Digital tokens

April 29, 2021 was a big, big day in the evolution of digital assets and blockchain technology. Why? It’s the day an ape NFT made its first million bucks and redefined the concept of ‘asset’ as we know it. Here’s a rip-snorter of a story about how culture and investing collided to make crypto apes millionaires. So let’s get into it.

This is an outside view of the Bored Ape Yacht Club phenomenon. We’d don’t hold any of their ape NFTs so we have no reason to drink the KoolAid or pump their bags. Bored Apes is both a microcosm and a flagship for where NFTs are right now. But our interest in NFTs is to explore how they can be digital assets – how they are bringing utility and value to their owners. As investors, we’re keen understand the bigger picture of how NFTs will monetise ‘value’ in the future. Let us bring you on the journey.

Buckle up peeps. This is the wild wild ride of the Bored Ape Yacht Club, the savvy Crypto Ape, and the best digital asset investment of 2021…

The wild wild ride of the Bored Ape Yacht Club

In April 2021, 10,000 Bored Ape Yacht Club NFTs sold out within a week of release, raising $2.8 million. Over the last 12 months, these ape NFTs have had a meteoric rise to become just about the most valuable collection in crypto. If you’re a digital asset investor and you haven’t heard of Bored Ape Yacht Club – or BAYC – get ready for a fascinating read. If you’re not a digital asset investor, this is possibly the most off-beat yet important post we’ve written on the future of the nascent asset class of NFTs.

So. How much could you have made ‘investing’ in an ape NFT back in 2021? Well, that’s exactly what we’re going to work out for you (hint: it’s a jaw-dropping amount). In this post, were going to run you through your:

1. Initial BAYC investment
2. Return on Investment
3. Dividend payments
4. Total returns

But really, this is not a post about BAYC.

If we tell the tale the way it deserves to be told, this post will open your mind to just how much crypto and NFTs have changed the concept of ‘asset’ and with it, the world of investing. By the end, you’ll better understand:

1. What makes a Bored Ape NFT so valuable,
2. Why we’ve crowned the Bored Ape Yacht Club NFT the best digital asset investment of 2021, and
3. Why understanding NFTs like BAYC now could be your strongest investment move of the next decade.

Before we jump in, you’re going to need to know some crypto lingo to get the gist of this incredible story. If you don’t know what ‘NFTs’, ‘minting’ or ‘Airdrops’ are, here’s a quick list to get you up to speed.

What or who is BAYC?

BAYC is first and foremost a community or club of mostly crypto enthusiasts (and some hangers-on), with a team of founding members that run it. Here are the 4 founders:

The artwork that makes up the 10,000 strong NFT collection of OG Bored Apes is collated from 170 different hand-drawn ape traits or characteristics. The 10,000 pieces of unique art are software generated to combine different traits and make each piece original.

Membership of the community is restricted, obtained only through ownership of an NFT (or non-fungible token) in the form of a cartoon ape jpeg that doubles as a smart contract (piece of software). Many of 10,000 original pieces are owned by OG BAYC minters. Although, some owners have had the cash to buy in to the BAYC phenomenon more recently.

The community congregates mostly online in its own discord chat forum, on social media (Twitter) and around the BAYC website, which outlines what the club is all about. Sometimes there are get togethers IRL, but we’ll get to that a bit later.

BAYC is many things to many people

Part of the brilliance of BAYC, and its extreme popularity, is that it is at once many things to many people. It is:

1. An NFT and digital asset, with the ability to hold and transfer value between owners.
2. A narrative (or story) to buy into / associate with / participate in (like culture or religion even)
3. An exclusive club membership with club events and activities.
4. A fun way to invest (an oxymoron to most people, so you’d be surprised at how addictive that is..)
5. Cool artwork for counterculture crypto “degenerates” (degens).
6. An online identity and status symbol PFP (profile pic) for social media, especially Twitter.
7. A massive socio-economic experiment in tribalism and human behaviour.
8. A new type of software capability to monetise ‘value’ in ways we’ve never seen before.

And these are all reasons why BAYC is our pick for ‘Best digital asset investment play of 2021’.

Next here’s a case study to explain the investment, the returns, the value and what it all means for your investing journey to financial freedom.

How much a Bored Ape NFT could have made you

To demonstrate the NFT asset class in action, we’re going to work through what an investment in BAYC could have made you in the last 12 months, under a few different scenarios.

Our calculations assume that you invested in a BAYC NFT as an OG – that is, that you minted your BAYC on 29 April 2021. We look at your return on investment depending you whether you were either:

A lucky Ape – you managed with great luck to get your hands on a rare BAYC NFT artwork, AND the rare Airdrops to BAYC members. The ‘rarity’ of an NFT can be ranked and helps determine the economic value of the NFT.

