All about Investing in NFTs and related risks

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Express News Service

BENGALURU:  Move over Bitcoins and cryptocurrencies -Non-fungible tokens (NFT)) are the new kid on the block creating curiosity and buzz among ‘enterprising’ and savvy investors. Ever since Bollywood and cricket stars started using the term NFT, it has created quite a buzz among the commoners. These stars are launching digital memorabilia through NFT with a view to cash in on growing interest in this digital asset. After Bollywood stars Amitabh Bachchan and Salman Khan, singer Sonu Nigam too recently joined the NFT bandwagon to launch the music industry’s NFT series.

Digital Collectibles
What is an NFT and why is it being used widely now in India?  Like physical money, cryptocurrencies are fungible as they can be traded, but in the case of non-fungible tokens, one token is not equal to the other.  “Non-Fungible Tokens (NFTs) are blockchain-based digital assets (or artifacts) that are unique. No two NFTs are the same and these are what you can consider as a digital collectible. That is, they are not mutually interchangeable and cannot be exchanged with one another. Hence, the name ‘non-fungible’ and this is what makes them different from cryptocurrencies that are fungible,” explains investment advisor and founder of StableInvestor Dev Ashish.

He adds that the NFTs are recorded on a blockchain that serves as a continuous record of ownership. A person buying NFT can sell it to someone else and the blockchain, like a ledger, will always record the creator’s name and those of subsequent owners.

One of the important highlights of the NFTs is that this would open new opportunities for musicians, artists and also investors. Beyond art, even entertainment, gaming, real estate and sports will be huge beneficiaries in the future. All kinds of properties — be it event tickets or tweets — can have their ownership tokenised. Every time the NFT is transacted, artists/owners get royalty each time and also income. 

Tweet worth $2.9 million
In March this year, Twitter CEO Jack Dorsey sold his first-ever tweet as a NFT for $2.9 million. NFL Player Rob Gronkowski has put many numbers of NFTs up for sale and all these features Super Bowl highlights. He had said in an interview that he heard about the digital collectible space during the 2020 NFL season and that this space is “exploding”.

Indian cricket player Dinesh Karthik recently tweeted, “I’m so pumped about the auction for India’s very first sporting NFT.. I’m also giving the top bidder a precious item from my personal collection: the (autographed) jersey I was wearing during the 2018 Nidahas Trophy Match!” 

Last month, artist Eva Beylin posted a meme ‘Love in The Time of Web3’ (a couple admiring the prices of bitcoin and ether) which was reposted by Elon Musk on Twitter. Soon, she listed the same as an NFT on a marketplace that is now priced at $19,800. 

So, if you are holding any NFTs, then you might end up sitting on a sizable fortune, as a recent report pegs the global NFT market at $250 million in 2020 and it will increase with a booming CAGR between 2021 and 2026.

Investment in NFTs
There are many marketplaces that help you invest in NFTs. Since the US market is booming now, there are many major players such as OpenSea and The Sandbox, and in India, there are players like WazirX and CoinSwitch Kuber, but the Indian market is at a very nascent stage.

OpenSea’s trading volume crossed over $200 million in August 2021 compared to under $100,000 in December 2020. OpenSea, which was founded in 2017, holds more than 60 million NFTs.  Its CEO and co-founder Devin Finzer in a blog post says NFTs are emerging as one of the first consumer-oriented killer applications for blockchains. 

“NFTs represent the building blocks for brand new peer to peer economies, where users have greater freedom and ownership over their data, and developers can build powerful, interoperable applications to provide real economic value to users,” he says.

Investment advisor Ashish said there is a growing interest in this use-case of blockchain and the NFT based collectible market will remain a niche use case for NFTs. But that in no way means that there won’t be other use-cases.

“Investors are gradually becoming aware of NFTs but awareness in general is still low. Most people are still unable to wrap their heads around the real concept of blockchain. It’s still early days. Also, like cryptocurrencies, this is an unregulated space. So even  though there is a lot of hype around cryptos and NFTs, it is best to avoid getting sucked into the euphoria. Most investors are better off sticking to established assets like equity, debt, gold, real estate, etc. If one really has to invest in this space, it’s better to be cautious, understand this space first before deciding to invest,” he opines.

Associated risks 
When asked about investment in NFTs, financial advisors opine that there are a lot of risks in the NFT space as anyone can create NFTs.  “There are a lot of phony and non-precious NFTs floating around as precious ones. Like art, even NFTs require a trained eye to decide whether an NFT is really worth investing in or not. There are other frauds as well like Wash trading, where multiple accounts operate in tandem to artificially pump up the price of NFT to make them seem valuable. Then there is a fraud risk.

Hackers can copy an NFT token, and unsuspecting people can end up buying the fake NFT, which practically has no value. People need to be sure how to check the authentication of an NFT token before buying it digitally,” says Dev Ashish. In the cryptocurrency draft bill, the government is planning to define NFTs and also aiming to provide an outline on the same. This move will boost both the players and investors in the space.

Non-fungible tokens creating buzz

Gaming industry is thriving because of NFTs as gaming companies create a game character and are using NFTs to get ownership of the created character.

If fan engagement increases, the NFT collectibles market will thrive. Various reports say that NBA’s Top Shoot blockchain product of LeBron James’ highlight sold for $200,000.

Amitabh Bachchan’s ‘Madhushala’ NFT collection contains autographed posters and collectibles. It received the highest bidding at $756,000 during the auction. He rolled out his NFT collection in August this year on platform

Digital entertainment and technology company JetSynthesys has partnered with Sonu Nigam to launch the NFT series. The company is backed by Sachin Tendulkar who has invested $2 million.

Brandessence Market research noted 328% growth in NFT transactions during the first half of 2021. According to DappRadar, a NFT and DeFi dapp store, NFT sales volume surged to $10.7 bn in the third quarter of 2021, up over eightfold from previous quarter.