NFTs is the new buzz word in the crypto town. The retail side appears to be fascinated by this idea and are throwing money at it. In the last few months, people that had an early start have made sizable returns and the sector as a whole is expanding exponentially.
While it is true that digital art is going through a transformational phase, do not get involved especially if you don’t know all the intricacies involved. Remember, when the trend inevitably ends, you certainly do not want to be the one who is holding the bag. There are a lot of factors present with these non-fungible tokens and just like everything, it has both merits and demerits.
Just because a few art pieces gained tremendous gain, do not skip any step when it comes to understanding the concepts or else the consequences might be severe. To know everything about this form of digital art, continue reading.
What are NFTs?
Non Fungible Tokens in simple words are collectables that are scarce because of the non-fungibility aspect and the main essence is the uniqueness of the underlying thing. Thanks to blockchain technology anything from a painting to sports memorabilia can be turned into an NFT and as the tokens are impossible to replicate, the scarcity factor will be ever present.
If you are someone that truly understands how blockchain works, then you won’t have any problem wrapping your head around this idea. Recently, this niche picked up space and as many influencers started talking about it on social media platforms, the entire thing blew out of proportion. However, if you take time to educate yourself, then the trend might be a thing that can help you make a significant amount of money.
What factors are driving up the price of NFTs?
There are a lot of theories around this concept. The truth is, no one knows why the prices are skyrocketing each day, but it does appear to be in a bubble. Greater fool theory is certainly unfolding and most likely, the retail investors will be holding the bag when the entire thing heads for a deep correction.
NFTs are unique, but there are a lot of questionable things going on and the entire landscape has benefited a lot due to loose regulation. Nonetheless, at the time of making this post, the trend is indeed strong and even celebrities are getting in on it.
Scarcity created by tokens is justifiable, but the hype surrounding it is notorious and you should be careful. At the end of the day, you should not get involved with it just to make a quick buck.
Downsides Present
Whenever a new disruptive trend arises, it will have its fair share of flaws. After all, nothing in the world of finance is a sure thing, right? With NFTs, one of the major concerns is the way the price of the underlying thing is decided.
Of course, it is a free market, but there is a dark side to it and people with the right information can make the most out of the situation. If you are a collector or if you want to buy the token just for the joy of owning it in perpetuity, then you do not have much to worry about.
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However, if you want to flip the tokens you own, then know that it is a dangerous game and the tide does change too quickly. Unlike traditional instruments, there is no easily accessible insurance you can buy for this niche and the volatility is outright crazy as well.
The room for profit might seem huge, but in reality, no one knows where the price is headed and that means, this game is only for people that can afford to lose a significant portion of their capital.
Public Reaction
As this sector looked promising for many, the public for the most part was enticed by it. Moreover, many art pieces went up in value in a remarkable period of time and the exploding value definitely made a lot of heads turn.
Ever since the influencers and celebrities started talking about it on social media platforms, the retail side is getting involved in a grand manner. Without any doubts, most investors are earning good returns, but just because the bulls are present, do not be overconfident.
Keep in mind that a sudden crash can occur and that is exactly why you should not go all-in for any reason. It is impossible to say when the bears might return, but to be on the safer side, we do have to follow certain rules. All in all, at the moment, the public is happy to take part in this revolution.
Is there a true unique edge?
NFTs are simple in theory, but the way they are priced is complicated. There are a lot of things that have to be factored in and unless the underlying piece is truly unique, it’s value is going to be volatile. Things like Crypto Punks and Ape’s have a subjective value tied to it and the landscape can change rapidly.
After analyzing this sector, we can confidently say that there is no magic formula when it comes to trading or flipping the tokens. The free market structure is present and unless you are in it for the long term, chances of making significant returns is less.
Digitization is inevitable and exciting too. However, do not try to monetise everything because it might not go as planned every single time.
Bottom Line
Blockchain technology is here to stay and as time goes, more things will be digitized. Early adopters will be the ones that will make the most amount of money.
While there is no sure thing, being educated certainly pays and being patient enhances the final figure. So, get started with the trend conservatively and do not test the waters with both your feet.
NFTs explained Article is intended for educational purposes only. Kindly do your own research before buying digital art.
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