What is NFT all about?

Everydays: The First 5000 Days

Sold for $69,346,250!

Yes you read it right. The JPG file (21,069 by 21,069 pixels) which I just took from the internet was sold on 11th March 2021 on Christie’s for $69mio. The art work is called Everydays: The First 5,000 Days and is by an artist who goes by the name Beeple. This is the highest ever for a piece of digital art, third highest for a piece of art by a living person. 

Who bought it?

Bought by an Indian guy who goes by the pseudonym Metakovan. He lives in Singapore and this is not his first Beeple. He revealed his identity a few days back as  Vignesh Sundareshan along with his colleague and friend Anand Venkateswaran aka Twobadour.

Their journey and rise from a small village in the southern part of India to buying Beeple’s is clearly depicted in the below picture and was part of their coming out article.

Why did he buy it? 

Because he thinks it’s a good investment and he has tasted success with earlier ones.

“When you think of high-valued NFTs, this one is going to be pretty hard to beat. And here’s why – it represents 13 years of everyday work. Techniques are replicable and skill is surpassable, but the only thing you can’t hack digitally is time. This is the crown jewel, the most valuable piece of art for this generation. It is worth $1 billion.”

Now that might sound like a dialogue from a Christopher Nolan movie, but it’s real.

Earlier, in a January auction of original Beeple art on an online marketplace, Metakovan purchased 20 images for a combined US$2.2 mio. He later fractionalized them. Currently, those works have a market cap of US$163.5 mio. That means the value is up 75 times.

What about authenticity? 

The image file is connected to a non-fungible token (NFT), which was “minted” just last month, and serves as its certificate of authenticity recorded via blockchain technology.

Confused? Please don’t be. We will explain everything.

First things first, Who is Beeple and what is this piece of art?

Beeple’s original name is Mike Winkelmann, and he is a graphic designer from Charleston, South Carolina in the US.

Beeple started posting new works of art online starting on 1 May 2007. He then continued doing the same thing day after day, creating and posting a brand-new digital picture, or ‘everyday’ as he called it. He did that for every single day for 13-and-a-half years. Have you heard of 10,000 hours? He probably spent over 50,000 hours doing this. 

EVERYDAYS: THE FIRST 5000 DAYS, is a unique piece of work in the history of digital art where he has digitally stitched together all those 5000 pieces of art into one.

What’s this masterpiece made up of?

This is one of the 5000, and it’s one of my favorites. You can deep-dive and check out all 5000 individual frames here

Right then, time to understand NFT!

NFT stands for Non Fungible Token. NFTs are tokens (or simply, a unit of data) that can be used to represent (or act as proof of) ownership of unique items. NFTs act as unique identifiers of things like art, collectibles, or even, real estate. 

While the digital files themselves, in the case of say art such as Beeple’s, are infinitely reproducible, the NFTs representing them are tracked on their underlying blockchains and provide buyers with proof of ownership as they can only have one official owner at a time. This proof of ownership is secured by a blockchain such as Ethereum. 

And, no one can modify this type of record of ownership or copy/paste a new NFT into existence. At a very high level, most NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin or dogecoin (made popular by Elon Musk), but its blockchain also supports these NFTs.  It is worth noting that other blockchains can implement their own versions of NFTs (Some already have)

A quick aside, on ‘non-fungible’…

Non fungible here means that each of these tokens is not interchangeable with any other token. I.e. Each of these NFTs is unique. (This is different from say a cryptocurrency like bitcoin where 1 bitcoin looks exactly like all others or even other currencies like USD or INR.)

What is a blockchain?

Blockchain is an open, distributed digital ledger (or record of entries) that can record transactions between any two parties efficiently and in a publicly verifiable and permanent way. 

Blockchains therefore provide a coordination layer for digital assets, giving users ownership and management permission. 

Because the records are publicly verifiable i.e. open, transparent and visible to all, the parties who undertake exchanges of value within this system don’t need to trust each other. The incentives are such that they can come together to create a single, working, growing, indestructible ledger that remains open and transparent to all.

Bringing it back to Beeple’s unprecedented success selling his piece of digital art, using NFTs. What role did NFTs play here? 

Because every NFT must have an owner and because this is a matter of public record and easy for anyone to verify, NFTs enable unique identification of digital objects such as art in this case.

And, if you own a piece of art to which an NFT is attached:

  • You can easily prove you own it.
  • No one can manipulate it in any way.
  • You can sell it anywhere as it’s borderless
  • You can even retain ownership rights over your own work, and claim resale royalties directly
  • You can hold it forever, resting comfortably knowing your asset is secured by your wallet on Ethereum.

So you can use NFTs to buy digital art. What else can NFTs be used for?

Currently, the main use case is collectibles and that’s how you can think about digital art being sold with NFTs. But, it is not just art, there are other areas that are seeing NFT related innovations: 

History of NFTs

Though you can trace the history of NFTs from 2012 onwards, real work on NFTs began as late as 2017.

