Thursday, September 29, 2022

Please Stop – There is No Such Thing as a ‘Blue Chip NFT’

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There is a concept doing the rounds of a ‘blue chip NFT’
The idea of ‘blue chip’ denotes quality, standing and market dominance, among other things
No NFT project can qualify for such an epithet

There is a concept floating about of ‘blue chip NFTs’ that really needs addressing. The concept suggests that some NFT collections and the companies behind them are suddenly more secure, safe and therefore desirable than others, which in a space famous for rampant speculation based on no fundamentals whatsoever is a pretty rich concept. Let’s look at what makes a ‘blue chip’ company and see just how far away the concept is when we talk about NFTs.

What is a Blue Chip Investment?
Investopedia defines ‘blue chip’ as the following:

A blue chip stock is a huge company with an excellent reputation. These are typically large, well-established, and financially sound companies that have operated for many years and that have dependable earnings, often paying dividends to investors. A blue chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name.

Let’s take these points one by one:

“…a huge company with an excellent reputation…”

Of course, ‘huge’ is a relative concept so we can’t really say much there, but as for “excellent reputation”? How many NFT projects have excellent reputations? None of them have done anything to earn a reputation of any kind yet, and arguably the biggest among them, Bored Ape Yacht Club, has attracted the attentions of Anonymous because of its alleged racist and Nazi dog whistles.

Regardless of whether this is true or not, it hardly speaks to an excellent reputation, and ‘reputation’ is not something you think about when you consider Ether Rocks and Chromie Squiggles.

“…typically large, well-established, and financially sound companies that have operated for many years…”

We can hardly say that any NFT collection or any of the companies behind them are well-established and we have no idea if they are financially sound or not. Being temporarily loaded doesn’t make you prudent with your cash, and we have no way of telling whether Yuga Labs and the like are using their money sensibly or otherwise.

And as for operating for “many years”…the amount of fly by night rug pullers in the NFT space proves that longevity is indeed a thing to be cherished, and something that, obviously, only time can establish.

“A blue chip stock typically has a market capitalization in the billions…”

Well, this is something that we at least can say in NFTs favour – in March this year it was revealed that many of Yuga Labs’ projects have market caps of over $1 billion, ensuring they at least fit this criteria – at least until their valuation drops.

The fluctuation in value of NFTs means that even if a collection suddenly does creep into the billions, it hardly qualifies it for blue chip status – it needs to remain there for several years and establish a base before we can consider it in such a category.

“…is generally the market leader or among the top three companies in its sector, and is more often than not a household name.”

It’s questionable whether any NFT collection is truly a household name. Plenty under the age of 40 will have heard of Bored Apes but many probably don’t know anything about them, and as for the others? No chance.

As for market leaders or top three in the NFT space, again we can only look to Yuga Labs for their Bored Ape franchise, but being the top in a sector that barely anyone outside the ecosystem understands probably covers about one in a thousand households.

Time Will Tell
While we can’t apply the concept of a blue chip company to a blue chip NFT collection, we can see that it is merely an attempt to confer some kind of legitimacy on certain projects whose valuations have stayed high during the bear market. It is also a way for NFT holders to try and give the sector an air of legitimacy that it simply doesn’t have.

While this is laudable and speaks to a higher level of desire for those collections, it ignores the less tangible elements that make a company ‘blue chip’ – reputation, standing, useability, penetration among the general population etc.

Until an NFT project achieves this, and stays around long enough to try, a ‘blue chip NFT’ project is simply one that hasn’t crashed in value as much as the others…yet.

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