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CryptoPunks: What makes 576 pixels worth $7.5 million?
An in-depth analysis of the early NFT project CryptoPunks and the contexts surrounding recent six-figure sales.
This month, NFT mania brought cryptocurrency closer to the mainstream than ever before. Of the many headline-grabbing events, multiple CryptoPunks sales of $1 million (or more) raised eyebrows. The current highest-priced pixel-art punk portrait sold for 4,200 ETH on March 11.
In this OKX Insights article, we delve deep into the phenomenon that is CryptoPunks. After introducing the pioneering project, we look at the market’s growth since its launch in 2017. We then turn our attention to the CryptoPunks value proposition. Just what makes these simplistic pixel portraits worth millions of dollars?
In answering that, we consider the CryptoPunks backstory, their scarcity and their role as digital status symbols in the cryptocurrency industry — and beyond. We also question whether the massive sales figures reflect genuine demand or are part of something more sinister.
Finally, we conclude by looking at the similarities between the current nonfungible token sector and the ICO market of 2017.
What are CryptoPunks?
CryptoPunks is a series of nonfungible tokens on Ethereum representing ownership of 10,000 unique, generated characters. Creative technology startup Larva Labs launched the collection in June 2017. As one of the first NFT projects on the Ethereum blockchain, CryptoPunks predates both the ERC-721 and ERC-1155 standards that would later become commonplace in the rapidly expanding sector.
Each CryptoPunk is a simple 24-by-24 pixel headshot. Inarguably iconic as they have become, it would not be unfair to describe the CryptoPunks’ art style as basic. With so few digital brush strokes to work with, details are minimal. In correspondence with OKX Insights, Myoo, a pixel artist and creator of the popular CryptoPunks-inspired CyberKongz project, commented on the appeal of the medium:
“Pixel-art like this — generative or non-generative — is just easy to read. You don’t need to have studied art history to know what you are looking at. Either you like it, or you don’t. Either it is well done, or it’s not. You can’t hide a lack of artistic skill, understanding of color theory and need for contrast when you only have [limited] pixels to work with. It is so simplified that it either works or it doesn’t.”
Although CryptoPunks are computer-generated and based on obvious templates, each character’s specific attributes mean that no two are identical. The various hairstyles, genders, accessories, skin tones and even species appear at different frequencies throughout the set. This makes some Punks rarer — and more coveted — than others.
For example, there are just nine alien-type CryptoPunks. The average sale price among them, as of March 2021, is 3,000 ETH. At the other end of the rarity spectrum are the 6,039 male Punks, which currently trade for an average of 19.55 ETH. Similarly, the average price of the 44 CryptoPunks with a multicolored beanie is much higher than the average for the 203 characters wearing a police cap.
Larva Labs made all 10,000 CryptoPunks available for anyone to claim in June 2017. The only cost was a small gas payment required to use the Ethereum network. Before decentralized finance and NFT mania drove gas prices sky-high, transaction fees were often just a few cents. For those that heard about CryptoPunks early, there was essentially no financial barrier to entry.
CryptoPunks market history
With bidding, buying and selling options available directly on the Larva Labs website, a secondary market around CryptoPunks quickly emerged. According to a post on BitcoinTalk, by July 1, 2017, total CryptoPunks sales volume had exceeded 176 ETH — almost $47,000 at mid-2017 ETH prices. Highlighting the market’s early appreciation of the relative scarcity of particular CryptoPunks, two of the rarest alien-types sold for 10 ETH — or $2,610 — just weeks after the project’s launch.
According to NFT market data collector NonFungible, an initial flurry of buying activity quickly subsided. Although sales volume fell considerably in subsequent months, CryptoPunks continued to change hands. Occasional spikes in the daily number of Punks traded became more frequent and pronounced throughout 2019 and 2020.
CryptoPunks sales volume increased dramatically in September and October 2020. Gauthier Zuppinger, the chief operating officer and co-founder of NonFungible, believes that the sudden rise in demand for CryptoPunks was related to profit-taking from a young DeFi sector in the midst of its own speculative frenzy. He explained to OKX Insights:
“[DeFi] somehow acted like a money printer on the Ethereum blockchain, and a lot of people became millionaires within a few weeks. Most of the revenues were stored in not-so-famous cryptocurrencies or DeFi tokens, so the best way to reinvest this money and ensure profits long term was to convert it into other crypto assets. NFTs are definitely among the assets targeted by what the industry calls ‘DeFi Degens.'”
