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Why NFTs Are Harder To Value And Trade Than Cryptocurrencies – Forbes

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The non-fungible token (NFT) market has been booming since last summer. NFT’s historical sales volume has reached $41 billion, most of that since last August, up from just $74 million at the beginning of 2021. To put this into perspective, the global art market had total sales of $50 billion in 2020. It is not just the size of the NFT market that is interesting, but also its rapid growth—and that should make any investor think twice. Are NFTs worthwhile from an investment perspective?
Separating out the investment aspect from the fun part of NFTs is necessary since everyone is getting in on the NFT action. The National Football League (NFL) gave away Virtual Commemorative Ticket NFTs to attendees of Super Bowl LVI, and AMC Entertainment is giving away free Batman NFTs to select viewers. These types of NFTs show the parts of the NFT market that are merely fads, and fads come and go. 
From an investment perspective, NFTs also appear to be a fad, a replacement for meme stocks for hyperactive traders, more like Beanie Babies than a new investment asset. After all, Robinhood Markets, Inc. gamified the trading of stocks and options; NFTs take this one step further with the gamification of the actual investments. This seems a likely conclusion since most NFTs trade off their social media attention, just like meme stocks. For all these reasons and more, the future of NFTs as an alternative investment class does not look good.
Understanding NFTs
NFTs are a special type of cybercurrency token. Each NFT is unique and tied to a specific digital asset. This digital asset can be any digital file, such as a music file, a video, or a picture file, and some also claim it can be a physical asset, such as a tennis shoe.
A blockchain, the software at the core of any cybercurrency, stores an NFT datum in its system, and any users on that blockchain can trade them. The blockchain records all transactions that occur on that blockchain in its digital ledger, including NFT trades. The blockchain does not store the actual digital asset, only proof of ownership; copyright owners or the originators of an NFT can store the digital asset anywhere. 
Non-fungible tokens or NFTs are cryptographic assets stored on a blockchain with unique … [+] identification metadata that distinguish them from each other.
NFTs are best thought of as records of ownership of unique digital assets and, therefore, non-fungible—meaning they cannot be exchanged, one for the other, because they are not exactly the same. What you do with NFTs is exchange them for a cybercurrency. NFTs can be bought and sold like any cryptocurrency. The distinction, however, is that while NFTs are unique and non-fungible, cryptocurrencies such as bitcoins are fungible—you can exchange one bitcoin for another because they are exactly the same. For speculators, this is what makes cryptocurrencies superior to NFTs; with fungibility, you know what you’re getting. Because of their uniqueness, trading NFTs is more difficult than cybercurrencies.
The NFT Trading Process
NFTs are traded in NFT marketplaces, which have structured platforms like eBay’s. Most NFTs are sold via auctions, although some sell at fixed prices. Some marketplaces specialize in a type of NFTs, e.g., art, games, sports, whereas others sell everything. If you wish to create a new NFT (called minting) you can do so through any of the marketplaces. The largest marketplace is OpenSea, which in 2021 had about a 90% market share by dollar trading volume across marketplaces. 
