NFTs: Bubble or Future?

NFTs have been around for a couple of years, but it wasn’t until 2021 that they took the world by storm. The NFT market exploded after digital artwork Everydays: The First 5,000 Days was sold for a staggering $69.3 million.

The most recent NFT mania is probably Eminem’s purchase of one of the 10,000 Bored Apes avatars. The rapper spent around $450,000 worth of Ether to take ownership of Bored Ape No. 9055 - now a part of his collection of over 160 NFTs.

Many NFTs other than Bored Apes are Ethereum-based tokens, meaning that buyers have to pay in Ether in order to get their hands on these NFTs. Some crypto traders view the NFT boom as an opportunity to take advantage of Ether price movements.

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As digital artists and investors make astronomic amounts of money off NFTs, many begin to question the longevity of the blockchain-based digital assets. Are NFTs just another bubble about to burst, or are they the future of investment?

The Advantages of NFTs

Investors and digital artists can enjoy many benefits when buying, selling and creating NFTs.

NFTs provide excellent opportunities for digital artists to monetise their creations. They can sell their art to specific buyers without the help of galleries and auction houses. The two examples we discussed earlier have demonstrated how NFTs can be a potential goldmine for artists.

Many NFT marketplaces enable artists to earn a percentage of sales whenever their digital art changes hands. This makes NFTs extra lucrative to artists as they usually only make a one-off profit from non-NFT art.

Apart from offering artists an opportunity to make money, NFTs’ blockchain technology can protect art pieces from being copied or stolen. The NFT ecosystem allows digital creators to authenticate the ownership of their art.

The proof of ownership benefits not only artists but also investors. While it is impossible to prove who owns a piece of digital art before the arrival of NFTs, NFTs enable investors and collectors to verify the ownership of their digital assets. This gives NFT owners the prospect of selling their NFTs.

Why Are NFTs a Bubble?

While NFTs are attractive to both artists and collectors, many aspects of the digital tokens suggest that they may just be another financial bubble.

First of all, investments in NFTs are highly speculative. Although the NFT market is growing at an unprecedented rate, the future of NFTs is unknown, especially when they have no intrinsic value. Investors are merely buying NFTs in the hope that they will continue to increase in price.

Since the demand for NFTs, rather than technical and fundamental indicators, largely determines the value of the digital tokens, the NFT market is extremely volatile. Investing in NFTs will bring about tremendous financial risks.

There are also issues related to intellectual property rights. NFT ownership only gives investors the right to use the digital assets. The artists retain intellectual property rights.

The nature of NFT ownership implies that the only way for an investor to profit from an NFT is to sell it to another investor at a higher price. Meanwhile, another NFT pointing to the same digital artwork may be minted and stored on one of the many other blockchains.

NFTs bear all the defining characteristics of a typical financial bubble. Their value depends heavily on investors’ confidence. As celebrities and public figures feed the hype and make monster investments in NFTs, the valuations of the digital tokens have become colossal. The NFT mania seems to be an embodiment of the Greater Fool Theory.

NFTs may be a speculative bubble, but there’s something about them that makes the digital assets stand out from the crowd.

They offer an innovative way for artists to make money. They also allow digital art to move beyond the sphere of social media and impact the financial world like never before.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes