- The Ground Floor
- A Framework To Understand The Value of Cryptopunks
A Framework To Understand The Value of Cryptopunks
Breaking down the most valuable question NFT collectors can answer today…
In today’s edition of the Ground Floor we will be breaking down the most valuable question NFT collectors can answer today…
Digital Veblen Goods
The success of NFTs is often positioned as our ability to make NFT accessible to millions of people, however, the most valuable NFTs in the years to come will derive their value from the opposite source ~ scarcity.
Economics 101 teaches us that when the price of a good declines, demand increases, and when the price of a good increases, demand decreases.
This rule applies to 99% of goods, however, for people fortunate enough to live in a first world country, there remains a category of goods that function in the complete opposite dynamic ~ as prices increase, so does demand.
These goods are commonly called Veblen (status) goods.
Examples of Veblen goods include expensive cars such as Porches & Ferrari’s, expensive watches such as Rolex’s, luxury clothing, Yachts & many more items.
Creating Veblen Goods
While all Veblen goods are expensive, not all expensive goods are Veblen goods.
A very key component of a Veblen good is the extent to which the item is recognized as being a luxury goods ~ said differently, if someone has to tell you how expensive their watch is, it’s likely not a very good Veblen good.
As such, for companies creating Veblen goods, building brand awareness for the premium products they produce is absolutely essential to ensure consumers are willing to pay premium prices to own these assets.
The Advent of NFTs…
To date, Veblen goods have been limited to physical goods.
With the advent of NFTs, and the ability to create provably scarce digital assets, for the very first time we are seeing the emergence of digital goods that obey the same laws as physical Veblen goods.
Today, Cryptopunks represents the very best example of a digital Veblen good.
What makes them so special?
PFPs such as Cryptopunks have made it all too easy for people to frictionlessly flex the assets they own, an asset that currently costs $95,000.
Furthermore, while the floor prices of projects such as Bored Apes are subject to the success of Yuga Labs, and the value they provide to token holders, Cryptopunks is without such roadmap execution risk.
A short list in 2023…
The short list of NFTs that could be called digital Veblen goods in 2023 are projects such as Squiggles, Fidenzas, Autoglyphs, however, were Cryptopunks have an edge over these assets is the nature of profile picture projects, and the frictionless flex that is setting an NFT as your profile picture.
(Left ~ Right: Squiggle, Fidenza, Autoglyph)
The Most Valuable Question(s)
There’s no shortage of opportunities in Web3, however, the opportunity to identify & own assets before they are universally viewed as Veblen goods is perhaps the largest of them all in 2023.
Cryptopunks is the clearest example of a digital Veblen good today, and is likely to remain one for the foreseeable future, however, with a $95,000 price tag ~ many collectors are priced out of owning one of these assets.
As such, the most valuable question worth answering for long term NFT collectors is what digital assets exist today that aren’t currently considered to be Veblen goods, that will be universally viewed as Veblen goods 5 years from now?
The following framework informs the majority of the NFTs I’ve acquired in 2023:
1) A widely recognized brand ~ can the people behind the project continue to build brand awareness for the project in 5+ years?
In the case of Cryptopunks this is led by the people who have adopted them as PFPs ~ in the case of Opepen, this is led by Jack Butcher.
2) Minimal roadmap execution risk ~ how certain can you say the people behind the project can execute on their roadmap?
3) The ability to frictionlessly flex ownership of the asset ~ how easy is it for collectors to communicate their ownership of this asset?
Today, profile picture projects have the biggest advantage in this area.
4) How scarce is the asset? Demand for Veblen goods increases as the cost of ownership increases ~ the scarcer the asset, the easier it is to appreciate in price.
There will only ever be 10,000 Cryptopunks ~ 10,000 Squiggles ~ 999 Fidenzas.
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This newsletter is for informational purposes only and does not constitute financial or business advice to any person or entity.