Beyond the hype: NFTs are primed for long-term investment
Eric Kapfhammer, is COO and Head of Polyient Capital at Polyient Inc.
The use and applicability of Non-Fungible Tokens (NFTs) has soared in recent months, with NFT trading volumes rising from $3.6 million in November 2020 to $53 million by March 2021, highlighting a massive shift in the consensus surrounding unique digital assets.
NFTs are essentially non-replicable, counterfeit-proof digital assets that represent ownership on a blockchain network.
Arbitrary to some, revolutionary to others, beauty is truly in the eye of the (token)holder. No matter what your stance, NFTs are proving their worth in the crypto sphere as well as the real-world marketplace, and they aren’t going anywhere.
From Paris Hilton to Kings of Leon, some of the most culturally significant personalities across a wide spectrum of industries have not only endorsed the NFT collectibles concept but have themselves created collectible digitized assets.
This makes NFTs prime targets for keen investors, hoping to jump on the latest craze encapsulating the world through sensational headlines.
Investors may be skeptical about engaging in a potentially celebrity-driven fad, but the evidence shows that NFTs have an indisputable role in the future of the economy.
First and foremost, art and collectibles are putting NFTs into the spotlight, highlighting their most accessible use case and driving mainstream adoption. Beyond that, NFTs are primed for long-term investment and the transformation of financial markets and colossal industries in the near future.
Art and Gaming are NFT Killer Apps
As ever, collectibility and rarity, particularly in art, can yield massive returns in auctions and trading.
NFT technology can facilitate the digitization of art and collectible exchanges. The canvas is now digitized and the ownership of the art is completely verifiable, so investment in NFT art is as fungible as investing in physical, real world paintings.
Traditional art collecting is a financially exclusionary exercise of wealth due to the enormous amounts of money being moved.
NFTs have moved the art galleries from the upmarket city central neighborhoods to the internationally accessible internet, meaning more and more people can invest in and create high-tiered art.
Investors should pay attention to this shift in art’s accessibility. Accessibility increases arts investability and the catalyst for this shift is NFTs.
NFT marketplaces for digitized assets have solved a lot of issues for the COVID-19 world.
With sports stadiums shut worldwide, NFT marketplaces like the NBA Top Shot have allowed for sustained fan and user engagement, as well as ensuring money keeps pouring in.
Similarly, in the gaming world, COVID-19 has promoted an uptake in use, with Version noting a 75% increase in gaming traffic during peak hours. This uptake, coupled with the recent success and establishment of NFTs, highlights the massive potential for NFTs in gaming and illustrates another industry primed for NFT transformation.
Tokenized in-game purchases will not only hold their inherent value but can be traded across a multitude of titles, transforming how players own and engage with games.
This process is already occurring in the gaming industry and is something that investors should pay very close attention to as more and more gaming companies hop on the NFT trend.
More than Just a Fad
Skepticism is, of course, understandable. NFTs seem to have appeared out of nowhere, becoming a worldwide phenomenon in a matter of weeks.
There is concern that the NFT boom is a bubble that will inevitably burst once the hype dies down. However, this will never be the case. Consider as an example, the ICO bust of 2018.
What went wrong in this instance was that investments were being gathered by projects with no products or services, and with no ability to launch anything real or substantial. Uninformed retail investors pumped large amounts of money into projects that quickly failed.
Now, we can see that investment in crypto is coming from more informed investors, including major institutional players, meaning that the boom and bust cycle will not be repeated for NFTs.
NFTs are simply going through their expected phases of the Gartner hype cycle, as all new technology must.
We see a steep rise in interest and investment, followed by a more sustained period of maturity and growth. Cryptocurrency as a whole has undergone this cycle and come out the other side, now experiencing prolonged growth, long-term buy-in, and record-high prices.
Beyond the Headlines
Through DeFi, NFTs expand to investment opportunities outside collateral trading. Any unique real-world asset can be tokenized, becoming an NFT. The fact that tokenized assets can now be non-fungible creates an entirely new way of accounting and processing transactions.
Representing fractionalized assets like bonds, stocks, options, and insurances with an NFT eliminates the arduous authentication processes associated with each of these assets, streamlining the fluidity of asset transactions.
In insurance, for example, each contract can be transferred to an NFT, which can be traded through a secondary marketplace. These secondary marketplaces boast a significant opportunity for investors.
Huge profit-wielding industries like aviation, entertainment, and real estate will likely begin using NFT technology in the near future, mainly, to facilitate a reemergence of services in a post-COVID-19 world.
Smart contract NFTs will emerge as a leading contender in the tech and business sector. Modern portfolio management will use NFT-type concepts, delivering the tech to a trillion-dollar market.
With NFTs, smart contracts allow for the fractionalization of the NFT asset itself, so in theory, an NFT could represent an entire entity, like a business or property which could then be fractionalized into fungible subparts representing actual equity.
The fungible tokens could be traded freely and all records of this activity would be fully tracked on an immutable blockchain, opening up a whole new spectrum of trading opportunities and ownership accountability.
This means any industry could reap the benefits of adapting to an NFT marketplace, where fractionalized assets represented by NFTs could be swapped and traded between owners.
NFT swapping would create massive investment opportunities as the technology creates completely new methods of collaboration between previously unconnected industries, like music and gaming. This collaboration would in turn open doors for investors, boosting the versatility of their portfolio in ways never before considered possible.
Capitalizing on NFTs comes with important considerations. NFTs are only ever as valuable as their allocated asset, so ensuring adequate research is carried out prior to investing is paramount. In the world of NFT collectibles, it is imperative that investors take the time to understand exactly what they are investing in.
With the NFT industry hitting a market capitalization of $338 million at the end of 2020, these assets are beginning to make their way into the spotlight for regulators globally.
We can look forward to sustainable and supportive regulation which will allow the NFT space to flourish and grow, all the while making investing safer and investors increasingly educated.
This new wave of tokenization will reshape industries and transform them into more accessible and lucrative markets, presenting ample opportunities for savvy investors to ride the wave into the future.
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