Have you read headlines about people paying millions or even tens of millions for NFTs?
You most likely have if you have followed cryptocurrency news for any period of time in 2021. People paying millions of dollars for what amounts to a JPEG does lead to one question, why would someone pay millions for a JPEG?
Well, we don’t have anyone that has paid that amount of money for an NFT available for an interview, but we do have a good idea of why someone would pay that much for an NFT. In fact, there are a few reasons for this. This article will discuss some of those reasons.
Are People Really Paying Millions for NFTs?
Yes, people really do pay millions of dollars for NFTs. The most valuable NFT collection – CryptoPunks – currently has a floor price (minimum price to purchase an NFT) of $314,000. The highest sale of a CryptoPunk stands at a whopping $7.8 million NFT.
CryptoPunks aren’t the only NFT collection with such a high floor price, either. The Bored Ape Yacht Club NFT collection currently has a floor price of 51 ETH (~$220,000 USD). The highest sale price of a Bored Ape NFT is ~$2.3 million USD.
Finally, an artist named Beeple (Mike Winkelmann) recently sold an NFT collection for $69 million at Christie’s auction house. Beeple is one the most well-known NFT artists at the current moment. He also has a record for the living artist with the most valuable artwork.
Those three examples are just the top examples of NFT. There are more NFTs with almost as much value as that floating around the Ethereum and Solana blockchain.
To answer the question, people do in fact pay huge amounts of money to purchase NFTs. No one contests that fact – you can verify all these sales by looking at the blockchain yourself.
Why Do People Pay Huge Amounts of Money for NFT Art?
The reasons that people pay huge amounts of money for NFT art vary depending on the person and their financial situation. The reasons listed below should cover the majority of reasons that people purchase NFT art, though.
For those familiar with traditional artwork, you will likely notice that the reasons people pay so much for NFT art are the same reasons people pay so much for traditional artwork.
The most common reason people pay so much money for NFT art also happens to be the simplest reason.
They expect the price of the NFT art to appreciate. This is sort of a self-referencing loop. If someone pays $100,000 for an NFT, then the value of the NFT goes up. It also causes the value of other NFTs in the collection to go up.
It’s actually a pretty basic concept and one that applies to regular artwork as well.
NFTs also have the added advantage of being a part of blockchain history. CryptoPunks were one of the first NFT collections released on Ethereum, so owning one is like owning a part of history.
This might not sound like much now, but collectors today figure that Ethereum has the potential to power the entire economy.
Those NFTs could be worth quite a lot of money down the line.
We won’t even cover the fact that these digital images could look and feel much more real when hyper-realistic virtual reality makes its way to the blockchain.
To summarize, some people pay a lot of money for NFTs because they assume the value will go up in the future. It’s the same reason that some people pay a lot of money for traditional artwork.
Cool Profile Picture
NFTs have another advantage over regular artwork – they make really cool profile pictures. It is extremely common to see cryptocurrency influencers with a CryptoPunk or Bored Ape profile picture on Discord, Telegram, or Twitter.
It’s a sort of signal to those in the community that the owner has a lot of people. You can think of it as the digital equivalent of having a Lamborghini or Ferrari. However, those with valuable NFT profile pictures have the luxury of remaining anonymous if they choose.
It’s becoming increasingly trendy for wealthy individuals in the cryptocurrency industry to remain anonymous and lowkey in their day-to-day life while still feeding their ego by flaunting valuable NFTs anonymously online. It’s much safer this way because they receive much less attention.
The anonymous account with the CryptoPunk Twitter profile picture could drive a Honda Civic or work a regular job for all you know!
Money Laundering or Tax Evasion
Another reason people could spend so much money on NFT art is for money laundering or tax evasion. Those unfamiliar with the traditional art industry likely don’t know this, but valuable art is frequently used for money laundering or tax evasion.
It’s easy enough because the value of art is subjective. If you want to pay $1 million for some abstract art, then that’s ok and no one will bat an eye. Just look at the modern art industry and you see this all the time.
This makes money laundering extremely easy.
Now, there have not been any reports about people using NFTs for money laundering or tax evasion. But it’s a difficult thing to catch, so that is not too surprising.
Anyway, money laundering likely does not fuel the high value seen in the NFT art world nearly as much as it does in the traditional art industry. The blockchain is public and immutable, which makes it terrible for covering your tracks.
That said, we are sure this happens to some extent and why we mentioned it.
Because They Can
The thing with the cryptocurrency industry is that it has created a lot of wealth. The current estimate is that there are 100,000 crypto millionaires and 10,000 crypto decamillionaires (over $10 million net worth from cryptocurrency).
Personally, we find those numbers a little low, but that’s not important. What is important is that these crypto millionaires likely went from working regular jobs to becoming millionaires overnight. We would wager that most of them are men and most have a nerdy, tech background.
Tech millionaires have a reputation for not flaunting their wealth. It’s actually looked down upon for those with money in the tech space to wear nice clothes or drive expensive German or Italian cars. You can look at Mark Zuckerberg or Bill Gates as examples of this.
Anyway, NFTs offer an outlet for these people to show to others in their industry that they have made it.
In other words, some people simply have so much money that they have basically created a new way to show off their wealth by purchasing certain NFTs.
That covers why people pay huge amounts of money to purchase NFT art. It basically comes down to expected price appreciation and showing off. There is likely some money laundering and tax evasion involved as well, but the amount of that occurring in the NFT industry is probably lower than most people expect.
Again, cryptocurrency has created so much wealth that some people literally don’t know what to do with their money.