NFT Art: A Modern Tulip Craze or Legitimate Investment?
In the world of digital art, where creativity knows no bounds, a new phenomenon has taken center stage.
A famous digital artist named Mike Winkelmann, widely known as Beeple, made history by selling an NFT (digital art) for $69.3 million at a Christie’s auction.
But can you imagine buying something that doesn’t physically exist?
But as the NFT market explodes with astonishing sales, we can’t help but draw comparisons to a fascinating chapter in history. It takes us back to the 17th century, to a time when tulips ignited a frenzy that gripped the entire nation.
But what does it all mean? Does this NFT mania resemble a bubble ready to burst?
Are we witnessing history repeating itself?
Are NFTs today’s tulips, destined for a similar fate?
To understand the parallels, let’s take a step back in time to the 17th century when tulips became more than just flowers in the Netherlands.
The story of Tulip Mania
First, let’s take a look at the history of Tulip Mania.
It all began in the 1630s when Dutch merchants were introduced to the alluring beauty of tulips, thanks to their trade links with the Ottoman Empire. These vibrant flowers, so exotic and enchanting, quickly became a symbol of prestige and wealth.
At the peak of Tulip Mania, tulip bulbs were more than the entire garden decoration. In the year 1633, it is reported that one of the most popular varieties, Semper Augustus, was sold for 5,500 guilders, equivalent to 10 times the annual income of a skilled craftsman.
The market mania surrounding these delicate flowers was exceptional. People from all walks of life were caught up in the excitement, eager to get their hands on these precious bulbs. Some even sold their homes, land and other possessions to buy tulip bulbs.
In early 1637, prices for other tulip varieties were similarly raised, and one of the most popular varieties, Semper Augustus, sold for 10,000 guilders, enough to buy a grand house in one of Amsterdam’s most attractive districts.
One of the infamous authors Anne Goldgar mentioned in her book “Tulipmania” that “People started buying tulips with leverage, using margin derivative contracts to buy more than they could afford.”
In fact, it seemed at the time that the price could only go up, that “the passion for tulips would last forever.”
But, as with any bubble, it was bound to burst.
Downfall of Tulip Mania
In February 1637, tulip prices fell 90% to their pre-mania levels when the market for tulip bulbs suddenly collapsed. Ultimately, most of this rapid decline was due to people buying bulbs on credit, hoping to repay the loans after selling them at a profit.
When the price of tulip bulbs began to fall, the owners were forced to sell their bulbs at any price and declare bankruptcy. Later, the Buyers announced that they could not pay the high price previously agreed for bulbs, and the market completely fell apart.
According to some experts, it is believed that it was due to the oversupply of tulip mania, and also due to government intervention.
However, the exact reasons for the sudden fall of the tulip market during Tulip Mania in the Netherlands are still debated by historians. But the crash had widespread effects on the Dutch economy, many people lost their savings, and many investors were bankrupted.
One of the renowned Dutch painters Jan van Goyen, who allegedly lost everything in the tulip crash. Although he never recouped his losses and he died insolvent. Many were left with worthless bulbs on which they had spent a fortune, the tulip mania was over, and people were left to pick up the pieces.
Now let’s fast forward to today and talk about why people consider NFTs to be the next Tulip Mania.
Many cryptoanalysts are comparing the current NFT hype to Tulip Mania due to the crazy prices that some digital assets are achieving. But before we make any judgments about the bursting tulip bubble, let’s learn all about NFTs.
Overview of the NFTs market
NFTs, or non-fungible tokens, are digital assets that are unique and cannot be replicated. They are bought and sold with cryptocurrency and have made headlines for the insane sums they are traded for.
NFTs began gaining attention in 2017, with the launch of CryptoKitties, a blockchain-based game that allows players to buy, sell and breed digital cats. The game was a hit, with some CryptoKitties sold for more than $100,000.
Since then, NFTs have been used in a variety of contexts, from digital art to music to virtual real estate, apparently spending millions on digital art, videos and even tweets.
One of the most popular examples of NFTS is CryptoPunks which has gained significant attention in the crypto space.
