Business
What You Need To Know About Non-Fungible Tokens (NFTs)
July 4, 2021
April 4, 2021
Prices for digital collectibles like art and sports memorabilia are sliding, turning the focus back on whether the nascent market for so-called non-fungible tokens is any more than a fleeting mania.
“It’s not meaningful to characterize a concept as a financial bubble,” said Chris Wilmer, a University of Pittsburgh academic who co-edits a blockchain research journal. “‘NFTs’ aren’t in a bubble any more than ‘cryptocurrency’ is a bubble. There will be manias and irrational exuberance, but cryptocurrency is clearly here to stay with us for the long term and NFTs probably are too.”
Companies are looking to expand applications of the technology. While digital art is “frothy,” music and film may provide viable NFT ventures, said Kathleen Breitman, the co-founder of blockchain platform Tezos. There are even queries emerging about lending against NFTs, she said.
Researchers have also begun looking into whether NFTs have low correlations to other investments, including cryptocurrencies like Bitcoin, hinting at a potential if highly controversial role in portfolio diversification.
At the same time, NFTs are far from risk free, whether due to further price drops, so-called wash trading -- where deals that look genuine are actually done by small groups to create an illusion of high demand -- or plain fraud.
“Although the cryptography that powers NFT art makes it easy to authenticate provenance, it is still easy to be fooled by counterfeits if you are a non-expert user that does not know how to authenticate the artwork securely yourself,” University of Pittsburgh’s Wilmer said. “Expect to see lots of scammers taking advantage of this.”
While trading volumes and average prices are far lower than recent peaks, other data show many NFTs are still sitting on substantial gains for 2021. Over the first quarter, the market value of 38 NFTs tracked by CoinMarketCap surged more than eightfold to $22.5 billion.
Time will tell if the NFT boom deflates, or whether the volatility is part of a new market going through a period of price discovery. On one view, the pandemic and ensuing lockdowns have sped up the latter process.
“The interest in building a persona -- and owning things -- in the digital world has been bubbling up for years,” said Berna Bershay, an analyst at Empire Financial Research. “With so much time spent online in the past year, the desire to own digital assets was probably dragged several years forward by the Covid-19 crisis.”