There are fees for creating and trading NFTs, from upfront account setup fees and minting fees to sales fees. If you are going to create or trade NFTs, make sure you know a marketplace’s fee structure. To get a sense of fees collected, OpenSea collected about 8% of its sales volume in fees in January. There may also be royalty fees (usually 10-30% of the sales price) that go to the original creator of an NFT every time a transaction in that NFT takes place. 
NFT Collections Are Where the Action Is
Speculators must be aware of the market concentration in trading is in just a handful of what are termed NFT collections. A collection is a group of NFTs that are different from each other yet share similarities. The same creators mint an entire collection, purposefully making the NFTs to be alike but different. 
The Bored Ape Yacht Club is the most popular NFT collection, with total historical sales of around $2.5 billion and a 12% market share of the total NFT market, even though their creators only launched them in April 2021. The collection includes 10,000 unique jaded apes, each with a different wearied style (you can see some here). The most expensive Bored Ape sold for over $3.4 million at a Sotheby’s auction.
Through 2021, the top ten NFT collections had over $15 billion in historical trading value and around a 60% share of the total NFT market. The dominance of a few collections in the market is most likely due to a preference by NFT speculators to trade within collections. It is easier to value an NFT from a collection because there are other NFTs to compare it to. It follows that, of the money a minority of traders make speculating in NFTs, most of it is from trading within collections. Clearly, informed traders know where the money is, but it is hard to believe that the market can absorb as many collections as there are today: 3,264, up from 193 a year ago. At some point, having so many collections defeats their purpose.
Few Make Money Trading NFTs
Left out of most NFT discussions is how to make money trading them. I only know of one study that attempts to understand this, The Chainalysis 2021 NFT Market Report. This analysis of the data shows that only 44% of the trades in NFTs make money, and only a minority of NFT traders make this money. 
The researchers separately examined those who buy newly minted NFTs and then sell them, and those who buy the NFTs in the secondary market and then sell them. Most traders who purchase newly minted NFTs and then sell them lose money, only 29% of these trades make money. Of those who do make money, most of those buyers received a discount to the list price on their purchase. Of this minority who make money, over 50% earn more than a 200% return on their investment, whereas 60% of those who lose money on these trades lose over 50%.
Of those traders who purchase their NFTs in the secondary market and then flip them, 65% make money. But it is just 5% of these traders who earned 80% of these profits. The researchers found that these traders tend to be the most sophisticated, trade with the most capital, buy and sell the most expensive NFTs, trade the most often, and hold a larger portfolio of NFTs.
NFT Investing is Hazardous to Your Wealth
The evidence from the previous study is clear: most NFT speculative traders do not earn a positive return. From an investing perspective the results are unfortunate, but not surprising. Another aspect of trading in NFTs is that fraud within the NFT ecosystem is said to be rampant. The potential for “bad actors” to engage in nefarious selling and trading of NFTs (including counterfeit tokens or assets they don’t actually own) was described as a “contagion” by the CEO of one NFT platform. The result is a situation where your NFT purchase could end up being worthless. Combining the difficulty of earning a positive return and the inherent risks, NFT trading is not a good proposition, so stay away. They have all the signs of being an investing fad that will likely pass.

