘perfect’ and it was clear exactly how the internet would develop, or experimenting and trying to be a leader in the space?”

NFTs are “a new technological primitive,” he says. These “experiments” at the corporate level—whether they’re from Warner Discovery, Walt Disney, Starbucks, the National Football League (NFL) or Nike, to name a few, are from innovative companies thinking about monetizing their intellectual property and brands. “Smart money,” Hougan adds, “sees a significant long-term future for the space.”

Kitties and Apes

Bitwise isn’t the only firm with a blue-chip fund dedicated to NFTs. Canada-based investment firm Accelerate Financial Technologies launched one earlier this year. Accredited investors with at least $50,000 to spend may invest.

“Blue-chip NFTs are the largest, most liquid and globally sought-after collections,” according to Julian Klymochko, founder and CEO of Accelerate. And betting on NFTs, while risky, can be valuable on the corporate finance front because they aren’t tied to other corners of the financial markets. “They are the riskiest asset class but are generally uncorrelated with traditional asset classes such as stocks and bonds,” he says. “It’s a similar risk/return profile to early-stage venture capital investing.”

Klymochko didn’t always feel this way. “NFTs initially came on my radar in 2017 with the creation of CryptoKitties,” he says, referring to the online game where players purchase, trade and, yes, breed digital kittens.

Here’s how it works: Each “kitty” is an NFT—each unique and owned by an individual, with a value that can appreciate or depreciate based on the market. Because the game operates on ethereum’s underlying blockchain network, each cat cannot be replicated or transferred without the owner’s permission. “I brushed them off as interesting but inconsequential,” Klymochko says. “I expected NFTs to go away.” But they never did.

After CryptoKitties took off, Fortune 500 companies pounced on the trend with their spin on NFT-able IP and marketing schemes. Disney partnered with VeVe, a New Zealand–based NFT company, to create digital golden statues inspired by characters from its film catalog. Its $60 Lady and the Tramp debuted on Valentine’s Day. The NFL teamed up with Vancouver-based Dapper Labs to create video-highlight NFTs of NFL plays. Starbucks weaved NFTs into its customer rewards programs.

Other companies are even circling NFT startups as potential M&A targets. Nike reportedly paid $1 billion for Salt Lake City–based RTFKT—maker of the apparel company’s CryptoKicks digital sneakers.

Celebrities, sports stars and influencers are in on the hype, too. Madonna said she was “pissed off” when the Bored Ape NFT she purchased for more than $500,000 wasn’t the one she wanted. Kylian Mbappé, currently the highest-paid soccer player in the world, credits a chunk of his income to be an ambassador for Paris-based NFT platform Sorare. And digital artist Mike Winkelmann, who goes by “Beeple,” sold an NFT for $69 million at a Christie’s auction.

“Why was the Beeple auction the first time a major platform had a digital art auction? People have been doing digital art for decades,” Hougan says, noting that pop artist Andy Warhol created digital artwork on a Commodore computer in 1985.

“Beeple was the first digital artist to see a major auction because, before NFTs, you couldn’t own a piece of digital art directly without some third-party vouching for your ownership,” he adds.

Certainly, NFT prices would suffer if ethereum declined significantly, Klymochko explains. Since NFTs are denominated in ethereum, they are highly volatile in price. In other words, if ethereum crashes, then NFTs will crash. “However, if you are bullish on ethereum, then NFTs are a better way to play the theme, given that we expect blue-chip NFTs to increase in value in terms of ETH [ethereum blockchain tokens],” he adds. 

Another issue is regulation. The NFT craze currently seems to be more or less a free-for-all. An organization like CNN, for instance, could find itself under scrutiny for pitching one thing about its NFT business and delivering another.

There’s also the question of whether NFTs are more akin to stock sales and should abide by the same disclosure rules. In October, it was reported that the US Securities and Exchange Commission is currently investigating Yuga Labs, the creator of the Bored Ape Yacht Club NFT collection, on that very issue.

Because of all the uncertainty, Hougan advocates for “smart choices and quality regulations” to protect investors and support innovation. “I think the space is making progress along those dimensions,” he says. “Things are always messy at the start of technological developments.”

As for whether NFTs are a flash in the pan, time will tell.

“It’s easy to look at a Bored Ape NFT and wonder if it’s a modern-day Beanie Baby,” Hougan says, referring to the plush dolls of the 1990s that were collected not as toys but as financial investments. “But you can take another angle and see why it’s interesting. If NFTs are as important in the long term as I think they are, the world will sort this out.”

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