Or

A common Ape – you got your hands on a garden variety BAYC and Airdrops. Your Bored Ape is worth around the average Price in the current market.

All numbers are from real blockchain NFT transactions, as recorded on NFT marketplace Opensea.

Your BAYC investment

When the BAYC collection was first released in late April 2021 you could mint one NFT for 0.08 ETH. With the price of ETH around USD$2000 at the time, it cost roughly USD$160. To that we add the gas fees to mint on the blockchain (to register your provable ownership of the asset).

Investment cost: USD$200 (Incl. ETH network fees)

Here is the NFT that you bought, depending on whether you were a Lucky Ape or a Common Ape:

Your initial return on investment

As we have alluded to above, BAYC has become a top tier NFT collection, with a floor price of around 90 ETH (NFTs are usually priced in the crypto token ETH as most are minted, bought and sold on the Ethereum network).

To get the value of each of these NFTs below we’ve used actual transaction data from Opensea. To get ETH/USD equivalent, we use the real transaction records on Etherscan.

Here is the initial capital gain and return on investment for your USD$200 invested on 29 April 2021:

If you had minted, and you still held your BAYC you’d now be sitting on a coveted digital asset worth at least $300,000 on the open market. If you’d gotten lucky with a rare ape, you’d be sitting on an asset worth a cool $2.26 million!

But frens, we’re only getting started with your Bored Ape journey. It turns out that your returns didn’t stop there..

The BAYC dividends

If you’re investing in crypto, you need to know what an Airdrop is. It’s sort of like a dividend that companies allocate to shareholders in traditional markets. A premium payment for the shareholder’s investment and a reason to invest in particular companies, for some people. Except Airdrops are sooo much more interesting with NFTs. This is because NFT Airdrops are programmable incentives and rewards… Let’s take a look a what this means and how it impacts your initial BAYC investment.

BAYC Airdrop #1 – The adoption drive

In mid 2021, the BAYC project team dropped their first Airdrop for members, calling it an ‘adoption drive’. Bored Ape NFT owners were given one week to claim a ‘companion’ for their Bored Ape, in the form of a dog artwork NFT. So formed the Bored Ape Kennel Club (BAKC). The NFTs were free to Bored Ape owners (on a 1:1 basis, you just needed to pay the gas fees to mint them).

Here is the BAKC NFT that you adopted, using your OG Bored Apes above:

Programmable rewards

Several elements programmed into the BAKC Airdrop made these NFTs super interesting compared to a traditional investment dividend:

Firstly, they themselves were NFTs re-sellable on any NFT marketplace. And like the OG Bored Ape NFTs, only 10,000 of the companion dog NFTs were made, each computer generated from 170 different traits or characteristics and each spun out of membership to the BAKC. So, the NFTs were rare and obtained through exclusivity.

Secondly, the smart contract embedded in each NFT file included a royalty payment back to the project of 2.5%, to be donated to a dog rescue charity. All on-sales of any BAKC NFTs through an NFT marketplace like Opensea collected this royalty payment. So the adoption drive raised funds for real world pet rescue organisations. Bingo on the warm and fuzzies.

Thirdly, the NFTs did not come with membership to the original Bored Ape Yacht Club. Bored Ape holders retained that exclusive right. So the ecosystem evolves with hierarchy and the value of initial assets is protected (and reinforced).

Lastly, the NFTs were not official BAYC profile pictures. BAYC decided that the dogs were companions to Bored Apes and not digital identities in and of themselves. This gave the NFTs a role in the BAYC ecosystem and its narrative.

The BAKC dividend return

These clever programming decisions impacted BAYC investors in 4 important ways:

1. Format, provenance (BAYC) and rarity gave the Dog NFTs inherent economic value as digital assets, with some more valuable than others.
2. Fundraising through Smart Contract embedded royalties gave the digital assets social value.
3. Limitations on use (as PFPs and membership access) meant these new assets did not erode the economic value of OG Bored Ape NFT.s In all likelihood, they increased that value by reinforcing the exclusivity of OG Bore Apes.
4. The lower cost of BAKC NFTs on secondary markets opened the BAYC project up to new participants and new funds.

Here is your dividend payment, broken out by Lucky Ape and Common Ape:

Not a bad dividend of between $20k and $200,000k on your initial $200 investment…

BAYC Airdrop #2 – Introducing the MAYC

If your mind has been blown by the capital and dividend returns of a $200 (incl. gas fees) Bored Ape investment so far, you might want to take a seat.

Enter the Mutant Ape Yacht Club.

