NFTs are one of the latest innovations backed by blockchain technology, and the market is heating up.
The world of digital investments offers a near constant level of innovation, and recently blockchain technology has come together with art investing to create quite the hot market.
Non-fungible tokens, commonly known as NFTs, are the digital assets at the center of the latest investment trend. They’ve gained attention from tech-savvy investors and could lead to a new highly speculative digital age in art investments.
But as NFTs and their variants rise in popularity among both crypto enthusiasts and other investors, an intense debate is growing about the effects of NFTs and whether or not the market is in a bubble.
Here the Investing News Network (INN) takes a closer look at the NFT craze and the almost unthinkable amounts of money being made by some early entrants.
What is an NFT?
NFTs are created around a specific item, whether it be digital or physical, and the ability to buy an NFT is based on blockchain technology.
Some of the most popular NFTs include pieces of art such as images, videos or GIFs. The flexibility of NFTs has allowed for some offbeat choices, like when Jack Dorsey, the co-founder of Twitter (NYSE:TWTR), sold his first tweet for US$2.9 million.
These digital assets aren’t new, but the recent explosion in interest can be traced back to a growing understanding of blockchain technology and the way it can interact with established items or events.
Thanks to their one-of-a-kind status, NFTs appeal to collectors — authentication mechanisms allow for one buyer to stand alone as the sole owner. Those and other factors have led to a burst of NFT activity, with purchasers willing to pay major sums to acquire these limited digital assets.
As mentioned, the NFT craze is closely associated with the art world. In March, the digital artist known as Beeple, Mike Winkelmann, sold an NFT for US$69 million through British art auction house Christie’s.
Noah Davis, a specialist in post-war and contemporary art at Christie’s, told the Verge the art piece from Beeple helped him see the potential attached to NFTs.
“He showed us this collage, and that was my eureka moment when I knew this was going to be extremely important,” Davis said. “It was just so monumental and so indicative of what NFTs can do.”
Christie's is proud to offer "Everydays – The First 5000 Days" by @beeple as the first purely digital work of art ever offered by a major auction house. Bidding will be open from Feb 25-Mar 11.
— Christie's (@ChristiesInc) February 16, 2021
In the NFT market, investors should be ready for anything to gain substantial value — items can go from seemingly absurd to a clear triumph in next to no time at all.
For example, earlier this year, an NFT of the shiba inu dog made famous by the “Doge” meme sold for US$4 million. One of the leads of the “Doge” NFT buying group, known as PleasrDAO, explained that an actual ownership stake in the digital asset will be offered to people through fractions.
“(I)t’s very much as if the Louvre decided to fractionalize the Mona Lisa and distribute a portion of it for the public to own. However, unlike at the Louvre, collective ownership of art is really only possible using crypto art,” Jamis Johnson, chief pleasing officer of PleasrDAO, said, according to a report from CNBC.
Pablo Rodriguez-Fraile, an art collector in the US, told Business Insider that myriad factors — including the price of bitcoin, the ongoing effects of the COVID-19 pandemic and distrust in the US dollar — have all helped fuel the boom in excitement surrounding NFTs.
Expert voices give support to larger NFT opportunity
Abhishek Sinha, a partner at EY and the firm’s open banking and blockchain leader, previously told INN he is supportive of the idea of NFTs, which he believes bring a spotlight to blockchain technology.
However, he expressed reservations at the idea that there’s a 100 percent clear understanding of the NFT market, even considering the recent surge.
“I’m not sure that everyone who was suddenly really interested in NFTs really understood what they were getting into and what the NFTs represented,” he said.
The expert thinks NFTs will play a greater role in the entire blockchain market.
“Do we think that NFTs are here to stay, and they’re going to be a valid medium for value exchange? Absolutely. I think they’re just going to get a little bit more business as usual, a little bit more mundane, a little bit more boring, but a lot more essential,” Sinha said.
Arry Yu, chair of the Washington Technology Industry Association Cascadia Blockchain Council and managing director of Yellow Umbrella Ventures, told Forbes there’s still a lot people don’t know about the investment proposition of NFTs. “NFTs are risky because their future is uncertain, and we don’t yet have a lot of history to judge their performance,” Yu said. “Since NFTs are so new, it may be worth investing small amounts to try it out for now.”
Evan Cohen, co-founder of Vincent, a search engine for alternative asset investing, wrote that investors need to be aware of the highly speculative nature of art investing, especially for digital assets.
“When investing in collectibles it’s best to have a long time horizon, as the long-term appreciation tends to be a safer bet,” Cohen commented.
NBA enters NFT market and adds to interest level
In 2021, the National Basketball Association (NBA) entered the NFT fray with the launch of NBA Top Shot, an NFT marketplace based on digital assets tied to highlights from basketball games.
“In plain terms: think of the future of the sports trading card market mixed with similar principles of cryptocurrency, but it’s virtual cards that contain individual NBA highlights,” the NBA explained.
The attention these highlights have received has led to rising interest as well as scarcity for the digital assets. In the online marketplace, users can pursue highlights from their favorite players or they can try to complete a specific series.
Roham Gharegozlou, CEO of Dapper Labs, told the Action Network that the concept is based on the idea of people being interested in owning a piece of memorabilia from their favorite athletes, even if they don’t physically have an item.
“We have a lot of believers in what we offer and we have people who don’t get it. That’s OK. We can’t please everybody,” Gharegozlou said.
In February, NBA personality and host Ros Gold-Onwude told SportsNation she has seen the growth of NBA Top Shots lead to a clear investment angle to this space. “At first it was about getting in and having fun and creating this community but there absolutely is an investor aspect to this and so you try to pick smart, maybe build a portfolio that’s worth something,” Gold-Onwude said.
She has become an advocate for NBA Top Shots and the general NFT space through social media.
The drive for innovation in investing methods never ends, and now thanks to the blockchain opportunity, NFTs have captured the imagination of investors looking for a new marketplace.
The versatility of NFTs offers a wide array of opportunities for those looking to add to their digital asset exposure. Time will reveal the status of this marketplace and the viability it may have long term.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.