The first Ethereum-based NFT experiment was CryptoPunks, which consisted of 10,000 unique collectible characters (punks), each of which has a set of unique characteristics. Today, given their limited supply and strong brand among the early adopter community, CryptoPunks are likely the best candidates for true digital antiques. As recently as March 2021, individual punks have sold for more than the equivalent of $7mio. 

It was around 2018-2019 the art world started getting excited about NFTs. Digital art turned out to be a natural fit for non-fungible tokens. 

Then came NBA Top shot. Ok what about it?

NBA Top Shot is an online-only marketplace where users can buy, sell and trade NBA highlights. These highlights, or “moments,” are owned by users through NFT.

They’re basically virtual sports cards, but instead of a picture of a player with statistics on the back, you get a video highlight of a play like a LeBron James dunk or a Steph Curry 3-pointer.

Packs are sold in low quantity and are backed by a NFT. All Top Shots are officially licensed by the NBA. The league partnered with Dapper Labs, a company that specializes in blockchain, to develop NBA Top Shot.

So far it has generated over $230mio in sales.

Net net, why do people buy NFTs?

You can think of them as collectibles. It’s the same reason people buy paintings or any other physical art. 

Their demand is usually driven by quite traditional forces: utility, authenticity and scarcity. Utility is the obvious one. For example, people are willing to buy an NFT ticket because it lets them into a conference. Or, they are more willing to buy a piece of art if they can show it off in a virtual world. And, they are willing to buy an item if it gives them special abilities in a game. 

The concept of authenticity tells you the story behind an NFT.  Where did it come from? Who has owned it in the past? 

Finally, scarcity is best explained by Leonardo Da Vinci’s famous painting ‘The Mona Lisa’. In the world of NFTs, just as there is only one of The Mona Lisa, there is only one Beeple’s. 

Final Thoughts:

Hope you all are not confusing NFTs with Bitcoin. So while Bitcoin enables transfer of digital value without a trusted third party, NFT enables transfer of digital authenticity without a trusted third party

Markets have a long history of creating mania like the tulip mania in 1637. The baseball cards mania burst in the 90s.  Today, it’s mostly millennials who are getting excited about NFTs. Christie’s reported that among Beeple’s bidders, 64 percent were under 40 years of age i.e. Millennial or Gen Z. 

It may feel like a gold rush right now but the key question is if the supply is unlimited, then how long will there be value created in all of these new forms? 

One point to remember is that in a mania or a bubble, usually, the most value is created by people serving those involved in mania. During the California gold rush in 1848, firms that specialized in serving gold miners profited, usually more than miners themselves. How so? While prospecting for gold some struck riches while others found nothing, one could make steadier profits from serving the mining industry by selling supplies, lodging miners, or shipping money and mail.  In 1851, Henry Wells and William Fargo, who worked for American Express, seeing the opportunity presented by the California Gold Rush left American Express. Thus Well Fargo was formed, which is now a  $165bio bank.

This is not to say that a Beeple work’s value or market price may not increase or that it is not worth $69mio. Frankly, the value (beauty) of a piece of art lies in the eye of the beholder. What I would say is that the efforts of producing something everyday for 5000 days is surely worth something. For Metakovan it’s worth $14k per day of work.

To conclude, to me the crypto movement is also related to a “class war”. This quote from @metakovan and @twobadour sums it up “The point was to show Indians and people of color that they too could be patrons, that crypto was an equalizing power between the West and the Rest, and that the global South was rising,” write Sundaresan and Venkateswaran. 

What do you think?


There is this scene from Trishul (released in 1978) when Amitabh Bachchan (Indian Superstar)  comes to Sanjeev Kumar to strike a deal of Rs 500K (worth USD 160K in today’s money) with pennies in his pockets. To me this sums up what is going on with the Gamestop stock story in the US currently.

The story line of Trishul as a parallel to the Gamestop story:

Rajkumar Gupta (Sanjeev Kumar) leaves his first love Shanti (Waheeda Rehman) to marry a wealthy girl. Shanti raises her son from Rajkumar, Vijay (Amitabh Bachchan) to adulthood in abject poverty (read financial crisis 2008). After she dies, Vijay (read: WallSreetBets) comes to town to take revenge by destroying his father’s (read: Hedge Funds) business.

Like the 3 hour long movie, the Gamestop  story also has enough twists and turns.

Skip directly to a detailed blow by blow account. Or else continue reading this short version of what transpired before moving on to the detailed account.

