Elon Musk, the CEO of Tesla and SpaceX – and new owner of Twitter – seems to be spending more of his time trolling people than actually working. About a week ago, he changed his Twitter profile picture to a collage of Bored Ape NFTs.
Rumors started to spread on Twitter immediately. Some people were saying that he must have purchased all the NFTs pictured or that he is collaborating with Yuga Labs. Others called it out for what it surely was, a troll. He essentially confirmed that this was a joke directed at the NFT community with a Tweet later in the day saying “I dunno … seems kinda fungible.”
He was parroting the common “right-click save” critique of NFTs, arguing that you don’t need to own an NFT to save the picture or show it off.
Beyond the direct criticism of NFTs, there is even more evidence that it was a troll. Most importantly, most of the apes pictured are confirmed to be still owned by other people. The collage he used was also created by the auction house Sotheby’s for many Apes that Musk certainly did not buy. Despite the evidence, the rumors kept spreading, getting increasingly more absurd.
Influencers Pouring Gas on the Fire
NFT investors have a tendency to believe any news that will make them a profit; this is abused often by Twitter influencers and scummy NFT projects alike.
Influencers, often sporting Bored Ape or Mutant Ape profile pictures, tweeted about the rumors with a tone of absolute confidence. Unfortunately, by seeing these tweets without proper context, one could be easily convinced that Musk was either buying a ton of Bored Apes or even collaborating with Yuga Labs.
These rumors had a distinctly positive effect on the Bored Apes and Mutant Apes collections. The day before the tweet, 18 Bored Apes changed hands on OpenSea. In the hour after the tweet, 22 Apes were sold on OpenSea. 57 Apes, more than 3 times the previous day’s volume, were traded by the end of the day.
The influencers got what they wanted – Twitter engagement (likes, follows, retweets, etc.) and more interest in the NFT projects that they hold.
Even a few news outlets were duped by Musk’s stunt, assuming he owned one or multiple of the Apes pictured. One article even posed the question: “Is he buying that entire project as well?”
Why Are NFT Traders So Gullible?
Traders often overlook red flags in exchange for a shot at huge profits; sometimes this works unbelievably well. Investors know that rumors with no corroborating evidence have the ability to move NFT prices. The rumor doesn’t have to be true. It doesn’t even have to make sense. Traders expect the prices to move, and if they get in early enough and sell before the hype dies off, they can make a decent profit.
Many aspects of the NFT market are difficult to understand from a macro perspective. However, if one looks closely enough, it’s easy to see the selfish personal incentives that drive the market’s oddities.
Take Pixelmon for example. It claimed that it was building an open-world game inspired by Pokemon with NFTs as playable characters. It was led by an unproven and relatively unknown team with a pseudonymous founder, Syber. The project’s aspirations were high, but the market had absolutely no reason to believe that the team could deliver. Essentially the only proof they had that a decent game was coming was a short simple trailer.
The team decided that they would launch the project with a Dutch auction, starting at the exorbitant price of 3 ETH per NFT. Despite little evidence that this project would succeed, almost all 10,000 Pixelmon NFTs sold for 3 ETH. In the end, it raised about $70 million from the mint. That’s significantly more than Gary Vaynerchuck brought in from his recent VeeFriends Series 2 mint.
If a “regular” game studio, led by this team, tried to get a few large investors together for a $70 million round, it would surely fail. Pixelmon was only able to raise that exorbitant amount because it was split over thousands of risk-tolerant speculators. This wouldn’t work if there was no speculative incentive. Almost every single minter thought that they would be able to sell their Pixelmon NFT for a profit. They guessed that the hype behind the project would attract tons of buyers. Unfortunately for them, they were spectacularly wrong.
The value of Pixelmon NFTs started to crash almost immediately after the sale ended. The hype couldn’t keep up with the thousands of traders looking for a quick profit.
It got much worse when the artwork was revealed. It is, hands down, the worst art we have ever seen in NFTs. It was so bad that it became the laughing stock of NFT Twitter. A particularly ridiculous zombie character named Kevin was immortalized as a meme that we won’t forget any time soon. The project ended in total disaster, but we had no reason to believe that they would do any better.
Can We Fix It?
What can NFT traders do differently to avoid this in the future? They need to set the bar for NFT projects much higher. A team of a handful of unknowns should not be able to raise $70 million with little more than a teaser trailer.
In many cases, the speculation works for minters because the price stays decently high for a short period of time. This is why so many people bought Pixelmon NFTs for 3 ETH apiece. Traders have been able to make thousands of dollars or more on similarly overhyped projects.
We hope that Pixelmon was a wake-up call for the market, because thousands of people lost a lot of money on it. Nevertheless, there is a high likelihood that it wasn’t. In the eyes of NFT people, projects with astronomical goals like Pixelmon are leveraged gambles. They know that they might lose a few thousand dollars on one gamble but they could make more than enough to cover it (plus some) with the next win.
How do you stop gamblers from gambling? Lower their odds.
These risky plays only work if a ton of others buy in too. We need to convince a significant portion of the market to stop rolling the dice with unknown and untested founders. Maybe then we will find ourselves trading in a more rational market.
Do you want to learn more about NFTs and keep up with the rapidly evolving market? Check out some of our favorite editions of The NFTimes:
- Read about the disaster that was the Otherside sale by the founders of Bored Ape Yacht Club in NFTimes Volume 20 – The Otherside Opens a New Chapter For NFTs
- Find out how to keep your NFTs and cryptos completely safe from hackers in NFTimes Volume 13 – How To Keep Your NFTs Safe
- Learn about NFT airdrops, one of the largest profit streams in NFTs, and how they could devastate the market long-term in NFTimes Volume 14 – Are NFTs A Bubble?
Keep up with Henry and NFTs 24/7. Join him in AlphaMint’s dedicated NFT Discord server.