Hot Takes: Why NFTs are the future of art, but not the art of the future/ Why I’m long the Dollar vs. Sterling (cautiously)

What is a NFT?

NFTs, or non-fungible tokens, are unique digital tokens stored and transferred on the blockchain, allowing investors to see their past trading history and origin. While having no use case on their own (then again, does art), NFTs serve as an irrefutable proof of ownership and authenticity since investors can simply check the originator of the work. Besides art, NFTs are also being used to track supplies and services throughout the world (see things like Vechain) as well as large assets (see innovative blockchains like OpenDao and Centrifuge) that attempt to turn real life assets such as houses into tokens.

The art community is a shadowy, rarified community where art is often sold at astronomical prices with seemingly no ties to some base value. However, over fears of digital works being stolen, digital artwork (and fashion) has been a relatively small market. NFTs provide a useful functionality for the art industry: tracking and proving the identity of valuable art pieces. It is estimated that more than 40% of all artworks sold are forgeries according to the former director of the Museum of Modern Art and the Fine Arts Expert Institute. This singular use case positions NFTs to fill a vital gap in the modern industry, proving ownership of items and verifying their history.

Investors are shelling out millions for NFTs… so why do I claim they’re not the art of the future?

While yes, NFTs will likely play a role in art, with NFT art collections currently selling for millions (In the Beeple auction, a NFT was sold for $69 million). At heart, a NFT is simply digital art. NFTs will not destroy paintings or physical art, which will continue to play a role in the art industry. People already do pay for digital art, so NFTs are in no way a “unique” art form. The true value in NFTs is the proof of creation (as well as the ability to reimburse artists by putting restrictions into the blockchain ie. by having every transfer of ownership paying the artist a x% commission). While I can fully imagine a future where almost every art collector will have their artwork verified and put on the blockchain as a NFT, I cannot see art collectors buying solely NFTs, even if VR becomes a major part of society (although VR would certainly increase adoption). After all, even after decades, not all art collectors appreciate modern art. Like so, it seems foolish to claim that art collectors will soon accept digital art as a medium (when the “beauty” of the art can be easily replicated since it is by nature digital).

Nevertheless, NFTs do open the gates for digital art because they can prove that one owns the “rights” to a digital artwork, much like a copyright. Much like how copyrights work, NFTs, as digital signatures, will likely allow collectors to prove that their artwork has been stolen while still allowing the public to copy digital work for personal use. Perhaps collectors will never appreciate art that can be so easily stolen, but given the parabolic gains in the NFT space in recent months, NFTs appear to have opened the digital artwork market to new liquidity and gain acceptance within the art community.

Part 2: Why I’m dollar long

Honestly, there’s not much to say here beyond the pound’s strength against the dollar has largely been due to dollar weakness than any intrinsic strength to the pound. While both ten-year bond and gilt rates have been rising, as treasury rates rise, the dollar will be perceived to gain strength (as there is usually more demand for treasuries), and investors will likely flock toward the dollar (especially because t-bonds offer a higher yield than the ten-year gilt). Meanwhile, the market has yet to fully account for Brexit slashing UK exports. As both economies recover from Covid19, the full effects of Brexit will likely begin to realize (as the British economy falters in its recovery), causing a capital outflow out of the British economy.

Nevertheless, the trade remains far from clear, with GBP still in a strong uptrend. However, investors should remain wary for an imminent reversal.