Evidence suggests similar logic to that which Zuppinger alludes to is often at play within non-crypto markets. A report by Credit Suisse’s Research Institute highlights significant growth in the classic car, fine art, wine and jewelry markets following the 2008 financial crisis. The observations made demonstrate real-world precedence for the use of nonfungible items as a safe haven during times of uncertainty.
It may be a reach to suggest that the COVID-19-related economic instability of 2020 helped drive growth in CryptoPunks and other NFT collectible markets. However, as Zuppinger states, highly prized and limited-supply NFTs may help diversify a crypto portfolio — especially given the inherent uncertainty of many cryptocurrencies related to the resurging (but ever-risky) DeFi sector.
CryptoPunks hit seven-figures
Since last year’s so-called DeFi summer, the ETH price has risen from around $370 to a high just short of $2,000. This 430% increase coincided with increased buying activity in the CryptoPunks market. For 12 consecutive days in February 2021, more than 50 Punks were sold daily.
Much more extreme, however, are recent CryptoPunks prices. On numerous days in both February and March, total sales exceeded $1 million. On Feb. 21 and March 11, Punks totaling more than $15 million were sold.
NonFungible’s data also shows that the total CryptoPunks sales volume was more than $121 million between Feb. 24 and March 23. More than 1,850 exchanges made up this figure with an average price of around $65,350.
The significant spikes in total USD sale prices visible in the above image coincide with some of the rarest Punks’ sales. A pair of aliens — numbers 7804 and 3100 — are currently the most expensive CryptoPunks to date. Two different wallets bought one apiece on March 11 for 4,200 ETH — or more than $7.5 million.
What’s behind the CryptoPunks phenomenon?
The CryptoPunks price floor — which hit $40,000 at ETH’s recent all-time high — seems insane to the casual onlooker. Indeed, many outside the blockchain industry still struggle to comprehend BTC’s own price appreciation since its 2009 launch. While most can understand the value of something with a strictly limited supply in the physical world, the notion of digital scarcity still puzzles many.
Recent six-and-seven-figure sales demonstrate huge demand for CryptoPunks. Multiple complementary factors appear to be encouraging said demand.
The CryptoPunks story
CryptoPunks is often credited as the first NFT project on Ethereum. While not technically accurate — an NFT game called Etheria was launched in 2015 — it is undoubtedly among the pioneers of a sector that recently started to receive significant mainstream attention.
Zuppinger told OKX Insights about the role historical significance plays in the NFT market:
“CryptoPunks are basically the first-ever NFTs on the Ethereum blockchain. They are considered by many as proto-NFTs. Collectors have always been attracted by first, exclusive, rare, ‘number one’ assets. CryptoPunks are, per definition, the #1 of NFTs. They were innovative at that time and represent in a certain manner the kick-off of the NFT industry.”
Supporting Zuppinger’s view are the markets surrounding rediscovered NFT projects. Almost six years after its launch, pieces of land in the aforementioned Etheria recently started attracting significant buyers. On March 14, one sold for 70 ETH — around $130,000. In 2015, Etheria NFTs were sold for just 1 ETH — then less than $1.
Similarly, the rediscovery of a long-lost project called MoonCatRescue saw many within the cryptocurrency industry rush to claim more than 25,000 generated pixel-art cats in a matter of hours. It launched just weeks after CryptoPunks — but did not take off, at the time.
Almost immediately after MoonCatRescue’s recent unearthing, many of those lucky enough to have claimed the forgotten felines “wrapped” the NFTs in a process similar to tokenizing BTC for use on Ethereum. This allowed the pre-ERC-721 tokens to trade on the popular marketplace OpenSea. Over the following weeks, Wrapped MoonCatRescue NFTs racked up sales of more than 5,800 ETH. An example of one of the first 256 MoonCats — a so-called Genesis Cat — sold for 100 ETH on March 13.
Both among the earliest Ethereum NFTs, CryptoPunks and MoonCatRescue have a historic relevance lacking from many subsequent projects. However, another shared aspect of their backstories also appears to contribute to their colossal prices.
The tokens of both projects were distributed fairly. Any Ethereum user was eligible to claim the NFTs for the price of gas alone. Like BTC itself, CryptoPunks and MoonCatRescue did not have an in-built mechanism to reward their creators.
