How to Invest in NFTs: The Market and the Opportunity (Updated 2022)

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, in 2021, an NFT of the shiba inu dog made famous by the “doge” meme was sold to a collective for US$4 million. One of the leads of the group, known as PleasrDAO, explained that an actual ownership stake in the digital asset would be offered to interested 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 COVID-19 and distrust in the US dollar — have all helped fuel the boom in NFT excitement.

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.

“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,” he commented.

NFTs could face regulatory challenges

It's clear the spotlight may have initially illuminated the NFT market a bit too brightly, as the industry is now facing questions about overexposure and whether the bubble in the sector has burst.

While it's difficult to make assured statements without more substantial data sets, the challenges for NFTs are increasing.

The White House recently released a dossier giving the public its early impressions of DeFi and other alternative technological investment tools. While the document is short on specifics, it does indicate a more expansive review is coming for NFTs.

"The United States will continue to monitor the development of the digital assets sector and its associated illicit financing risks, to identify any gaps in our legal, regulatory, and supervisory regimes," the government said.

"As part of this effort, Treasury will complete an illicit finance risk assessment on decentralized finance by the end of February 2023 and an assessment on non-fungible tokens by July 2023."