Is NFT a Valuable Undervalued Asset or a Bubble?—An In-Depth Look at How NFT Whales Profit

In August, NFTs, laden with various “artworks,” returned to the crypto scene with renewed vigor, creating a wave of excitement among both enthusiasts and cautious onlookers. On Twitter, numerous KOLs (Key Opinion Leaders) seemed to change their tune overnight, turning the platform into a battlefield of reputation. When Visa purchased CryptoPunks and Budweiser joined in the frenzy, the NFT phenomenon truly went mainstream. Media outlets began discussing everything from cartoon apes to virtual rocks, even the imagination required to see value in NFTs. Meanwhile, capital inflows surged, and NFT funds emerged left and right.

Come September, as Loot and its derivatives hit the market, the NFT craze reached its zenith. But shortly after, trading volumes on OpenSea began a daily decline following its August 30 peak. NFT prices quickly swung from “sky-high” to “rock-bottom,” and the frenzy of buying turned into a rush to sell.

This cycle is familiar to anyone who remembers DeFi food coins, meme coins, and other volatile assets. There’s always a final holder left with diminishing returns. This prompts the question: Are NFTs ultimately bubbles or do they hold real value? What are these investors, or rather, these funds chasing? Could it all be a carefully scripted drama orchestrated by capital? This article will explore the value of NFTs, analyze how NFT whales profit, and offer strategies for investing in NFTs.

Various Forms of NFTs

When discussing NFTs, people often think of them as a new form of artistic expression or dissemination. In reality, NFTs on the blockchain take many forms beyond art, including collectibles, musical works, in-game items, and financial tools. The value of these items varies and can be grouped as follows:

Artwork and Collectibles

Typically, NFTs representing artworks or collectibles are unique and possess intrinsic value. In the context of traditional artwork, artistic value is often reflected in an artist’s vision and influence, which become more apparent over time.

For instance, the digital artist Beeple’s Everydays—an NFT artwork auctioned by Christie’s—sold for $69.3 million, making it the third-most expensive artwork by a living artist. This artwork, a composite of Beeple’s daily sketches over 14 years, represents a unique journey and evolution in style and thought, a testament to Beeple’s career-long commitment.

Similarly, CoolCatNFTs is a series featuring unique blue cats, inspired by a blue cat drawn by an artist over a decade ago. The value in such artworks lies not only in their aesthetic or thematic content but also in the personalities, emotions, and cultural impact they embody.

In the blockchain world, there’s also “generative art,” where specific algorithms generate unique, immutable works stored on Ethereum. Art Blocks, for example, hosts invited artists who create algorithm-based pieces that allow users to generate unique artworks based on chosen variables, such as color, point distribution, and gradient. Such generative art caters more to collectors and investors, as a “Veblen good” (a luxury good that sees demand increase with price due to its status value). The desire to showcase wealth or exclusivity draws buyers who might stop buying when the item’s price no longer reflects this status.

Limited Edition Goods

Some NFTs are limited in quantity, creating rarity. These NFTs resemble limited-edition products like collectible sneakers or luxury handbags, sought after not necessarily for their artistic value but for the prestige, social status, or investment potential they confer.

For example, Zapper’s NFT represents proof of use, offering a limited-edition claim for simply paying gas fees, while some projects, like CryptoPunks, consist of algorithm-generated avatars with unique attributes. As these projects gained attention from artists, celebrities, and investors, they rapidly grew in social and financial value.

Social and Community NFTs

NFTs give communities unique ways to engage, fusing fan economies with creator-fan dynamics. The value of these NFTs is based on influence and future investment potential. NBA Top Shots, for instance, brings iconic basketball moments to fans, creating a novel experience and community engagement.

Profile picture NFTs (PFPs), like CryptoPunks and Bored Ape Yacht Club (BAYC), became gateways to online communities and status symbols. By using these NFTs as profile pictures, holders gain access to exclusive groups, and community-driven projects became a form of decentralized autonomous organization (DAO), with NFT holders becoming active participants in these online spaces.

Gaming

NFTs and gaming go hand in hand. Players can buy unique in-game items like characters, weapons, or land. The value of these NFTs depends on the game’s popularity and innovation. Axie Infinity, for instance, introduced the concept of “play-to-earn,” sparking widespread interest.

A particularly innovative example is Loot, a project consisting of a simple black screen with a few lines of text representing in-game equipment. Loot’s launch quickly attracted a massive DAO and open-source community, fostering bottom-up development and user creativity. Although Loot’s future success depends on the strength of its community and technology, the project has drawn speculative investment from those betting on its imaginative potential.

Financial NFTs

Finally, some NFTs embody financial instruments, with value tied to an underlying asset. For example, liquidity providers in Uniswap V3 receive an NFT representing their share, which can be traded on OpenSea.

Different types of NFTs indeed hold varied forms of value, yet it’s undeniable that bubbles are also present. Currently, NFTs face some challenges.

First, there’s the storage issue. When we purchase a product from a store or an artwork from an auction house, we acquire the item directly, holding its ownership. However, most NFTs now only have provable ownership, while the actual artwork and metadata are stored off-chain. Some projects use centralized servers; others attempt to upload metadata to IPFS, while some Solana-based NFT projects prefer Arweave as a solution. Ultimately, NFTs bought with several dozen ETH may not even truly belong to the buyer.

