While the technical concept of NFTs has been around for a while, it was in the year 2021 that the trend suddenly caught up. I read somewhere that total NFT sales (tracked officially) shot up to almost $25-30 Billion last year from the previous year’s $100 million. That is close to 25-30x growth in a year in the value of NFT sales!
For reasons known to people themselves, NFTs have definitely drawn the attention of celebrities and big companies.
Bollywood celebrities are gradually but surely, getting onto the NFT bandwagon after their earlier interests in cryptocurrency investing. At times on their own, and at other times in collaboration with brands. Companies too are experimenting with various avatars of NFTs. But these are more as marketing tools rather than anything else. The idea is that as more and more people spend more and more time in the virtual world, it would be good to have a presence built there beforehand. That is, many companies are now using NFTs to boost their image in the metaverse.
Before we discuss further, a brief refresher about what NFTs are would be useful for everyone.
NFTs are digital collectables. Owning an NFT is just like owning a one-of-a-kind piece of collectable. The only difference is that it is in digital form and not a physical one. Being a cryptographic token, NFT represents something unique that tends to get its value because of its uniqueness. Or in digital terms, it gets its value from digital scarcity. Like regular collectables, these too can be bought and sold. But each NFT is distinguished by a unique code that is recorded on its blockchain. This code can be used to clearly establish and track the real owner of the NFT.
Now after a solid 2021 when NFTs became mainstream, there has been a sudden drop in their popularity.
For example, Twitter founder Jack Dorsey’s first tweet was sold as NFT for $2.9 million last year. But now when the same NFT is put up for auction again, it didn’t receive bids above $14,000. Imagine – a potential drop in value from $2.9 million to under $14,000.
To not mince words here, the market for NFTs has taken a beating. I read it somewhere that NFT sales have fallen by more than 80% in a matter of just the last 6-8 months.
But what is the future of NFTs?
Are they here to stay? Or those equating it with Tulipmania are correct?
There are people on both sides of this debate. Some are screaming about it being a huge (or rather one of the biggest) bubble. While others claim NFTs are creating new opportunities. Experts suggest that use cases might differ but the technology behind the NFTs, i.e. the smart contracts on blockchain technology, does hold a lot of value and potential for the future.
Should you invest in NFTs or not?
I wrote about whether investing in NFTs is a good idea or not some time back. Since then, the taxation of digital assets in India has gone through some overhaul. Now, gains from the sale of digital assets will be taxed at a flat rate of 30%.
So while earlier many super-rich of the country were gradually looking at including digital assets (like NFTs and cryptocurrencies) in their portfolio, the high taxation has left has put a speed breaker of sorts in the adoption.
Another issue is that NFTs aren’t exactly like stocks or bonds that can be valued based on intrinsic valuation models. As of now, a successful and profitable NFT investment is more about having NFT linked to a strong band for which the next buyer will be willing to pay more. It’s not like stocks or even cryptocurrency trading where one can trade https://nftsdaily.io/ More so because now the 1% TDS rule on all sale-purchase transactions of digital assets including NFTs is applicable. Regular trading will result in a quick locking up of a major chunk of the capital as explained in this article on Bitcoin day trading article.
Also, NFTs are yet to find a good use-case fit for the Indian markets. Most Indians are not interested in art appreciation per se and hence, apart from the small Indian collector community, NFTs are finding it a bit tough to gain mass adoption.
So in my view, if you are a small investor, don’t get too serious about this for now. Buying it for fun for a small amount is still okay to experiment with. But nothing more than that. NFTs aren’t quite ready for primetime investing like other established assets.
Investors are gradually becoming aware of NFTs but awareness, in general, is still extremely low, if not negligible. 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.
If you really want to try things out, first use a few thousand Rupees to explore this idea. And that too only after you have covered your basics like having a life and health insurance, emergency fund, financial goal planning for all your important financial goals, investments in provident funds, equity funds, debt funds, etc.