The Punk Price Hypothesis

GMI Capital
5 min readJan 29, 2024

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My journey with CryptoPunks began in early 2021, culminating in my first purchase that April. My observations and participation in the CryptoPunk market have led me to formulate a hypothesis about the interplay between ETH prices and the valuation of Punks.

Over the last 6 years, the CryptoPunks project has cemented itself as the gold standard of the NFT ecosystem. Released for free in the summer of 2017, the project has generated over $3 billion in trading volume and has consistently held the largest market cap in the NFT space. This makes it an ideal subject for studying the correlation between NFT prices and ETH values.

Credit: NFTstats on X

It’s good to start by noting that Punks are traditionally priced in ETH. We’ll begin by examining how Punk prices respond to short-term ETH price movements, and then delve into the long-term implications. Through this essay you’ll learn how the way humans think about currency influences this market.

Pricing Dynamics: ETH’s Influence on Punk Values

Thesis: In the short term, Punk prices inversely correlate with ETH prices; In the long term, Punks act as a leveraged-long bet on ETH.

If you observe the activity of the Punks market when the price of ETH surges, you’ll notice a depression in punk trading volume and floor price with sellers competing to have the lowest ask. While listing prices get progressively lower in ETH, they’re usually higher in USD due to the positive price swing.

My first CryptoPunk, #5627

My theory behind why this is the case is that most owners are not what I would consider to be “Post-Money.” Post-Money in this context refers to a level of financial freedom where an owner no longer has to think about liquidating assets to cover their expenses. Since most Punk owners have not yet reached this echelon of wealth, they’re inclined to sell their Punks (and the resultant ETH) for their temporarily heightened USD value. That excess USD can translate directly to an elevated quality-of-life for these participants in the form of a new car or mortgage payments. This observation aligns with Buffett’s belief that “markets transfer money from the impatient to the patient.” Post-Money market participants can afford to be infinitely patient, having no urgency to liquidate their assets.

Conversely, when the price of ETH is stable or is falling, we often see increased Punk sales and and rising prices — a Punk bull market. With ETH seeming stable or cheap and marginal sellers exhausted, the “strong hands” or Post-Money individuals step in to accumulate what they believe are valuable assets. This isn’t to say that these assets will be locked away forever as rising prices usually attract speculators, but this represents the gradual move to more patient ownership.

From Niche to Notoriety: The Veblen Effect

The above observations apply to pricing and market activity of Punks in the short-term. As these assets move “from weak hands to strong”, their valuations will start resembling other Veblen goods.

A Veblen good is a good for which demand increases as the price increases. Veblen goods are typically high-quality goods that are well made, exclusive, and a status symbol. This runs counter to the prevailing circumstance of demand falling as prices rise. — Investopedia

Some common Veblen goods include luxury watches, cars, and fine art — assets that tend to gain more appeal as they become pricier. This runs counter to most items which typically see demand for them fall as their prices rise. If the price of apples increases to $100 each, demand for apples falls. In contrast, a more expensive Ferrari draws higher demand than the cheapest Ferrari.

The idea of digital Veblen goods predates the creation of NFTs by decades. The most prominent example that comes to mind is the Runescape party hat. The hat which was gifted to players for free in 2001 has since evolved to become an iconic store of value, leading to the creation of real-world markets where they routinely trade for thousands of real dollars. More recently in January 2024 a cosmetic enhancement from popular online game Counter-Strike 2 was discovered for the first time and is estimated to be worth around $1 million dollars if listed for sale.

“Starry Night” by Vincent van Gogh (1889)

Van Gogh’s Starry Night is a perfect example of a Veblen good — an art piece of immeasurable prestige, demand and price. Its provenance journey began with a trade from the weak hands of the original artist to his brother for more art supplies. In the 17 years following its creation, the painting changed hands six times before eventually finding its way into the MoMA’s collection. Institutions like MoMA are the kind of “diamond-handed” holders I have a hard time imagining giving up pieces like this.

“I can’t change the fact that my paintings don’t sell. But the time will come when people will recognize that they are worth more than the value of the paints used in the picture.” — Vincent van Gogh

CryptoPunks as Veblen Goods

Over the long term I expect the price and provenance of CryptoPunks to follow a similar trajectory to that of Van Gogh’s paintings. As Punks find their way into the strong hands of Post-Money owners, their scarcity and entry cost (in both USD and ETH) will escalate.

The reason Punks operate as leveraged-long ETH over the long term is due to the number of crypto participants who will become Post-Money with the appreciation of ETH. Should the price of ETH approach something like $10,000, many new people will enter the Post-Money echelon and purchase a Punk to commemorate their success. This trend is already noticeable among crypto traders and operators who come into a windfall.

If the broader crypto thesis that many of us believe in continues to play out, we can expect an increase in buyers who can afford to be infinitely patient with no timeline in which they need to sell. Dwindling supply and rising prestige of this Veblen good will create a positive feedback loop leading to prices resembling the current day fine art market. Van Gogh may have died broke, but his works are now virtually unattainable for under a million dollars. I believe certain projects like CryptoPunks have the potential to follow the same trajectory.

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GMI Capital
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GMI Capital is a multi-strategy crypto asset fund that helps investors navigate the rapidly evolving landscape of crypto assets safely and successfully.