  • June 2019 DeepFuckingValue starts buying call options on $GME(Gamestop) – Shares trading at $5.4.
  • Short interest building up in $GME.
  • Aug 22nd 2019 Michael Burry discloses his 3% stake in $GME – Shares trading at $4.3.
  • Aug 2020, the founder of Chewy (online pet store) Ryan Cohen takes 9% stake in GME.
  • Nov 2020: A user on WSB highlights that a hedge fund Melvin Capital is going long on GME put options.
  •  Dec 2020: Ryan Cohen increases his stake in GME to 12%. Shares trading up to $20.
  • Jan 2021: GME adds Ryan Coven to the board and gives 2 of his affiliates (his former COO and CFO) board seats; Shares trading around $20.
  • Jan 12th/13th: tons of activities on reddit/wsb and or discord channels heating up the activities on $GME counter as shares started moving.
  • Jan 21st: Short interest is up at 130%.
  • Jan 25th: Melvin Capital keeps bleeding as shares went up to $77; they have to raise capital ($3bio) from another big hedge funds in US.
  • Jan 27th: Elon Musk tweets about it; shares hit a peak of $475.
  • Jan 28th: Brokerage firms like Robinhood prohibit people to buy GME as they didn’t have enough liquidity.
  • Jan 29th: Citron Research announce they covered the shorts; shares close at $325.
  • Feb 2nd: Short interest goes down to 50%; shares trading at $90.
  • DeepFuckingValue has made a return of 260 times on his investment in 18 months.
  • Feb 6th: Shares trading at $64.

Jump to lessons learned, or continue reading for the detailed version.

Here’s a detailed version

The story began not that long ago in June 2019 with a reddit channel called u/wallstreetbets and the hero of this story is a user named u/deepfuckingvalue (u/dfv).

June 2019: DeepFuckingValue , started buying call options (explained below) on $GME(Gamestop) when the shares were trading at $5.4. He started buying those call options expiring in 18 months i.e January 2021. He spent $50k buying these options. Now I know what you must be thinking.

Call options gives the buyer of these options the right to buy a stock at an agreed price on an agreed date. The buyer expects the price of a stock to increase when he buys a call option. The maximum amount a buyer can gain is infinite while the downside is limited to the option premium. For example you buy a call option paying Rs 10 (option premium) on a stock currently trading at Rs 100. If the stock price goes to Rs 130, you have a right to buy at Rs 100 which means a profit of Rs 20(130-100-10) i.e (Future Stock Price- Current Stock Price- Option premium). Had the price gone to say Rs 70, your loss would be Rs 10 which you paid for the option (Option Premium).

Meanwhile: Short interest or short selling (explained below) was building up in $GME.

Notably, as of July 31st, 2019, Bloomberg reported short interest in GameStop stock at about 63% of the outstanding GameStop shares.

Short selling of shares is when market participants sell shares that they don’t own and then buy them back at a future date. Market participants aim to profit from short selling if the price of the shares falls. This is therefore different from the typical investment perspective, where the investor aims to benefit from the rise in price of shares (considered a “long” position). A high percentage of short interest means market participants are increasingly pessimistic on the stock.  For example If a stock price is INR 100 and an investor expects the price to fall to INR 60, one can sell the shares today and buy them back at INR 60. The profit thus is INR 40(100-60). A high percentage of short interest means market participants are increasingly pessimistic on the stock.

Aug 22nd, 2019: Michael Burry discloses his 3% stake in $GME. And yes, this is the same Michael Burry from the famous Big Shorts. $GME was trading at $4.3 at that time.

Following this, u/DFV wrote this post on reddit in Sept 2019.

One year later, July 28th 2020: u/dfv live streamed this video detailing his bullish case for $GME. This will put many analysts (read as brokerage research) to shame, who miraculously always have a target of 20% higher than current market price.

At this point, shares were trading at $4.00.

Aug 2020:  Founder of Chewy (online pet store) Ryan Cohen takes 9% stake in GME

Now, shares were trading at $6.59, up 22.26%.

Sep 19th 2020: A member of wallstreetbets writes

  • There is 120% short interest (explained below) in stock and mostly losing money
  • There is a new console coming in soon
  • Gamestop had 55 mio loyalty users
  • Company has net cash position of $300 mio

This lead to a bullish sentiment and shares are now trading near $10.

How can you short more than 100%: Good question! Let us say there are 100 outstanding shares of company X held by investor A. Investor B comes in, borrows these 100 shares and short sells them to investor C. Which means, outstanding shares=100, short interest =100. Investor B borrows these 100 shares again from C and short sells them to investor D. So now, short interest is 200 and outstanding shares is 100. So short interest now 200%

Nov 2020: One of the users WSB highlights that a hedge fund Melvin Capital is long put options (explained below) on GME (meaning Melvin is expecting share prices to go lower).

Suddenly WSB found their enemy- Melvin Capital (remember Balwant Rai aka Prem Chopra (famous for his roles as a villain) from Trishul).