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Starbucks details its blockchain-based loyalty platform and NFT community, Starbucks Odyssey – TechCrunch

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Starbucks is today officially introducing Starbucks Odyssey, launching later this year — the coffee chain’s first foray into building with web3 technology. The new experience combines the company’s successful Starbucks Rewards loyalty program with an NFT platform, allowing its customers to both earn and purchase digital assets that unlock exclusive experiences and rewards.
The company had earlier teased its web3 plans to investors, saying it believed this new experience would build on the current Starbucks Rewards model where customers today earn “stars” which can be exchanged for perks, like free drinks. It envisions Starbucks Odyssey as a way for its most loyal customers to earn a broader set of rewards while also building community.
To develop the project, Starbucks brought in Adam Brotman, the architect of its Mobile Order & Pay system and the Starbucks app, to help serve as a special advisor. Now the co-founder of Forum3, a web3 loyalty startup, Brotman’s team worked on Starbucks Odyssey alongside the Seattle coffee chain’s own marketing, loyalty and technology teams.
While Starbucks had been investigating blockchain technologies for a couple of years, it has only been involved in this particular project for around six months, Starbucks CMO Brady Brewer told TechCrunch. He says the company wanted to invest in this area, but not as a “stunt” side project, as many companies are doing. Rather, it wanted to find a way to use the technology to enhance its business and expand its existing loyalty program.
It opted to make NFTs the passes that allow access to this digital community, but it’s intentionally obscuring the nature of the technology underpinning the experience in order to bring in more consumers — including non-technical people — to the web3 platform.
“It happens to be built on blockchain and web3 technologies, but the customer — to be honest — may very well not even know that what they’re doing is interacting with blockchain technology. It’s just the enabler,” Brewer explains.
To engage with the Starbucks Odyssey experience, Starbucks Rewards members will log in to the web app using their existing loyalty program credentials.
Once there, they’ll be able to engage with various activities, which Starbucks called “journeys” — like playing interactive games or taking on challenges designed to deepen their knowledge of the Starbucks brand or coffee in general. As they complete these journeys, members can collect early digital collectibles in the form of NFTs (non-fungible tokens). Starbucks Odyssey, however, does away with the tech lingo and calls these NFT collectibles “journey stamps” instead.
Additionally, a set of limited-edition NFTs will be available to purchase in the Starbucks Odyessy web app, which also works on mobile devices. Though hosted on the Polygon blockchain, these NFTs will be bought using a credit or debit card — a crypto wallet is not required. The company believes this will make it easier for consumers to engage with the web3 experience by lowering the barrier to entry. It also won’t complicate consumers’ transactions with things like “gas fees,” preferring to offer a bundled price.
The company is not yet ready to share what its NFTs will cost or how many will be available at launch, saying these are decisions that are still being ironed out.
However, the various “stamps” (NFTs) will include a point value based on their rarity and can be bought or sold among Starbucks Odyessy members in the marketplace, with the ownership secured on the blockchain. The artwork on the NFTs is being co-created by Starbucks and outside artists, and a portion of the proceeds from the sale of the limited-edition collectibles will be donated to support causes chosen by Starbucks employees and customers.
By collecting the stamps, members will gain points that can unlock exclusive benefits.
These perks go beyond those you can earn with a traditional Starbucks Rewards account and its “stars.” While today, members can earn things like free coffee, free food or select merchandise, the points earned in Starbucks Odyessy will translate into experiences and other benefits.

Starbucks Hacienda Alsacia. Image Credits: Starbucks(opens in a new window)
On the lower end, that could be a virtual espresso martini-making class or access to unique merchandise and artist collaborations. As you gain more points, you may earn invites to special events hosted at Starbucks Reserve Roasteries, or even earn a trip to the Starbucks Hacienda Alsacia coffee farm in Costa Rica. It’s expected the very largest perks will be reserved for those who purchase NFTs, though lesser versions may be offered to those who earn their way up.
For instance, a paid NFT could offer the full travel package and farm tour, while an earned NFT could offer the tour alone with flights and hotels left up to the user. Starbucks hasn’t made any formal decisions on this front, however.
But what the company can say is that it wants to deeply integrate the program with its existing loyalty rewards, beyond simply using the same user account credentials for both programs.
Brewer says Starbucks is already imagining how some of the activities that earn NFTs will be connected to real-world Starbucks purchases, for instance.
In Odyssey, users earn NFTs by doing challenges, which might also include a real-world activity like “try three things on the espresso menu.” This would require the user to show their barcode at checkout — as they would if earning stars — to have their transaction counted toward the Starbuck Odyssey challenge. The company is still determining what mix of games, challenges and quests it will include at launch.
“But we’ll have experiences that do link directly to customers’ behavior in our stores,” Brewer stresses. Most importantly, the company wants to make gaining NFTs something anyone can do — not just those with money to blow on digital collectibles, as is often the case with current NFT communities, which price out the average user.
“There will be a lot of ways for people to earn [rewards] without having to spend a lot of money,” says Brewer. “We want to make this super easy and accessible. There will be plenty of everyday experiences customers can earn like virtual classes or access to limited edition merchandise, for instance. “The range of experiences will be quite vast and very accessible,” he adds.
Starbucks says it explored all the different blockchains for the project but landed on the “proof-of-stake” blockchain technology built by Polygon for this effort because it uses less energy than first-generation “proof-of-work” blockchains, which is more in line with its conversation goals.

