The NFT frenzy continues after picking up momentum earlier this year. Although the sector is still in its initial stages, data from NonFungible, a site that tracks NFT sales data, shows that digital collectibles have recorded a sales volume of over $6.2 billion since 2017. On the other hand, digital art has garnered over $1.9 billion.
Explaining why the NFT space mainly comprises collectibles and artworks, Jon McCormack, a computer science professor at Australia-based Monash University, said they naturally fit into the sector. McCormack further noted that there can be only one copy of a specific piece of art. However, digital art is easily copyable. As such, NFTs introduce an extra certificate of authenticity to prevent counterfeiting.
While the space has numerous success stories, experts are still not convinced that collecting NFTs is a good investment. Their main concern is that it may not be the best time for people to enter the market. According to researchers, the NFT market has expanded too quickly due to massive hype and speculation.
Data from DappRadar backs these claims, seeing as NFT trading volume swelled by 38,000% year-to-year to reach $10.7 billion in Q3, 2021.
Collectors should not buy NFTs based on hype
Commenting on this rapid growth, Michael Every, Rabobank’s Asia-Pacific Head of Financial Markets Research, said the technology behind NFTs is useful. However, he believes its current use is just a rolling series of mad tulip mania-style bubbles combined with ugly artwork.
Every added that,
This may well be the apotheosis, the peak in the paradigm of everything bubbles. It worries me intensely even if I fully understand the dynamic that drives younger people in particular.
Evan Cohen, the co-founder of Vincent, said many new participants in the NFT space are looking to make profits. While he acknowledged that people are making a substantial amount of money from trading NFTs, Cohen believes getting into the NFT market with hopes of making profits is risky.
He went on to advise investors, saying,
Don’t buy it because it’s an NFT. Buy it because you like the art or buy it because you think the collectible is cool or the community is cool. You want to participate for the asset, not the underlying technology that powers this.
Volatility is a big issue
Experts also pointed to volatility as an issue that makes them skeptical of whether NFTs are ideal investments. Volatility in NFTs stems from the fact that the pricing of most NFTs is in cryptocurrencies, which are prone to wild price swings.
Explaining why he believes NFTs are not an ideal investment, Every posed the question of who would want their pension tied up in an asset worth $1,000 on Monday, $1,000,000 on Tuesday, and $1,000 on Wednesday. According to him, retiring on such presumed income flow would be challenging because investors can gain everything or lose everything quickly.
