CryptoPunks – Temporary Fad or Money Making Opportunity?

If you’ve been exploring the latest developments in the crypto markets, NFTs are most likely on your radar.

While digital collectibles have been around for a while, it wasn’t until a recent newsletter of Anthony Pompliano, that experienced investors finally started taking the industry seriously. What started five years ago with CryptoKitties is now transitioning into the art industry as well. In a very short period of time, sales for digital art have seen a massive spike.

We saw an influx of artists into the space, lured by high paychecks and convenient distribution methods. Even those with no interest in digital art are now buying it up fueled by FOMO.

Investing in digital art is the new hype, and while the space seems to be quickly saturating, there are a plethora of money-making opportunities.

In this article, we discuss CryptoPunks, one of the most promising NFT projects. By reading this post you will understand what they are, the reasoning behind their high price, and why it may very well be your best 5-year investment opportunity.

Let’s delve in.

The growth of NFT markets

First of all, if you are not familiar with Non-Fungible Tokens (NFT), start by reading this post. In short, NFTs attach digital goods to blockchain wallet addresses, making them unique and scarce. This in turn creates a decentralized ownership layer through which others can track both the authenticity and ownership of these goods.

looking forward to trade NFT’s for NFT’s for the rest of my life …will be a fascinating variable, in real life its hard to trade items so easily

— Gary Vaynerchuk (@garyvee) February 19, 2021

To understand why NFTs are gaining traction, and why they will likely play an important role on the web of tomorrow, we need to look at the (projected) growth of virtual markets, which are growing faster than expected, as a result of the lockdown measures imposed over the past year.

Source: Adroit Market Research

The global virtual goods market is worth approximately $50B, and will likely quadruple in value by 2025. In short, this stands for all the money invested in virtual goods. That limited edition CryptoKitty, a block of virtual real estate, even that premium sword you want a game character to fight with – all of these are known as virtual goods, and further use cases are being developed on a daily basis.

Third-world countries are already seeing the demand for these goods as a great opportunity for alternative employment, while more-developed countries see it as proof (of user demand) to create decentralized digital universes (Metaverse).

And of course, the art industry is one of the early niches that has managed to create a real product-market fit. Artists from all styles and backgrounds are now making millions selling their digital art collections on NFT marketplaces, and 2020 has been their best year to date.

Not only are artists able to distribute their work in a more convenient manner, but they can also earn royalties from secondary markets. Next to artists, influencers with large communities are dabbling into the opportunities as well, and are already creating branded NFTs for their fans (e.g. Logan Paul, NBA Topshots, etc.).

In 2021 alone, NFTs have seen more than $100m of cumulative sales, and it is still February. Many are pointing towards a potential bubble but no one can deny that a digital revolution is taking place.

Ethereum is the winning horse

Ethereum is the first blockchain to support NFT projects and the most established from all options currently available. All the popular NFT marketplaces are using the Ethereum blockchain to create digital scarcity for the work of artists, and the trend is expected to continue.

Of course, that doesn’t mean that there is no competition. More NFT oriented blockchains are being created to support the scaling of the industry and to tackle the problem of massive fees due to Ethereum’s congested network, and some (e.g. Flow, WAX) are quickly gaining market share.

At this point, let’s do a quick recap of what we learned:

• Digital art is the first product-market fit and growing rapidly
• Ethereum is the first and most popular blockchain for NFTs
• The trend is expected to continue in the coming years

Having established these facts, we can now introduce the main topic of this article – CryptoPunks.

What are CryptoPunks?

CryptoPunks are 10,000 uniquely generated pixel art images depicting faces of punk-like faces, as well as other, odd-looking personas. Each “punk” has its own personal page on LarvaLabs, the platform that is responsible for their developments (e.g. Punk 6648).

No two CryptoPunks are similar, and each punk can only be owned by a single person. This increases their scarcity and perceived value, which has elevated their average price to $40.000+ at the time of this writing.

What makes this project more creative than others is its method of distribution. In the early days of the project, anyone could claim a CryptoPunk for free, as long as they had a compatible Ethereum wallet. From that point onwards, every person lucky enough to claim a punk was able to sell them on secondary markets that support Ethereum-based NFTs.

Why is the price of CryptoPunks so high?

While CryptoPunks have been around since 2017, the project never received much attention until the digital art market started to become more popular. Over the past year, we have seen many influencers, entrepreneurs, and investors rush to the trend, promoting the project heavily.

Mark Cuban called CryptoPunks the “rookie card of NFT”, while Gary Vaynerchuck is vocal about them on Twitter. The community of course saw this as a massive opportunity to bank on positive market sentiment and the rest is history.