CryptoPunks is a collection of 10,000 unique 8-bit style pixel art characters, each with their distinct features and attributes, such as hairstyle, clothing and accessories. The collection was created by Larva Labs, a software development studio.
Each CryptoPunk is unique and can be owned and traded as an NFT on the Ethereum blockchain. For example, in March 2021, a single CryptoPunkan NFT made by artist Beeple sold for a record $69 million at a Christie’s auction.
“That’s a lot of money for something that doesn’t physically exist.” But just like with Tulip Mania, some experts believe the NFT market is due for a crash.
One of the renowned cryptoanalysts John Smith believes that “NFT art is just another Tulip Mania waiting to happen”
So, what are the similarities between Tulip Mania and NFTs? & Why do these people think it will crash?
Comparison of NFT with Tulip Mania
NFTs are unique digital assets that can be authenticated on the blockchain, while tulips were just flowers with no intrinsic value. And just like with tulips, there is a sense of exclusivity around NFTs – owning a unique digital asset is something not everyone can do.
People buy NFTs based on the belief that their value will only increase, much like how tulips were bought and sold based solely on the belief that their prices would continue to rise.
NFTs also have the potential to revolutionize the art market by allowing artists to sell their work directly to buyers without the need for intermediaries.
But with that said, there are still some risks in buying NFTs. A major concern is the lack of regulation in the NFT market, which makes it vulnerable to scams and fraud.
Another issue is the environmental impact of NFTs, as the blockchain technology used to create and trade them uses a lot of energy.
Downward trend in the NFT market
While there have been some NFT projects that experienced a rapid increase in value before seeing a significant decline, in the same way that tulip bulbs were overvalued during the tulip mania.
An example of this is the project known as the Bored Ape Yacht Club.
The Bored Ape Yacht Club, or BAYC, is a collection of 10,000 unique digital ape NFTs. The project became popular in mid-2021, with some BAYC monkeys selling for over $1 million.
However, in September 2021, the value of BAYC Monkeys and other NFTs began to drop significantly, with some BAYC Monkeys selling for less than half of their previous values.
It is worth noting that the decline in the value of NFTs and projects like BAYC could be due to a number of factors, including market saturation, changing market trends and fluctuations in the general cryptocurrency market.
The Effect of 2022 Bearish Market on NFT
A bearish market in 2022 played a significant role in bringing down the NFT market. As a result, some NFT projects saw their trading volumes drop, and some NFT artists and creators may have had to lower their prices to attract buyers.
In the period between May and August 2022, DappRadar’s analytics platform reported a 99% drop in trading volume on OpenSea, the world’s largest NFT marketplace.
Even the base price of NFTs was directly affected as the price of Ethereum fell by more than 50%. Despite these challenges, the NFT market remained resilient, with some projects continuing to attract a loyal following.
As with any investment, it is important to do your research and exercise caution before investing in NFTs or cryptocurrencies.
Analysis of the future
So, what does the future hold for NFTs?
Will they continue to rise in value, or will they eventually suffer the same fate as tulip bulbs?
“Only time will tell, but one thing is certain – NFTs are here to stay.”
Because they change the way we think about ownership, creativity and the value of digital assets.
Finally, NFTs can be used to solve real-world problems, such as by creating an NFT that represents a particular property or asset, it can be easily bought, sold, and traded without the need for a physical deed or certificate.
NFTs can also be used to verify identities and prevent fraud. By creating an NFT that represents a particular individual, it can be used to verify their identity across different platforms and systems.
NFTs can be used to support charitable causes by creating unique digital assets that are sold to raise money. For example, the NFT for the famous “Disaster Girl” meme recently sold for $500,000, with proceeds going to the original creator and charity.
However, tulip mania and NFT mania may seem like very different phenomena, but they share more similarities than we might think. They are both driven by the human desire for exclusivity and status, and they both demonstrate the power of a collective delusion.
Well, it is too clear that the NFT market is still in its early stages and is exposed to a lot of volatility and risk.
However, with the right regulations and sustainable practices, it is possible that NFTs could become a legitimate and valuable asset class.