The price of Bitcoin has jumped 476% in the past year (as of February 25, 2021), in part thanks to an influx of institutional investors. In January, Tesla invested US$1.5 billion in BTC (approximately 10% of its cash reserves). Dan Bin, a well-known Chinese private equity manager and the founder of Oriental Harbor Investment Management, purchased 1% of the total shares of a North American-listed Bitcoin ETF (Purpose Bitcoin ETF) on its debut on February 18, 2021.
As cryptocurrency is gradually accepted by top investors around the world, the underlying technology and application ecosystem is also seeing growing interest from ventures and hedge funds. For example: Sequoia China announced on January 12, 2021 that it has officially become a strategic partner of Dragonfly, a fund dedicated to exploring opportunities in the blockchain ecosystem.
Why? It seems that investors have decided that crypto's recent growth is different from the hype-driven ICO bubble that drove token prices up in 2017. The current market is more mature. Ethereum-based DeFi applications, for example, have proven to be a sustainable and profitable business model, generating approximately $117 million in revenue as of February 2021.
As institutions capitalize on these opportunities, many are also quietly exploring new business models based on blockchain.
Ethereum-Based Non-Fungible Tokens and Digital Collectibles
Buying collectibles is a personal hobby, but it can also be a form of investment. Institutions have been investing in art, for example, since at least the 1970s, and today a variety of art funds are available that give investors access to the growth that can come from owning one-of-a-kind assets such as paintings.
One-of-a-kind assets exist in the world of blockchain, too — they’re called non-fungible tokens (NFTs). The most well-known example of NFTs is probably Cryptokitties, the collectible cat blockchain game that went viral in 2018. But the phenomenon of NFTs has only grown in the intervening years, and has recently hit new heights.
For example: In February 2021, auction house Christie's announced that it would cooperate with MakersPlace to sell the works of digital artist Beeple as an NFT — the first NFT Christie’s has ever auctioned. As of this writing, the highest bid is $3 million. Separately, an investor who already owned a piece of Beeple art in NFT form auctioned it for a whopping $6.6 million.
And it’s not just individual art collectors who are investing in NFTs. On February 12, 2021, Coatue Management, a well-known hedge fund, led a $250 million funding round for Dapper Labs, an NFT blockchain game development team, shocking the blockchain industry with the team’s $2 billion valuation.
According to DappRadar, the single-day transaction volume of the NFT market hit $64 million on February 22, 2021. Just one year ago, that figure was just $37,000.
According to DappRadar, the top 3 NFT products (in terms of trading volume) are NBA Top Shot (based on Flow), Crypto Punks collectibles (based on Ethereum), and OpenSea, an NFT exchange. As of February 25, 2021, NBA Top Shot has a daily trading volume of $10.64 million and 84,000 users, ranking first on the NFT list.
The most active chains for NFTs are built on Ethereum, WAX, and Flow – a newly-created blockchain-app-exclusive chain. The main NFT projects on Ethereum are marketplaces for digital collectibles, such as OpenSea and Rarible. Both platforms have thousands of daily active users, with their weekly transaction volume reaching millions of dollars.
Plagued by Ethereum’s poor scalability, Dapp developers have been trying to build NFT-exclusive chains since 2018. WAX and Flow are two examples of the results.
At the moment, Flow is the NFT public chain with the biggest market scale, and the card game NBA Top Shot (which runs on Flow) has the largest user ecosystem. The on-chain weekly trading volume on WAX is lower, but still nearly $1 million, and it has more than 100,000 active users.
Institutions Deploy in the NFT Market
In addition to the aforementioned art investments and Coatue Management’s $250M funding of NFT developer Dapper Labs, other institutions are taking notice of the NFT ecosystem . In February, NFT art trading platforms Rarible and Async Art also received millions of dollars in funding, with well-known investors participating.
Fred Ehrsam, the co-founder of top venture firm Paradigm and Coinbase, posted a tweet on January 25, 2021, summarizing the Crypto frontier. According to Ehrsam, from 2009 to 2017, "store of value" was the core of the market. From 2018 to 2020, DeFi stood at the center of the industry.
And 2021? It may be the start of an NFT era.