The past decade has dramatically leveled the playing field for the retail investor. With each passing day, we are seeing new trading platforms, greater access to information, and also, some really weird ways to invest. The birth of the current Digital Age has given investors new currencies like Bitcoin. It’s allowed us to purchase rental homes across the country with apps like Roofstock. It even has allowed us to invest in alternatives like Litigation Funding or Marine Vessel Deconstruction. Well guess what, investing world? There is a weird new investment strategy in town, and its name is Non-Fungible Token (NFT). Like a lot of weird investments, NFT’s can be chalked up to the latest fad, but people are spending and making millions of dollars off them.
So, what are NFT’s?
Why are some NFT’s worth millions of dollars?
Is this something you should even consider investing in?
Great questions. Let’s answer them right now.
Non-Fungible Token isn’t very self-explanatory. A better explanation is that an NFT is a digital work of art (art being subjective) that is completely unique and cannot be interchanged with anything else.
Money, for instance, is fungible. You can exchange a $5 dollar bill for five $1 dollar bills. Same with stocks. You can exchange stocks for cash equivalent or even other stocks. These are fungible assets that can be exchanged or interchange with other fungible assets. NFT’s, on the other hand, cannot.
Like cryptocurrencies, NFT’s live on a blockchain, a tamper-resistant, public ledger. Unlike cryptocurrencies, NFT’s cannot be exchanged for cash or other cryptos. In this way, they are more like classic works of art. They have unique valuations that are set by the highest bidder.
Artists create these digital works of art, then certify their works as NFT’s through a marketplace on a blockchain. Once they create this certification, they can list their art for auction on an NFT marketplace, similar to EBAY. NFT’s can easily be replicated, as can any art piece. However, it is this unique token they receive when they certify their art, that makes it uniquely their own.
Much like, art, NFT’s are subjective. There are no fundamental ways of analyzing an NFT’s worth beyond what the next person would be willing to pay for it. Recently, some eye-popping purchases of NFT’s have made headlines.
Musician Grimes sold some of her digital art for more than $6m.
Twitter founder, Jack Dorsey has recently promoted an NFT of the first every Tweet. The current bids are over $2.5 million.
And the biggest sale was from a digital artist known by the name Beeple. Christie’s sold Beeple’s NFT for $69 million dollars.
Digital art has been around for years. NFT’s are only now giving it a mainstream promotion. It is also giving artists a new medium for selling their works.
Whether one classifies digital art in the same class as traditional art such as, sculptures or paintings, is again, completely subjective. If someone decides that they are going to pay $70 million dollars for a work of digital art, then that NFT is worth $70 million dollars.
This completely depends on your financial goals and investor profile. If you are a pragmatic investor looking for consistent capital appreciation on long-term investments, then you should probably avoid NFT’s. However, if you are a crypto evangelist/art lover with deep pockets and love speculative investing, this could be right up your alley.
Whether NFT’s are a fad or an evolution for art in the digital world, one thing is certain – the landscape of investing is rapidly changing and giving investors more strategies for making money than ever before.
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