Image Credits: Starbucks (opens in a new window)
The idea to enter into the world of web3 makes sense for a company known for taking advantage of emerging technologies and making them more approachable and easy for consumers to access. In years past, Starbucks introduced Wi-Fi in its stores to encourage customers to spend more time during visits. It also pushed the idea of mobile wallets long before Apple Pay became ubiquitous. And it made mobile ordering the norm well ahead of the COVID pandemic, when other restaurant chains picked it up.
But one criticism leveraged against many traditional businesses when they enter the web3 market is that they’re approaching it as a marketing stunt, not a real endeavor. Starbucks, of course, argues that’s not the case here — but only time will tell how serious its interest may be.
“We’re bullish on the future of these technologies enabling experiences that were not possible before,” Brewer claims. The intention is to be flexible and move with the customers as the web3 market changes, he explains. “It’s really important that we’re looking at it for the long-term,” he continues. “But, given that we’re plugging it into our industry-leading, massive scale rewards program — we’re committed,” he says.
The company says its web3 platform will open its waitlist (waitlist.starbucks.com) on September 12 and will launch later in the year. It will remove the waitlist and open the platform more broadly sometime next year.

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Tyler Hobbs' Fidenza NFT Project Gets $1M Pump Over 48 hours – CoinDesk

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DOJ Asks Congress for Tools to Limit NFT Money-Laundering Risk – PYMNTS.com

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Down at the very bottom of the crypto crime report the Justice Department issued last week was a request that could make it a lot harder to buy and sell NFTs.
Citing examples of criminals using the sale of the popular nonfungible tokens that hold art, video, music and collectibles to launder funds, the Justice Department asked Congress to define some of all NFTs as “value that substitutes for currency” under the Bank Secrecy Act (BSA).
Doing so, it said in “The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets,” would “make clear that its key [anti-money-laundering (AML) and countering the financing of terror (CFT)] provisions — including the obligations to have customer identification programs and report suspicious transactions to regulators — apply to NFT platforms, including online auction houses and digital art galleries.”
See also: DOJ Seeks to Double Jail Time for Money Transmission Crimes
The impetus, the department said, is the “explosive growth in the demand and corresponding markets for NFTs, perhaps most notably in the area of digital art.”
Substantial Risk
This “presents substantial money-laundering risks,” it said, citing a February Treasury Department study on money laundering in the broader art market.
“NFTs can be used to conduct self-laundering, a sequence in which criminals purchase an NFT with illicit funds and then resell to a purchaser who pays for it with clean funds unconnected to a prior crime,” that report noted.
It also found that in most cases, “digital assets that are unique, rather than interchangeable, and that are used in practice as collectibles rather than as payment or investment instruments … are generally not considered to be virtual assets under [international regulations].”
The “nonfungible” part of NFT means that each is unique and cannot substitute for any other, as opposed to cryptocurrencies like bitcoin which all have the same uses and value.
NFT marketplaces “may take the view that this definition [of a ‘value that substitutes for currency’] does not apply to their activities — and that they are thus not subject to the BSA’s anti money-laundering and anti-terrorism laws, the department said.
Justice is asking Congress to amend the BSA “to make clear that its key AML/CFT provisions — including the obligations to have customer identification programs and report suspicious transactions to regulators — apply to NFT platforms, including online auction houses and digital art galleries.”
Already There
Redefining NFTs as “value that substitutes for currency” would allow the Treasury Department’s Financial Crimes Enforcement Unit (FinCEN) to “potentially seek to regulate such activity under its money transmission regime,” a trio of lawyers at Skadden, Arps, Slate, Meagher & Flom wrote in an April blog post.
That, according to Jamie Boucher, Eytan Fisch and Javier Urbina, would require NFT marketplaces to register as money services businesses (MSB) with FinCEN.
Some types of NFTs — notably those used to fractionalize tangible assets like physical artworks and real estate, but also other valuable art or collectible tokens — are likely securities, the Securities and Exchange Commission (SEC) has said.
See more: How Did NFTs Become SEC’s Newest Crypto Target?
In FinCEN’s view, the trio noted, those can be repurposed to fit the definition of “value that substitutes for currency” and thus may already require MSB licenses.
 
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