In August 2021, BAYC released 20,000 new mutant ape NFTs. This is how the next evolution of BAYC went down:

1. 10,000 Mutant Apes were set aside to be ‘bred’ by OG Bored Ape owners, as a way of continuing to reward these members
2. 10,000 were offered for sale by dutch auction, to open second tier membership to the BAYC ‘ecosystem’, at a lower buy-in cost.

How to breed a mutant ape

The next evolution of BAYC not only kept the rewards coming, but continued the BAYC cultural narrative.

The Mutant Apes themselves were not airdropped to Bored Ape owners. Rather Mutant Serum NFTs were airdropped into the wallets of those owners. The serum was graded super rare (M3 – 8 NFTs), rare (M2 – 2492 NFTs) and common (M1 -7500 NFTs) and was airdropped randomly. Bored Ape owners needed to feed the serum to their Bored Ape (figuratively) to breed a second mutant ape NFT. The mutant ape would retain some features of the original bored ape, depending on which serum it ingested (M3, M2 or M1). Any bored ape can be exposed to each of the different 3 types of serum (M1, 2 and 3) once only. The serum is burned when the mutant ape is ‘born’.

There is no deadline to mutate an ape and so you can still see some serum NFTs available for sale on Opensea. Here are three for sale at the time of writing, and their ETH prices…

MAYC dutch auction

At the same time as the MAYC Airdrop, a second lot of 10,000 ‘already born’ mutant apes were put up for public sale via dutch auction with a ceiling price of 3 ETH. This opened a second tier membership to the club. Mutants were priced affordably and programmed with some, but not all, of the benefits of the OG Bored Apes.

Here is the Mutant Ape you bred, or purchased (for no more than 3 ETH):

The MAYC dividend return

The current average price of Mutant Apes sits at 22 ETH, or USD$67,800.

Since you’re a Bored Ape OG, we are going to assume you paid nothing for your Mutant Ape, just a little gas fee for the breeding. Here is your dividend payment, broken out by Lucky Ape and Common Ape:

Total return on your investment

Here’s what your total return (capital gains plus dividends) might look like, all added together.

Update: In mid March 2022, BAYC DAO airdropped 150,000,000 APECOIN into the wallets of BAYC and MAYC NFT holders. APE now powers the BAYC ecosystem. BAYC dropped 10,094 APE for each Bored Ape NFT held and 2042 APE for each MAYC NFT. If you also own Kennel Club NFTs, you get marginally more APE. After hitting $28 USDT per coin, APE is now sitting at around $9.90 USDT. If you do the math thats around $100,000 added to the treasuries of each Bored Ape NFT holder, and around $20,000 if you own a MAYC. Add this brand new dividend to the total returns calculated below…

Did the real story of these particular Apes turn out this way? It’s totally feasible, but the truth is we don’t know. However, you’re missing the forest for the trees if you think that’s the point!

The point is to really try to wrap your head around WTF is going on here that three JPEGs could have made you $3.5 million dollars within 12 months. So to help you out, here is our take…

Why is a Bored Ape NFT so valuable?

To understand this, it’s useful to reflect on the concept of value, and of what makes something ‘valuable’.

The concept of value

Value is paradoxical. It can be entirely subjective (what I desire or what is valuable to me at one price may not be to you). Yet value is also set by consensus. Something is valuable if we all agree it is so. Characteristics like rarity, provenance, utility, beauty, trust/authority, and sentiment might all contribute to a consensus view of value.

At its core, something is valuable if an individual and a collective agree it is so. Gold, the US dollar, rare art pieces are all examples of this.

If you can understand this paradox, then you can start to wrap your mind around how an Ape JPEG that you or I can “RIGHT CLICK COPY” can be valued by the market at $2.6 million dollars. You can also start to contemplate how NFTs become valuable digital assets, and how this is changing investing forever. And you can start to open your mind to what digital asset investing for wealth might look like in the future.

What makes Bored Ape Yacht Club worth so much money?

1. Multiple layers of programmed value

NFTs are not JPEGs. They are bits of code that can have multifaceted utility and therefore value, programmed in. Once we understood this, we understood the size of the tsunami that is coming. Hint, it’s not about the JPEG peeps!

The BAYC art is cool don’t get me wrong. But it’s the smart contract capability behind the BAYC NFTs (and how this is deployed) that make them pure genius as digital assets.

So much value has been programmed in to the various BAYC NFTs. Provenance, rarity, physical appeal, exclusivity, financial benefits, community belonging and a counter culture narrative – all things that people who buy them collectively value!