Bitcoin went on to inspire thousands of less successful altcoins by teams without such selfless ambitions. Likewise, these early NFT projects have encouraged the creation of the vast numbers of profit-seeking generative art projects now littering platforms like OpenSea.
In a post outlining the perceived value proposition of CryptoPunks, Ben Roy, the founder of AccelerateArt, wrote about how the not-for-profit motives of specific NFT projects place them in a tier above much of the expanding sector:
“On the narrative side, Punks have a great story: They had a fair launch so anyone could claim them for free back in the day, the founders behind the project are brilliant, they’re the rookie card of NFTs, etc.”
Being an NFT pioneer with a captivating backstory is not enough to elevate a project to the legendary tier in which CryptoPunks finds itself. The two alien-type CryptoPunks would not have fetched $7.5 million if Larva Labs had not capped the total supply at 10,000, and made 7804 and 3100 among the rarest in the limited collection.
With the CryptoPunks issuing contract long since committed to the Ethereum blockchain, the supply of the original CryptoPunks is forever capped — like that of BTC. Not only does this eliminate the possibility of future issuance, it forever enshrines the rarities of each Punk.
Commenting on the importance of both scarcity and historical significance, the anonymous owner of CryptoPunk 4156 — an ape-type that sold for $1.2 million in February — told OKX Insights about how they approach NFT and crypto art projects:
“I have a couple of different operating theses. The most straightforward is the digital gold/historical significance thesis — that early works from early crypto artists will be valuable because they are both historically significant and incredibly scarce.”
Another pseudonymous buyer of one of the highest-priced alien CryptoPunks goes by the Twitter handle @peruggia_v — a nod to the early 20th century Mona Lisa thief of the same name. Following their purchase of 7804, they tweeted a thread in which they outlined the rationale behind their record-breaking buy. They commented on CryptoPunks being one of the first NFT projects and their “incredibly fair” distribution model. However, the dominant theme of the thread is scarcity.
After reasoning that any of the 10,000 CryptoPunks is 21,000x scarcer than each of the 21 million BTC, they opined:
“And thus from my estimates, I think the 4,200 ETH I spent on this Punk is virtually a rounding error. Much like my namesake, I may have acquired what will one day be viewed as the scarcest asset for a cost basis of roughly $0.”
Indeed, the actual maximum number of CryptoPunks available to buy may be lower than 10,000. Several wallets — some holding more than 100 Punks — have not been active since claiming the NFTs. While it may be premature to consider all CryptoPunks held in consistently inactive wallets lost, it is fair to assume that the supply available to buy will shrink over time as accidents involving private keys eventually occur. Any reduction to total supply would put even greater upside pressure on CryptoPunks prices.
Digital status symbols
With CryptoPunks being one of the original — and, by far, the most expensive — of the many pixel-art NFT projects, they have become popular avatars. The many choosing to display their Punk as their leading social media image broadcast a strong message about their net worth or the length of time they have been involved in cryptocurrency. In that sense, CryptoPunks has become one of the first purely digital status symbols.
The owner of 4156 went further. They told OKX Insights how owning a high-value Punk was a form of “social proof-of-stake” and a way of creating trust between otherwise pseudonymous individuals online:
“With 4156 provably linked to my Twitter account, everything I do has the credibility and sincerity of my $1.2+ million bond (the value of the ape) behind it. For example, I can make large private art deals, and people know I won’t bail on them because I have staked so much capital on my reputation. Owning a Punk and using it as an avatar is a life hack with an ROI much greater than the $40K (entry-level) price tag. As more people realize this, the price of Punks will increase, and their utility as social proof-of-stake will increase, too. This is a virtuous cycle that will cause Punks to become incredibly valuable and will open the door for other avatar projects to become very valuable, as well.”
Whenever the Twitter account @cryptopunksbot reports another high-value CryptoPunk sale, you will usually find at least one allegation of money laundering in the comments. Given the colossal sums involved and the fine art market’s existing links to financial crime, it seems a reasonable first assessment. Indeed, recent regulatory crackdowns in the United States and Europe on money laundering using artwork may seem to strengthen NFTs’ appeal as vehicles for cleaning dirty money.
The owner of 4156 disagrees. They told OKX how they felt such conceptions were ill-grounded:
“Of the myriad ways to clean money in crypto, Punks and NFTs are the worst choices by a large margin. You can’t ‘mix’ NFTs precisely because they are nonfungible, and since they’re super illiquid, you might be stuck holding for months or years.”
