Besides cryptocurrency, another asset class that is gaining prominence and quickly becoming a part of many people’s lexicons is NFTs. From art and music to GIFs and tweets, the so-called digital assets, or NFTs, are being sold for thousands or even millions of dollars.
Are these digital assets really worth millions of dollars? How can one gain exposure to these assets without actually buying these assets?
What are NFTs?
Non-Fungible Tokens, or simply NFTs, are digital assets representing an image, a video, song, or any other type of digital file. NFTs are made on the same technology that cryptocurrency works on.
A data unit is stored on the blockchain, certifying that a particular digital file is unique and therefore not interchangeable. NFTs can be bought and sold on various platforms like OpenSea, SuperRare, Nifty Gateway, Foundation, and NFT Showroom.
Every NFT has a contract attached to it, which includes information, such as, the amount of commission that the seller gets when the NFT is resold, any royalties relating to the licensing of the art, or multiple owners of the said art.
The concept of NFT is relatively new to us, which has also raised the question of fraud and the safety of these digital assets. Even with these problems, it has allowed creative industries to alter how they sell their art, providing them a platform and an accessible medium to market those digital assets.
How is the NFTs industry shaping up?
According to the NFT report published by nonfungible.com, the Non-Fungible Token market capitalization has grown from $40.9 million in 2018 to $338.0 million in 2020. The first quarter saw a significant influx of money into NFTs, with the highest value transaction reaching a whopping $69 million.
The digital artwork titled “Everydays: The First 5000 Days” is the highest-value NFT sale to date, by a crypto-artist Beeple, to be put on auction at Christie’s.
Jack Dorsey, the Twitter (NYSE:TWTR) founder, sold his first tweet as a NFT for $2.9 million. Major brands like Pizza Hut and Taco Bell are also jumping on the NFT train, selling GIFs and image illustrations of their brands.
Data source: NFT report 2020, nonfungible.com
Any asset, digital or physical, derives its value either from its future cash flows (stocks, bonds), its utility (vehicle), or both (property).
On the other side, art, collectibles, music turned into NFTs, derive their value from scarcity, liquidity, and in some cases utility (gaming NFTs).
Increasing scarcity supported by speculation drives the value of any asset, and higher liquidity translates into a higher valuation. The perception of the buyer towards art is also a significant factor affecting the value.
NFTs have allowed the purchasing of authentic creative assets, providing a sense of ownership over unique assets. Many artists are selling their art, but few are—or will be—like Da Vinci or Van Gogh, whose works are sold for millions of dollars.
The risk proposition of NFTs is significant, but so are their potential rewards. For those of us who do not want to invest directly in these assets, we now have alternatives, still providing exposure to the growing market of NFTs.
Following are 3 major players currently in the NFT market that we are watching:
Major players operating in the industry
1. WiseKey International Holding
Wisekey International Holding (NASDAQ:WKEY) is a Switzerland-based global cybersecurity company providing services using AI, Blockchain, and the Internet of Things (IoT). The company recently launched Wise.art, a digital certificate of authenticity.
Wisekey introduced these services to certify and authenticate NFTs digitally. The company is also planning to launch its first-ever NFT from space.
In its recent news release mentioned that “WISeKey will enable the direct connection of satellites to IoT devices for NFT authentication, completing the connection cycle from space to device through secure telecommunication means.”
Aside from its core business, the company is a direct beneficiary of a growing NFT market.
2. Atari
The maker of classic video games like Pong, Centipede, and Asteroids is foraying into the NFT market. Atari (OTC:PONGF) is licensing casino games and has expanded its offering by launching its own cryptocurrency, Atari Coin.
The company announced a strategic partnership with Bondly, a digital asset solution provider, to launch NFTs covering games, music, and other areas.
The company’s goal is to establish a new gaming platform (Atari Metaverse) by combining these NFTs. Atari is leveraging its gaming brand and expertise of Bondly to position itself in the NFT market.
3. Dolphin Entertainment
An entertainment marketing and premium content production company, Dolphin Entertainment Inc (NASDAQ:DLPN) is forming a new division to design, produce and release NFTs for itself and its clients in gaming, television, music, and other industries.
The company owns several PR firms in the movie and music industry.
Dolphin has announced partnerships with the Hall of Fame Resort Entertainment Co (NASDAQ:HOFV) and Elite Holdings LLC to make and promote NFTs associated with H2H legends.
There are many other companies that have seen a massive run-up just based on expectations and rumors of their entering the NFT market. One such company is Takung Art Co Ltd (NYSE:TKAT).
Aside from these small and micro caps, the NFT market is also attracting mainstream companies like Cloudflare (NYSE:NET). The company recently announced that its stream will now support NFTs. The creators will be allowed to embed NFTs into their videos on the Cloudflare stream.
Conclusion
The NFT market has attracted the attention of many investors and influencers. There are also many skeptics highlighting the pitfalls of the growing technology, labeling it as mania. The industry is in a nascent stage and is bound to attract speculators along with genuine investors; this does not mean that NFTs are just a bubble.
There is no denying that this technology has generated value for creative industries like art and music and is changing the perspective of owning different assets.
The application of this technology is expected to grow out of the realm of digital assets. As clear regulations start to take shape, the NFT market might one day be recognized as a conventional asset class, having a place in most portfolios.