2. Originality and pioneering social design

Here are some of the programmed and non-prgrammed design traits that have helped make Bored Apes such a valuable digital asset:

1. There will only ever be 10,000 OG ape NFTs.
2. With owners like Jimmy Fallon and Kevin Hart, owning a Bored Ape NFT gives you membership to a coveted, exclusive community of either the crypto rich or crypto OGs.
3. Its’ a profile pic. Owning a bored ape becomes part of your online identity.
4. It’s a tribe with a strong belonging. It’s “See Ape. Follow Ape.” mantra offers OG Apes thousands of tribe followers for their Twitter, Instagram, TicTok and other online accounts.
5. It’s a right to ownership and potential future revenue stream. When you buy a Bored Ape you own the rights to it. The artist doesn’t. If you’re clever, this brings the prospect of future revenue through commercial licensing agreements. It’s already happening, with entrepreneurial Bored Ape #768 promoting weed brands in the US.
6. The utility of the NFT (and its value proposition) can evolve over time. Profile pics will turn into 3D images and metaverse skins. Imagine traversing the metaverse and being instantly recognisable and part of a tribe, all because of your provable Bored Ape identity.
7. The NFTs give you tiered access (with Bored Apes at the top) to online games, events and activities that are becoming a thing of crypto legend. NYC Apefest 2021 is a case in point.
8. There’s a shared collective future in the form of a project roadmap – members can see the potential unrealised value they’re buying into.
9. It’s now a counter-culture brand and fast becoming a tribal ecosystem that will likely evolve and adopt its own self sustaining tokenomics.

Observations for investors – the BAYC model and the future of NFTs

The BAYC model

Our first observation is that BAYC pioneered what has become the business model for many other NFT projects that have followed. It’s the model you’ll see time and again if you start diving down the NFT rabbit hole today –

1. Some cool art (subjective) + a Twitter Account + a home website + a community discord.
2. A roadmap that speaks of charity donation or social cause, live events and freebies for members.
3. Sometimes a promise of gaming utility and metaverse application sometime in the future (wen?)

And here is where it gets interesting to stand back and survey the landscape around the BAYC model, as digital asset investors. Because there are implications for the future of NFTs and your digital asset investing.

The future of NFTs

After looking closely at BAYC and other top projects, here are two observations about the future of NFTs:

Will there ever be another BAYC?

Firstly, while hundreds of NFT projects have tried to recreate the magic of BAYC using their model, few have been anywhere near as successful. Maybe the novelty of BAYC was pivotal to its success? Perhaps only the ‘OGs’ can ever have their folklore status priced in? Or maybe just a handful of founders have been able to bundle value in such an appealing package? Perhaps its the unique rights agreement allowing revenue in perpetuity?

If you asked 100 crypto insiders, they’d each have a different answer. This makes it incredibly difficult to get a handle on the market and its direction. It truly feels like this thing is running in hundred different directions at once.

We’ve never met an asset like an NFT

Secondly, BAYC does not equal the total utility and value that NFTs can bring. It’s just one creative and to date successful way of building a digital asset that people want to buy into. NFTs are software files with expanding programming capability and multiple applications – some demonstrated here and others that haven’t even been dreamt up yet! BAYC is just the start. The tip of the iceberg. The demonstration project.

The future of NFTs will almost certainly see them deployed in currently unimaginable ways, to capture new value.

Lessons for digital asset investors

So what does this mean for your investing?

Firstly, let’s recognise how much the investing landscape has changed. NFTs are incredible vehicles to store and transfer value across space and time. And isn’t that what an asset is? The technology, and its utility, is not going anywhere. This leads to the second point…

Secondly, it’s time to open your mind. It’s time to understand how technology is transforming the way humans monetise and store different types of value. It’s time to get on the right side of that. NFTs are bigger than a tribe of crypto apes with their JPEGs. They’re vehicles to execute original ideas and create and package social and economic value, with the help of smart contracts. This why we’re watching the space with interest.

Thirdly, what is valuable in one project may not be in another. NFTs are nascent assets. So it’s almost impossible to understand with certainty where the market might price a collection of them. There is no formula to valuation. The upshot is, this is a highly speculative and risky investing space! You can lose everything you put in. Or you could make $3.5M! Don’t get balls deep with money you can’t afford to lose!

Lastly, analysing the BAYC story gives us insights into what to look for as digital asset investors. A good place to start is with the project team, the brand and the vision. Which NFT projects out there are layering value in innovative ways? What projects are original and different from the herd? What other novel applications of NFTs can you imagine? The next BAYC in our view will look nothing like the first.

Conclusion

Bored Ape Yacht Club is a fascinating insight into how technology disruption is coming, like a veritable tsunami, to upend our online lives. Whether you ride the wave or are swept away in the wash, is up to you financial freedom seekers.

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