Second, pricing remains an issue. NFTs are inherently illiquid assets, making price discovery challenging, with little middle ground between buyer and seller prices—allowing easy manipulation by capital. For instance, capital could use multiple accounts to drive prices up, simulating high transaction volumes. For example, the buyer who purchased Beeple’s Everydays was criticized for using marketing and related transactions to profit. Capitalists can attract attention through hype, leading more people to invest, driven by star power and wealth effects. At this point, capitalists may choose to cash out at the peak, exiting at a profit.

Third, technical execution poses challenges. Certain NFT paradigms, like Loot, allow communities to develop creatively without clear technological feasibility. Value based on imagination needs solid execution to back it up. Community building and talent accumulation are crucial steps here.

How to Invest in NFTs?

Given NFTs contain both value and bubbles, how should one invest? Without expert art appraisal skills, we can learn from NFT whales’ strategies by analyzing their transactions on platforms like Nansen, NFT Bank, and Zapper.

Currently, the top NFT whale on Nansen:

Address: 0xef6d69922bc2d038cb508086846524f8011c4a74

Invested: 108 ETH; Revenue: 3,891 ETH; Net profit: 3,651 ETH. Art Blocks (#0) delivered a return of 333.8x, with 18 ETH invested and 3,622 ETH earned.

Project: Squiggles, the first generative art project on Art Blocks, created by generative artist and Art Blocks founder Erick Calderon. Each Squiggle is unique, with hexadecimal controls in the hash defining its color, points, gradient, etc.

Source: NFT Bank

This address began NFT investments in December 2020, purchasing 503 Art Blocks Squiggles at an average price of 0.035 ETH, selling 32 of them by April at an average of 0.62 ETH. By August, when Squiggles prices soared to a floor price of 5.85 ETH, the whale began selling, achieving up to 3971x returns on individual sales. Apart from Squiggles, this whale also bought 21 Meebits, 4 Crypto Punks (at an average of 23.75 ETH), 1 Bored Ape Yacht Club (at 7.2 ETH), and 4 Hashmasks (at 0.9 ETH each). While primarily focused on Art Blocks, the whale’s other NFT investments remain conservative, suggesting an early interest in generative art.

Pranksy

Twitter: @pranksy

Address: 0xd387a6e4e84a6c86bd90c158c6028a58cc8ac459

Source: NFT Bank

Pranksy, who was previously ranked as the top NFT player, began investing in December 2017 with a $600 investment that yielded a 15,000x return. As of September 22, his total investment reached 7,001 ETH, with a net profit of 3,541 ETH. His largest profit came from Bored Ape Yacht Club, with a 21.13x return on a 100 ETH investment that brought in 2,162 ETH. He also invested in CryptoKitties and NBA Top Shots, amassing further wealth from the latter. Pranksy’s portfolio contains over 312 different NFTs, with continued purchases despite market downturns. His broad-sweep strategy involves buying large quantities of promising early-stage projects at low prices, such as 1,756 ChainFaces, 1,500 CryptoHodlers, 1,250 Bored Ape Yacht Club, and 1,000 World of Women. This approach has risks, as some projects’ prices decline, resulting in losses.

Pranksy’s strategy, however, is not blind investment. He continually invests in promising projects, like Gods Unchained, with large purchases from January 2019. Gods Unchained has yet to yield high returns, possibly due to its delayed launch. Recently, Pranksy began purchasing Crypto Hobos, which combines over 200 unique features into 8,000 NFTs and donates to refugee causes.

keyboardmonkey3.ETH

Twitter: @keyboardmonkey3

Address: 0xe1d29d0a39962a9a8d2a297ebe82e166f8b8ec18

Source: NFT Bank

Currently ranked third, keyboardmonkey3 has invested 4,516 ETH, with a net profit of 2,340 ETH. His top return came from DeafBeef, which yielded a 1039% gain. Starting NFT investments in February 2021, his portfolio is diverse, with an 83% success rate across 289 NFT varieties, focusing on art and collectibles, with little interest in music or sports.

Rare NFT Collector

Address: 0xd5a5c2ef8977ab40d920417018145508251a07c0

Joining NFT investments in June 2021, this whale has since reaped considerable returns. His primary earnings came from Art Blocks, investing 245 ETH and earning 1,884 ETH, yielding a 751.3% ROI. He holds only eight different NFTs, with most of his portfolio in Art Blocks, avoiding popular projects like CryptoPunks and Bored Apes.

NFT Investment Summary

Through this analysis, we can derive a few strategies and their ideal audiences:

• Copycat Strategy: Beginners without NFT experience can follow admired NFT whales using NFT Bank or social media.

• Aggregation Strategy: Track multiple notable buyers; buy in when a large number of them focus on one project, leveraging trends and capital flows.

• Broad Investment Strategy: For those with substantial capital, this strategy involves buying large quantities of NFTs within a series, establishing control over pricing, and selling for multiples of the entry price. The risk remains if the NFT lacks broad acceptance.

• Value Investment Strategy: Similar to cryptocurrency investment, value investing requires personal criteria, understanding a project’s fundamentals, and believing in its cultural and innovative appeal. This strategy suits investors with some experience in the NFT field.

NFTs have achieved a new scale and recognition, reflecting a natural evolution rather than a passing trend. Early investors have profited considerably, while latecomers can only watch with regret. Although bubbles exist in the NFT market, so does value. Only with strong projects and communities can this sector push forward, allowing bubbles to align with real value and creating more exemplary success stories.