Nansen: What are the driving forces behind the unstoppable rise of CryptoPunks?

Written by: Yasmine Karimi, Nansen Analyst
Compiled by: Perry Wang

What are CryptoPunks?

CryptoPunks is a collection of 10,000 unique collectible characters, widely regarded as the beginning of the CryptoArt movement. Released by Larva Labs on June 23, 2017, anyone could acquire a CryptoPunk for free at that time. The subsequent process is not elaborated here, but as of today, according to Nansen's data, the current price of Punks ranges between 100.5 ETH ($381,000) and 4,200 ETH ($7.58 million), making it the largest NFT collectible set, with a total market capitalization of 1,262,143 ETH ($4.5 billion).

Price range of CryptoPunks since inception

Potential Drivers Behind the Value of CryptoPunks

Many observers find it difficult to understand the high prices collectors have recently paid for CryptoPunks, believing it forms a speculative bubble. Others argue that the value of CryptoPunks is driven by factors beyond the NFT hype wave, and that recent trends may just be the beginning of a wave that will fundamentally change art collecting.

In this article, we further explore the potential drivers behind the value of CryptoPunks, as well as the potential trends that can be expected in the short and long term.

Fundamental Drivers of Valuation

Value Narrative Related to the First NFT Project

The first fundamental driver behind the valuation of CryptoPunks is its value narrative as the first NFT project in history. This value narrative gives CryptoPunks a unique status in the NFT space.

This sounds impressive, but what does it specifically mean to be the first NFT project, and why is it important? It means it is the first project to use blockchain technology to represent ownership of unique assets. This has three groundbreaking impacts:

First, CryptoPunks has completely disrupted art and the art market. By leveraging blockchain's proof of ownership technology, CryptoPunks eliminates third parties involved in art transactions. Artists can now interact directly with audiences to buy and sell their works. The application of blockchain technology in art truly enables the scarcity of digital art and collectibles in the digital world, as the original replicability of these items makes it difficult to guarantee rarity and high value.

Second, the example set by CryptoPunks has broadly driven the emergence of a new asset class: NFTs. While art is one use case, there are other non-fungible assets in reality (jpeg, memes, certificates, patents, etc.) that leverage proof of ownership technology to become scarce and valuable.

Third, they inspired the creation of the ERC-721 token, which is a token standard that supports non-fungible assets, and this is even mentioned in the white paper of the latter.

Scarcity

CryptoPunks not only hold significant cultural meaning in the NFT space, but they are also scarce. With a cap of 10,000 set, it becomes challenging for people to acquire one, otherwise, they would not hold any value.

CryptoPunks possess scarcity at the collectible level, but this scarcity is even more pronounced in real-world collections, as some Punks are considered rarer than others.

The value of Punks depends on their type, the number of attributes, the combination of attributes, and subjectivity. There are 5 types of Punks (Alien, Zombie, Ape, Male, Female), with 87 different attributes, and each Punk can have up to 7 attributes.

Generally, the types considered to be of higher value are Alien, Zombie, and Ape. In fact, the average price of Aliens is 16 times that of male Punks.

In terms of attributes, it is commonly believed that Punks with 0, 6, or 7 attributes are more valuable.

The most sought-after features tend to be the quirkiest and most punk-spirited traits. Currently, the highest average priced features are as follows:

• Beanie
• Pilot Helmet
• Hoodie
• Tiara
• Choker
• Top Hat
• Orange Side
• 3D Glasses
• Welding Goggles
• Gold Chain

It is important to note that the most valuable features are not always scarce. If we consider the changing value of these features over time, it is interesting to note that the popularity of features can vary over time.

Top 10 most valuable features over time

As shown in the image above, some features that were not particularly popular, such as hoodies and pilot helmets, have regained attention. Therefore, it is crucial to stay updated on discussions related to features within the CryptoPunks community (Discord, Twitter, etc.) and to leverage recent sales history as a reference.

Social Currency of the OG Community

As mentioned above, CryptoPunks have a unique value narrative and limited supply. This scarcity meets the following demand: CryptoPunks have become a form of social currency within the OG community and the NFT space.