OKX Insights reached out to the U.S. Financial Crimes Enforcement Network for comment on whether CryptoPunks or NFTs were on the agency’s radar. However, an enforcement officer told us that — although familiar with the subject — they were “not authorized to comment.” While unable to prove the existence of money laundering in the NFT sector, it seems a fair assumption that future AML regulatory efforts will extend the kind of reporting standards recently imposed on traditional art businesses to platforms like OpenSea and Rarible.
Another frequent accusation levied at CryptoPunks and their owners is that market participants have deliberately attempted to distort prices. Often collectively referred to as “wash trading,” practices such as trading with oneself or bidding up items create an appearance of demand that may lead to a higher eventual sale price.
The owner of 4156 told OKX Insights that they faced similar allegations:
“People accused me of the same when I bought 4156. All I can say is that it was a legitimate transaction and that I’m here for the long haul. The CEO of Figma just (publically) sold his alien punk for $7.5 million. He has enough reputation at stake that I’m sure this was also a legitimate transaction.”
NonFungible reported on wash trading in the NFT sector generally at the end of last summer. The publication identified several examples of NFTs strongly suspected of involvement in price manipulation. The most brazen was a CryptoKitty that sold for 600 ETH that reportedly showed “no correlation” between its price and its attributes relative to the rest of the market.
However, when OKX Insights asked Zuppinger about wash trading in the CryptoPunks market, he replied:
“We have checked for wash trading patterns on the CryptoPunks market recently but haven’t found anything that could lead to such a conclusion. What we have identified is that most of the ‘whales’ in the NFT space have purchased hundreds of Punks on the secondary market in September/October, before the global hype, and are now able to set up the prices. It’s not exactly wash trading or market manipulation, it looks more like the usual ‘Offer & Demand’ mechanism of every market.”
Are CryptoPunks and NFTs a bubble?
Spurred by the above factors, increasingly large CryptoPunks purchases toward the end of 2020 and into 2021 brought wider attention to the project just as the NFT sector was beginning to attract mainstream interest. The success of projects like NBA Top Shot and Sorare brought many new eyes to the cryptocurrency industry.
Meanwhile, considerable sales in conjunction with traditional art auction house Christie’s by the digital artist Mike Winklemann — widely known as Beeple — saw additional mainstream attention fuel the NFT craze.
Data provided by DappRadar suggests recent capital inflows to the NFT sector may signal an overheated market. Leading NFT marketplace OpenSea saw a massive increase in activity on the platform over recent months. On Dec. 31, 2020, the marketplace had just 315 users and a daily transaction volume of around 100 ETH. By March 14, 2021, the number of platform users peaked at approximately 4,200, and transactions totaling 4,000 ETH were made in just a single day. While more recent lulls in activity are not necessarily indicative of a blowoff market top, major corrections often follow such rapid growth in other markets.
The innovators and the imitators
Lending support to the notion that the CryptoPunks phenomenon is part of a rapidly overheating NFT sector is the sheer number of projects launched on NFT marketplaces. Alex Atallah, a co-founder of OpenSea, noted more than 100,000 NFT submissions in just the first week of March 2021.
Driving much of the recent growth appears to be advances in the creation process. Alluding to the relative complexity of minting NFTs before the existence of ERC-721 and ERC-1155 standards and the launch of marketplaces like OpenSea, Myoo told OKX Insights how such platforms had significantly lowered the barrier to entry:
“What needed talented developers just a few months ago can now be done as a one-man army through platforms like OpenSea.”
The number of collections minted on the platform shot up after OpenSea launched its “lazy-minted NFTs” in December. The feature allows creators to upload their work without first paying transaction fees. With zero upfront minting costs, hopeful artists can now list their work without the risk of losing money, should it fail to sell.
This simplified creation process and removal of risk coincided with stories of pixel-art Punks selling for big money in mainstream media. It is, therefore, unsurprising that creators have rushed to cash in on the NFT craze. For the time being, at least, the market’s hunger for NFTs continues to legitimize even the more-questionable of the thousands of recently added collections.
While none of these subsequent NFT projects have created anywhere near the same buzz as CryptoPunks, a perhaps-surprising number of pixel-art collections do appear in OpenSea’s top NFT rankings. A small handful of these have grabbed the industry’s attention. CyberKongz is one such project.