Put options give the buyer of these options the right to sell a share of the company at an agreed price on an agreed date. It’s the opposite of the call option (explained earlier). Like in short-selling, the buyer of put options also expects stock price to decrease, but here, the buyer limits his/her downside. Because, the only amount at risk is the premium paid to buy the put option. If the price has not decreased, the buyer is not obligated to buy at the higher price, whereas in short selling the buyer is obligated to complete the sale at the future date.

Rewinding to the short selling example given earlier –  You buy a put option paying Rs 10 on a stock at strike price of Rs 100. If the stock price goes to Rs 130, you can choose to not buy it and therefore your loss would be limited to the Rs 10 which you paid initially for the option. Had the price gone to say, Rs 70, you could buy these and your profit would be Rs 30 (because you have a right to sell something at 100 that is actually trading at 70), subtracting the Rs 10 which you paid to buy the option. This would amount to a net profit of Rs 20 (100-70-10).

Let’s have a look at how things unfolded in the months of December and January.

Details Below

Dec 2020: Ryan Cohen increases his stake in GME to 12%. And later in Jan 2021 GME added Ryan Coven to the board. Shares are now trading around $20.

Jan 12th/13th 2021: Tons of activities on WSB and or discord channels heating up the activity on $GME counter.

Shares trading up 100% in less then a month to $40.

The war is on between Wall street Bets and the Hedge Funds.

The story is now heading to its climax.

Jan 19th : Citron Research announces that they were also short on GME expecting prices to go down to $19. Shares trading at $40.

Citron Research replaces Melvin Capital as public enemy no 1 for WSB.

Jan 21st: Short interest shoots up to 130%.

Jan 25th: Melvin Capital keeps bleeding as shares go up to $77. They have to raise capital ($3bio) from other big hedge fund in US called Citadel LLC.

Jan 27th: Elon Musk tweets about it. Of course he has a hate relationship with short sellers which includes Melvin Capital as well.

Later that day on Jan 27th: Melvin Capital announces that they had covered the shorts the previous day. Shares rocket to a record closing high of $347.51 on January 27, touching intraday highs of over $450

Jan 28th 2021: Brokerage firms like Robinhood prohibits people from buying GME as they don’t have enough liquidity.

Aside: How does Robinhood make money if they are a zero brokerage firm?. They make bulk of money ($400mio) yearly from selling the same orders to firms like Citadel LLC. Who is Citadel?, the one that rescued Melvin Capital…(Golmaal hai bhai sab golmaal hai)!!!

(The Robinhood story for another day!)

Jan 29th: Citron Research announces that they covered their shorts.

Stock closes at $325 on 29th Jan.

So Melvin out, Citron out.

Where are we today?

Short interest in GME which was hovering around 130-140% of underlying stocks has since dropped to 50%, primarily as funds like Melvin have covered their short positions.

Where is u/dfv?

His post on Jan 27th when $GME price was $347 is shown below. His maximum value of the portfolio on that day was at $48mio. (remember he only invested $50K)

The last update was on Feb 3rd when price was $90. His portfolio is down to $22mio as price dropped down to $90.

As you can see he has encashed $13mio which is showing up in cash. So even if price goes to zero he has made his $50k into $13mio or a return of 26000% (over 260 times) in just about 18 months.

At the same time he is also still long the shares and call options.

Where is GME trading now?

The stock is trading at $64 (as on 6th Feb) after touching a high of $475.

But what should be the right price of GME? Who knows!

As Warren Buffet famously said, “price is what you pay and value is what you get.

Ashwath Damodaran, NYU professor tried to price it and came with a valuation of $47.

–>So was u/dfv stupid to buy it? Remember he bought it when stock was at $4 in June 2019. And he has already encashed $13mio from it.

–>Oh so Melvin Capital was smart to short it? Remember they were short 5mio shares at well below $10 (probably around $5).

It is estimated Melvin Capital lost 53% of its value in January.

Come on what’s the ending? Is this happy ending or sad ending?

Picture abhi baaki hai mere dost. (Movie is still continuing)

The Reddit channel is still active, u/dfv id still invested, Melvin and Citron have left the waters but other hedge fund sharks are still lurking. So keep watching the space for more.

Lessons from this saga

Is this just a story or do we learn anything from this whole episode?

Of course this is an historic event and it does teach a few things.

  • Stock prices tend to follow fundamentals only over a very long term; in the short term the collective judgement of investors that impact demand and supply are bigger factors.
  • Stocks can remain overvalued or undervalued longer than one can remain solvent.
  • Short selling has unlimited downside so should be done with care.
  • Should short selling be banned? Not really as short sellers play an important role in the markets; but here there should always be market wide limits on short selling.
  • Retail investors coming directly into stocks is a trend which will only grow as technology becomes more accessible.
  • People putting in their own money at risk have skin in the game vs people playing with others money.
  • You have higher chance of winning if you do your own studies than getting influenced by some else’s trade ideas.