Aside from the positive sentiment, it might be a good idea to relate early NFT projects with popular trading card games, like Pokemon. The first edition cards are now being sold at very high prices fueled by nostalgia, scarcity, and public demand, which continues to increase thanks to continuous promotion.

In many ways, smart investors recognize that CryptoPunks are what 1st Edition Shadowless Charizards were 20 years ago. Like scarce Pokemon cards, CryptoPunks are also going to eventually cause nostalgia, remain scarce (only 10.000), and continue to increase in value thanks to the public’s demand. Therefore, it wouldn’t be surprising if at some time before 2030 we see a single CryptoPunk being sold for more than $1.000.000 dollars.

Should I buy a CryptoPunk now?

Much like the crypto markets, it is important to understand when an industry is simply fueled by FOMO, and when purchases come as a result of genuine interest in the art itself. At the moment, the NFT markets are (seemingly) at the peak of their trend, and it might be somewhat dangerous to invest in very expensive and established projects. This is for two reasons:

1. The NFT market is illiquid – Unlike cryptocurrencies which can be sold in the open market with relative ease, NFTs have to be sold as standalone pieces in auction. This makes them a lot harder to sell in bearish market conditions, and chances are that you will be stuck with your punk until the market bottoms out. Many people refuse to look at this issue right now, but it is important to realize it before making costly mistakes in hopes of profit.
2. Everyone can make an NFT – Do you remember the ICO bubble of 2017? If you were around during that time, you most likely lost quite some money. This is because a lot of unqualified people with development experience were able to create an Ethereum token and sell it in the open market. With NFTs, this issue goes to the next level – you don’t even need technical expertise. Literally, anyone can create an NFT. This will inevitably give a bad rep to the market, causing a huge crash which will cause huge losses to many people.

The following video may be the best of its kind to explain the current dangers of the trending NFT market:

It may also be useful to try and draw a parallel between cryptocurrencies and NFTs. Similar to the altcoins circulating the crypto market, 98% will cease to exist in the next few years. The 2% that will stick around will inevitably grow in value due to its fundamental strengths and buyer demand.

CryptoPunks could very well be the Bitcoin of the NFT markets. Sure, they will lose value once the market decides to turn bearish, but they will most likely stick around and remain one of the very first NFT projects on the Ethereum blockchain.

Therefore, even though the NFT market will inevitably see a correction in the short-term future, we strongly believe that buying a CryptoPunk could be one of the best investing opportunities of the decade. All you need to do is learn more about the NFT markets and closely observe the trends to try and find a good entry point.

How to buy CryptoPunks

As soon as the bear market comes around, make sure to stick around and watch the trend unfold. In the latest bear market, Bitcoin lost 85% of its value over a one-year timeframe before heading back up to reclaim its all-time high price. While this may not be an indication for the NFT market, it can help you prepare for the potential fluctuations that will eventually occur.

So, once you feel comfortable in making a purchase, here are the steps you need to follow to buy a CryptoPunk:

1. Download and install the Metamask extension, and transfer some Ethereum to your wallet. You will be using this ETH to make bids on the available CryptoPunks.
2. Head over to the CryptoPunks page on Larva Labs
3. Once there, you can see which “punks” are currently up for sale and learn more about the avatar you are most interested in.
4. Click on any of the CryptoPunks with a red background, which indicates that they are up for sale.
5. At this point, you will see an option to connect your Metamask wallet to Larva Labs. Follow the instructions on the screen to do so.
6. After the wallet is connected, you will be able to bid or instantly buy the CryptoPunk of your choice.

The process of buying Crypto Punks is relatively easy once you have managed to setup your Metamask wallet. That being said, the Ethereum network tends to be very congested during periods of high transaction volumes. As such, you may be forced to pay more fees than you normally would.

Beware of spinoffs

In recent times, the popularity and demand for CryptoPunks have spread to other competing blockchains as well. More specifically, we already have:

• SubstraPunks on the Polkadot blockchain
• BinancePunks on the BSC blockchain

These copies of the original artwork will in no way compare to the original versions anytime soon, but may easily confuse beginners. Therefore, and to better understand what you’re signing up for, make sure you perform additional research, by checking our resources below.

Useful resources

The following articles help you understand the new NFT economy and the importance of projects like CryptoPunks:

• The Non-Fungible Token Bible: Everything you need to know about NFTs
• The Furry Lisa, CryptoArt, & The New Economy Of Digital Creativity
• NFT Issuance Landscape
• The Virtual Economy
• On-Chain Artwork NFTs

And that’s it! We hope you enjoyed this article and keep in mind that our position reflects our personal opinion, and is not meant to serve as financial advice.

Written by

Dimitris Tsapis