A verified collection on OpenSea, CyberKongz is a set of just 1,000 futuristic, pixelated primates. Like CryptoPunks, their attributes make each one unique. Just a few weeks after its launch, the collection had already attracted sales of more than 1,500 ETH.
CyberKongz’s creator, Myoo, told OKX Insights why they believe CyberKongz found relative success amid the vast number of less-sought-after NFTs. Some of the reasons they offered relate to the factors driving CryptoPunks prices discussed above:
“For one, people really like how they look and the pixel-art behind them! They make great avatars for Discord, Twitter and social media in general. They seem to be more of an original spinoff from Punks than a ripoff. And people loved that I gave almost all of them away for 0.01 ETH, which is basically nothing nowadays in NFTs.”
NFT hype mirrors ICO mania
In multiple ways, the recent proliferation of NFTs holds similarities with the 2017 ICO bubble. The success of early, groundbreaking projects — like CryptoPunks for NFTs and BTC for cryptocurrencies — encouraged countless others to attempt to cash in on the respective crazes. If the two manias play out similarly, most of today’s NFTs will surely end up as worthless as the tokens of the many failed ICOs.
Perhaps telling of a market built on speculation rather than substance, celebrities have now started releasing their own NFTs. CoinDesk, for example, describes American actress Lindsay Lohan’s partnership with Tron founder Justin Sun as a “signal of the market’s froth.”
Such celebrity collaborations were also a strong component of the later stages of the ICO bubble. The likes of Floyd Mayweather Jr. and Paris Hilton had never shown any interest in digital assets before they started promoting ICO projects. Although that fact did not prompt widespread concern about the market’s overenthusiasm at the time, in hindsight, it probably should have.
This time it’s different?
The six-and-seven-figure CryptoPunks and NBA Top Shots sales certainly suggest that the current NFT market is overheated. So, too, does the fact that many uninspiring pixel-art projects continue to attract sales from those hoping to flip obscure NFTs for a profit. Finally, celebrities moving in on the industry may also be suggestive of an impending correction.
Yet, those experts we spoke to did not rush to describe the NFT market as an ICO-like bubble.
The owner of 4156 told OKX Insights:
“If it is a bubble, it’s more like the 2013 Bitcoin bubble than the 2017 ICO bubble — that is to say a small local bubble that portends much larger things to come. One indication I have that it’s not a bubble is that none of my friends or colleagues from early Bitcoin, Ethereum and DeFi are here yet. Where are the Polychains, Paradigms, MetaStables and Multicoins of the NFT space? All I see are a few dozen early BTC and ETH whales with a lot of conviction.”
Myoo echoed this sentiment:
“Markets like these go through temporary bubbles — just like Bitcoin. The hype grows, more and more people get into it until euphoria is at a level where everyone is a genius investor. […] It is dangerous to say that it will be different this time. But it certainly seems different with guys like Mark Cuban, Gary Vaynerchuck and Elon Musk publicly talking about NFTs.”
Finally, while Zuppinger is more convinced that the market is overheated, he told us that a top might take months to arrive:
“Maybe not exactly a bubble, but there is definitely a lot of speculation around [NFTs]. It’s extremely risky to forecast a price prediction for these assets as the industry is completely changing these days. Though, regarding the recent over-hype around NFTs, we are expecting some sort of market correction in the next few months — not only for CryptoPunks but for most of the current ‘over-hyped’ NFT projects.”
Future relevance of CryptoPunks
When taken together, the factors discussed above build a strong case for CryptoPunks’ enduring value. Their backstory, scarcity and emergence as the cryptocurrency industry’s coolest status symbols have almost certainly ensured their legendary status.
The market may very well be overly frothy now. Still, presuming that NFTs remain relevant, these early examples may forever possess a historical relevance that is far more difficult to recreate than the simplistic pixel-art portraits themselves. A significant correction in either the NFT market or cryptocurrency prices would likely put a temporary end to many of the more frivolous NFT purchases. However, for the reasons the owner of 4156 concludes our analysis with, CryptoPunks will likely continue to be considered among the most prized nonfungible possessions of the digital world for some time yet:
“Like the best works of art and the best crypto projects, CryptoPunks are significant for many reasons and for different reasons to different people. They are simultaneously Ethereum’s ‘digital gold,’ standalone works of art, a fun and challenging speculative game, but I think most significantly they are a new form of social proof-of-stake.”
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