What is an NFT?

NFT stands for “non-fungible token.” In economics, the term fungibility means that one unit of something is interchangeable for another. For example, every fiat currency out there (USD, EUR, GBP etc.) is fungible because every dollar that you have is equivalent to one dollar that someone else has. What makes NFTs non-fungible is that they’re unique and not interchangeable for something else. We will look into the mechanics of that a little bit later, but let us give you a simple and straightforward example so that you could grasp the concept. Rare automobiles are non-fungible because if I trade you one, I wouldn’t be able to get the exact same car somewhere else. Synonyms of non-fungible are irreplaceable, unconvertible, unsubstitutable.

Traditionally, manufacturers allow for there to be more than one car in a series while maintaining non-fungibility, for example, Ferrari built only 400 cars of the exclusive Enzo model between 2002-2004 and if I have a Ferrari Enzo #100 that’s the one I have and the only one that should exist, with the serial numbers indicating the rarity. NFTs similarly accomplish this by keeping a record of ownership on the Ethereum blockchain. A non-fungible token is a unique unit of cryptocurrency. It’s a digital certificate for intellectual property and is stored on the blockchain. So the owner of an NFT owns an asset, whatever that may be, and the proof of ownership of that asset.

What are NFTs used for and what lies ahead?

NFTs are used for art, gaming, and collectibles. Art in particular is grabbing headlines, with digital artist Beeple (real name: Mike Winkelmann) taking in $6.6 million for his piece “Crossroads.” Beeple’s next digital artwork was purchased by Vignesh Sundaresan, known to the cryptocurrency community as MetaKovan, who made headlines in March for his record-breaking purchase of Beeple’s “Everydays: The First 5000 Days” NFT for over $69 million.

While the market for NFTs has boomed this year, things have recently taken a turn. Sales volume for the tokens has seemingly subsided, with a decline in pricing as well. Some of the most active NFT players have come out warning that the market has overextended itself as a result of all of the people that are trying to make a fortune buying and selling these digital assets.

Sundaresan for example is very supportive of NFTs, but, “I don’t think NFTs will hold the same kind of hype forever around high-value items,” he said.

“The market will get divided. There will be very few high-value items and an infinite number of very low-valued items.”

Similarly, Mike Winkelmann, the artist known as Beeple, compared the NFT market to the dotcom bubble. Just as certain companies, like Amazon, survived the eventual bust, and others did not, Winkelmann predicts that parts of the NFT market will thrive while others will wither.

“I’m very, very bullish on the technology and space long-term,” Winkelmann recently told CNBC Make It. “I just think people need to be careful right now because there [was] a rush and it’s so new. It is quite speculative.”

NFTs are definitely having their big-bang moment as collectors and speculators have spent more than $200 million on an array of NFT-based artwork, memes and GIFs in the past month alone, according to market tracker NonFungible.com, compared with $250 million throughout all of 2020. And that was before the digital artist Mike Winkelmann, known as Beeple, sold a piece for a record-setting $69 million at famed auction house Christie’s on March 11—the third highest price ever fetched by any currently living artist, after Jeff Koons and David Hockney. This is the reason why it is of essential importance for every intelligent investor especially in a volatile and crazy environment like that to analyze the broad market carefully and avoiding the trap of letting his emotions dictate his investment decisions. The fear of missing out (FOMO) investment “philosophy” has never made anyone a millionaire but it has cost a lot of people a lot money.

I believe that in times when things go crazy and money is being thrown left and right for something, we should always go back to the words of the greatest investor of all-time Warren Buffet and his saying that you should be fearful when others are greedy and greedy when others are fearful.

Conclusion

From a long-term standpoint, we see tremendous growth potential for the NFT market as a whole as it is obvious that this new and revolutionary usage of the blockchain technology creates remarkable opportunities for artists, collectors, businesses etc. However, we are definitely concerned about the rapid pace with which this market seems to be growing at day after day, and believe that most of the market participants at the moment are in this space with the wrong intentions, or in other words they are just trying to become rich quick. We can go back in history and see that people’s obsession with this idea of getting rich quick or “making it overnight” had never produced anything meaningful as a return for those individuals, but what it had done on many occasions in the past is to create massive speculative bubbles. Once these “bubbles” burst a lot of people get hurt financially, lose their savings, homes, families and their lives are changed negatively forever. We don’t want to sound so doom and gloom, but we are indeed trying to help you to take a step back and understand that even if a certain business, technology or market has a remarkable long-term growth prospects as it is the case with the blockhain sector and the NFTs more specifically, this doesn’t justify you paying any price for this asset.

Remember, even the best stock could end up being a terrible investment if you end up paying to much for it!

Companies to watch out for:

Most companies in the space are private and cannot be invested in via the stock market. However, Funko for example is a publicly traded company (NASDAQ:FNKO) that investors could buy into, which definitely makes it interesting.



Sincerely,

This image has an empty alt attribute; its file name is logo.svg

Add a comment