Non-fungible tokens could be the New York Stock Exchange’s next venture as the NYSE has submitted a trademark application for an NFT marketplace according to Eoin Mullany, analyst at German financial services group Berenberg.
NFTs are tokens on a blockchain which represent ownership of a unique physical or digital item, such as digital art.
Mullany said in a report that NYSE’s owner, Intercontinental Exchange, is always looking for opportunities to evolve and generate shareholder value.
“We believe any initial investment in the space will be small, as ICE seeks to fully understand the value proposition,” added Mullany. “Indeed, the way the company has slowly built its mortgage business provides a template for how it may approach NFTs.”
In 2020 ICE completed its $11bn acquisition of Ellie Mae, which was founded in 1997 to automate and digitize the trillion-dollar residential mortgage industry.
NYSE submitted a trademark application for an NFT marketplace on 10 February 2022. The filing said it is for the provision of an online marketplace for buyers, sellers, and traders of downloadable digital goods authenticated by NFTs; virtual and digital assets, artwork, collectibles, of digital currency, virtual currency, cryptocurrency, digital tokens, crypto tokens and utility tokens.
The filing also said NYSE will develop and design virtual retail stores, virtual stores, and virtual showrooms for others provision of an online marketplace for buyers and sellers of downloadable digital goods authenticated by NFTs.
Mullany said: “ICE is likely to start slowly in NFTs: ICE is no stranger to the world of crypto or NFTs. In 2021, NYSE minted NFTs to celebrate the first trades of companies, including Spotify.”
In addition, ICE launched crypto exchange Bakkt and was an early investor in Coinbase, the listed crypto exchange.
On 22 February ICE announced it as making a strategic investment in tZERO, which operates an SEC-regulated alternative trading system and broker-dealer for digital assets. tZERO said it brings together issuers and financial firms seeking a transparent, automated, digitally enabled marketplace and investors seeking access to unique private assets, public equities, cryptocurrencies, and other digital assets, including NFTs.
Mullany continued that NFT transaction volumes were negligible at the start of 2021 but they were more than $8bn in January 2022.
“In 2021, total transaction volumes were around $29bn, 60% of the value of the global art market and 35% larger than the global recorded music market,” said Mullany.
The analyst continued that OpenSea is the dominant NFT exchange with approximately 60% of total NFT transaction volumes since August 2021. However, Mullany highlighted that competition is increasing with Coinbase due to launch an NFT marketplace.
OpenSea charges a fixed fee of 2.5% per transaction and has accounted for $2.8bn of monthly volumes on average since August 2021 according to the report, implying annual revenues of $840m. According to its latest funding round OpenSea is valued at $13.3bn.
“At a $13.3bn valuation, this implies a price-to-revenue multiple of 15.8x,” Mullany added. “However, using January 2022 transaction volumes ($4.5bn) as a proxy, it implies annual revenues of $1.35bn and a price-to-revenue multiple of 9.9x.”
OpenSea’s valuation equates to around 19% of ICE’s market cap.
“While nothing is likely to happen in the near term, we believe it is this willingness to innovate that separates ICE from exchange peers,” Mullany said. “Yet the market assigns little to no value to this, as ICE trades at an 8% discount to its peer group on 2023E P/E.”