When you purchase a CryptoPunk, you are not just buying an image; you are buying membership in one of the coolest and hottest OG clubs in the NFT space. This club membership carries significant weight. It conveys the message that you are a pioneer, that you recognize the historical significance of the project, and that you are a celebrity in the NFT space. It also allows you access to heavyweight social circles, exclusive conversations, and the ability to claim other NFT collectibles for free (such as when Meebits were released).

The growing demand from OGs, along with the entry of new participants into the market, will further drive up the price of Punks.

Over time, we will see different market participants' demand for Punks continue to increase. OGs will reinvest previously harvested profits into CryptoPunks or at least hold onto the Punks they already own. They are experienced collectors. As shown below, the top 5 holders of CryptoPunks are primarily original collectors, who still own 14% of the total CryptoPunks.

Top 5 collectors of CryptoPunks

However, as time changes, the evolution of trading among different types of NFT collectors also indicates that the trading volume of "legendary NFT collectors" is becoming a smaller proportion of total trading volume. (In terms of ERC721 token trading, legendary collectors refer to the top 0.1% of collectors)

Changes in the types of NFT collectors purchasing CryptoPunks over time

In fact, while collections were initially concentrated in the hands of whales, the number of CryptoPunks holders has been increasing over time, indicating that the distribution of the collection is becoming more decentralized and healthier. There are now approximately 3,000 CryptoPunks holders.

Changes in the total number of unique addresses holding CryptoPunks over time

Among these newcomers are high-net-worth individuals, investors, celebrities, and industry opinion leaders. We can expect that they are motivated by short-term/long-term profit prospects and the social currency attributes of CryptoPunks.

Two other trends are also evident. As indicated by Visa's purchase of Punk 7610 last week, NFTs are increasingly attracting the attention of institutional investors. Additionally, with the emergence of NFT fragmentation mechanisms, new groups of market participants have been unlocked, allowing multiple people to co-own an NFT.

Growth of the Overall NFT Market Enhances CryptoPunks' Status as a Pioneer

With the success of other NFT collectibles, such as Autoglyphs, Bored Ape Yacht Club, and ArtBlocks, this field ultimately traces back to CryptoPunks, and CryptoPunks will appreciate with the overall market's development.

As the NFT space matures and integrates with the metaverse, VR, and AR, CryptoPunks will become part of a larger market and gain practical utility.

The spread of CryptoPunks across different media and industries is also increasing, such as CryptoPunks comics and CryptoPunks-inspired clothing. Some members of Flamingo DAO have even created a 3D rendering of their Punk, placing it in the metaverse, while Larva Labs has signed an agency deal with Hollywood talent agency United Talent Agency, indicating that they will soon appear in movies, television, and other media. This cross-pollination will make CryptoPunks more popular. The increasing interest combined with scarcity will drive the appreciation of CryptoPunks.

CryptoPunks Will Inevitably Become a Store of Value

As there will only be one OG NFT project, CryptoPunks will maintain its uniqueness and become a form of social currency within the NFT space. As the NFT space matures and new market participants seek to acquire CryptoPunks, the demand for this collection will grow. When this increased demand meets the cap of only 10,000 CryptoPunks, CryptoPunks will appreciate. Over time, Punks will become a means of storing value and will undoubtedly be the most resilient in value during a bear market in the NFT space.

Conclusion

In summary, the extraordinary growth in the value of CryptoPunks can be explained by fundamental drivers, such as their value narrative as the first NFT project in history, their scarcity, and their status as social currency. These elements will continue to push the value of CryptoPunks to new heights. While we can expect fluctuations in the price of CryptoPunks in the short term with the ups and downs of the crypto space, in the long run, the value of CryptoPunks will only move in one direction. CryptoPunks will remain one of the most mature blue-chip NFT series.

This is just the beginning. The NFT space will continue to exist, and CryptoPunks will forever be regarded as the origin of NFTs, gaining more value over time. Although the value of this collection has already seen astonishing growth, it is expected that by 2025, the value of Punks will likely be even higher.

Source link: www.nansen.ai