Crypto fans who invested in high-flying and incredibly high-priced non-fungible token (NFT) collectables have reason to be nervous that the collapse of a high-flying crypto hedge fund could force an unwanted reality check into how far the market has really collapsed.
Three Arrows Capital collapsed after losing a fortune in an obscure decentralized finance (DeFi) token called “stored Ethereum,” or stETH. Its insolvency spread throughout crypto, sending several big crypto lenders like Voyager Digital and BlockFi to their knees.
The wallet in which Three Arrows Capital — often called 3AC — stored its NFT investments is now worth $3.87 million, according to DeFi tracking site DappRadar.
NFTs are a type of cryptocurrency in which each token is unique — the non-fungible part — and can hold media, including art, music, videos and documents. They are even being tested by major banks and financial institutions (FIs) to settle eight- and nine-figure financial instrument transactions.
Three Arrows sold its NFT portfolio as shares in a fund called Starry Night, curated by a prominent yet anonymous NFT collector called Vincent Van Dough, CoinDesk reported.
The NFT craze began in March 2021, when digital artist Mike “Beeple” Winklemann sold a collage of 5,000 works — not the individual works themselves, mind you — for almost $69 million at the storied auction house Christie’s.
Sixteen months later, 8-bit pixelated picture mohawk- and earring-sporting CryptoPunks and snappily dressed cartoon simians of the Bored Ape Yacht Club (BAYC) were regularly pulling in hundreds of thousands and even millions of dollars at top auction houses and NFT marketplaces.
The bottom fell out of the NFT market, along with bitcoin and the rest of the crypto market, and sales are down 84% since last June, according to NFT tracking site CryptoSlam.
At its peak last September, weekly NFT sales were sitting around 225,000, and new token launches substantially outnumbered resales.
Now the weekly sales number for new NFTs is about 22,000 — less than 10% of its high — as the sale of new tokens dropped 6,400 while the secondary market was nearly triple that at 16,000, according to NonFungible.
This suggests that not only are vastly fewer NFT collections being launched, but far more people are trying to get rid of them — which brings us back to the real value of that $21 million NFT investment.
On Friday, the estimated value of Starry Night was $4.2 million. But TR1, a U.K.-listed digital asset fund that is Starry Night’s only institutional investor, has written off the entire value of its Starry Night investment, CoinDesk said.
In May, The Wall Street Journal said the NFT bubble had “flatlined,” pointing out that another early, outlandishly-priced NFT of former Twitter CEO Jack Dorsey’s first tweet — which sold for $2.9 million in March 2021 — was put up for auction and saw bids top out well under $1,000. But people were still buying, if for far less money.
That’s no longer the case.
Which suggests that NFT investors with a good ear for the market have gotten out or are hanging on hoping for better days. But the bubble relied on a boom in creating new NFTs as much as it did their resale at skyrocketing prices.
The forced liquidation 3AC’s Starry Night collection is about to show a true picture of the market, and it may be a lot less fantastical than its namesake.
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