Not just for gamers and fanboys: Why investors should take NFTs seriously

Published at: March 15, 2021

If you’ve been following the crypto industry, you might have noticed just an ever-so-slight buzz around nonfungible tokens, that is unless you’ve been locked down in an NFT-proof bunker for the last year.

Originally developed to be used in collectible trading-card games, NFTs can represent any unique assets whose scarcity and ownership can be proven on a blockchain. The development of the technology has since seen NFTs come to be used for a whole host of in-game assets, digital collectibles, unique artworks and so much more.

But if your surname isn’t Guggenheim, you don’t understand why grown adults get so excited about Doctor Who or Star Trek, and your gaming career consists of briefly downloading Candy Crush to your mobile phone, why should you care?

Well, because some of these digital assets are selling for obscene amounts of money. And if you are reading this, it’s completely reasonable to suggest that you are likely interested in digital assets and the opportunities they present.

All that glitters is not gold

Of course, when obscene amounts of money are on the table (and seemingly for something as simple as minting an old tweet onto the blockchain), then every two-bit chancer and their moms, from Anaheim to Zanzibar, will try to get in on the action.

The ensuing gold-rush has seen the burgeoning NFT market compared to the initial coin offering bubble of 2017. Everyone from Litecoin (LTC) creator Charlie Lee to the BBC has warned of the NFT bubble’s potential to imminently burst. Ironically, Lee, in the process, created an NFT that ultimately sold for 5 Ether (ETH) and arguably has genuine value, given his status in the crypto industry.

Like the ICO boom, there are certainly projects of questionable value out there; although this time around, assessing that value is often a bit more subjective than simply doing due diligence on the umpteenth utility token project this month.

Unlike the ICO boom, NFTs have the potential to reach much further than an assortment of libertines, forward-thinking investors and tech nerds, and bring blockchain technology, and ultimately its preferred payment method, cryptocurrency, in front of a far larger mainstream audience.

An emergent scene has built up around trading in NFTs as a primary investment strategy. Some of the major players in the space responded to a question from Cointelegraph on: “Why should investors be paying attention to NFTs?”

It’s the next big thing, you know

Danny is an art enthusiast and has been investing in high-end collectibles, virtual land and art on blockchains for the past two years. He initially discovered Bitcoin (BTC) back in 2013, and having seen how cryptocurrency radicalized the world of finance, was convinced that “NFTs would end up tokenizing everything else.”

“Investing in something that had the potential to go mainstream, while also supporting individual [artists] and projects, was a win/win scenario,” he said. Danny believes that we are still in the early stages of NFT adoption and that “there’s still plenty of opportunities and innovation in the NFT space.”

Zurab Kazhiloti heads up Bitscale Capital, which supports several NFT related projects, including Flamingo DAO, a digital autonomous organization focusing purely on investing in NFT assets. He thinks that everyone who has ever considered investing in art should be paying attention to the NFT market:

“Collectors are able to get amazing art pieces without leaving their home, and artists are able to reach much broader audiences and further monetize their art.”

He also said that the “satisfying feeling of digital ownership is something that people really love.”

But I don’t have an art history degree

So, whether for art, fun or profit, if one wants to get into the NFTs... how does one start? How do you sift the Hashmasks from the Trashmasks (trademarking that, before anyone gets any ideas).

Andrew Steinwold, a managing partner at NFT-focused investment fund Sfermion, takes a strictly rational approach and distills the information into its core fundamentals. These being team (or artist), product, token economics, community, market, data and risks. Following that, he has to consider which assets are available:

“Some projects — it’s easy because they have one investable asset (virtual land has land NFTs), but for other projects, it’s quite hard because they have many differing types of assets (land, items, creatures, tokens, etc).”

Priyanka Desai, vice president of operations at Flamingo DAO, also believes that investors should dig deep, but by playing around to discover the mechanics of each thing. “Everything starts as a toy,” she said, telling Cointelegraph that many members dig into the mechanics to see how they themselves would use it.

Danny likes to consider a potential project’s credentials, market fit and aesthetics, with a particular penchant for art and collectibles with some kind of historical or innovative significance:

“I particularly like pieces of art that I can display on my wall as a conversation starter for guests, as most of my real-world friends are only just starting to wrap their heads around crypto, let alone NFTs.”

Looking for the next big thing

So, where next for the NFT scene and, indeed, the market? What does the future hold for nonfungible tokens? Desai believes that NFTs will bring a big increase in overall crypto adoption, saying: “This is digestible, and media and entertainment are a part of life.”

Furthermore, renowned auction house Christie’s has just sold its first purely digital NFT-based artwork, as Beeple’s “First 5000 Days” sold for over $69 million, and Desai thinks that crypto’s dalliance with the art world could lead to major cryptocurrencies being accepted for all art.

Danny said that this path to mass adoption is already underway, with influencers and artists starting to use NFT revenue streams through direct community and follower engagement. He notes that “people want to support their favourite influencer, artist, actor, etc., resulting in further curiosity about the NFT space.”

He would, however, like to see adoption simplified “to the point that users don’t have to worry about buying a particular cryptocurrency, installing a browser plugin and then trying to understand gas fees.”

Danny is also looking at the play-to-earn element of blockchain gaming with interest, saying that the promise of these mechanics to provide opportunities for anyone in the world to earn a living while participating in a social environment is very powerful. This alone will be a substantial driver of growth over the coming years.

Kazhiloti points out that #NFT recently flipped #DeFi on Google search trends, and he is impressed by how quickly NFTs are coming into the view of regular collectors. He believes that “low entrance barriers and easy access to most of collections” are catalysts of such growth.

Steinwold believes that NFTs will become one of the largest markets in the worlds: “We aren’t even in the first inning yet, so play long-term games with long-term people.” He feels that NFTs are more human and accessible than some of the hard-to-understand concepts of the crypto market. He also said that investors should be paying attention to what NFTs enable:

“Suddenly, every single digital item could be turned into a tradeable good. This means the Internet of Goods is now here, and it will have massive ramifications for our future.”

The cream always rises

The NFT market is certainly experiencing the explosive growth that ICOs saw in 2017, although how far this can go, only time will tell. Professional investors believe that the increase in adoption is only beginning and that potential mainstream acceptance is on the horizon. But a cynic may argue that they could have told you that…

It certainly isn’t showing any signs of stopping soon and whether anything seems to be accelerating. Will it overstretch and burst? In which case, one would imagine that, similarly to the ICO boom, the more worthy assets will still be of value on the other side.

Or, will the market mature quickly enough to start naturally sorting the wheat from the chaff and develop valuing and support systems that keep pace with its growth? Either way, we end up with much greater and more mainstream adoption of blockchain technology and crypto.