In the past few years, non-fungible tokens (NFTs) experienced a spectacular rise in awareness and trading as digital art has sparked global intrigue and introduced the asset class to the mainstream. This technology that leverages the blockchain presents a decentralized approach to ownership and unlocks novel possibilities for commercializing digital content and physical assets. Tokenizing tangible and intangible assets makes buying, selling and trading them more efficient and presents potentially vast and uncapped opportunities for everyone from individuals to professional investors. As the influx of large corporations, high-profile endorsements, and forward-thinking investors continues, mainstream and institutional adoption will likely follow.
Think of the last time you wrapped a present. While the cost of the wrapping paper was negligible, the gift inside was far more valuable. Now, consider NFTs similarly—more than a passing trend characterized by digital art and collectibles, NFTs are digital “wrappers” that can encompass assets that have not historically been represented in such a manner. In this case, the “gift” is a valuable asset “wrapped” in an NFT—a digital certificate of ownership for any asset that can be stored and transferred on a blockchain. Like the wrapping paper, the NFT itself is only as valuable as the asset it encases. An NFT functions like an ETF—as a structural wrapper that is malleable, adaptable and unique to the underlying asset.
NFTs present a new frontier of promising investment opportunities for investors, asset managers and creators. A Finder’s panel of fintech experts predicted that the NFT market cap will reach $26 billion by the end of 2022 and will balloon to $146 billion by 2025. Considering NFTs can be deployed to tokenize any asset, they could be a boon to the industry. Further, the rapidly emerging startups will require guidance as they navigate the nascent ecosystem; agile asset managers will have a hand in nurturing the next generation of leaders.
Though the current narrative around NFTs often focuses squarely on art and collectibles, legacy institutions like Christie’s and Sotheby’s entering the space at speed energized the market, gave credence to the asset class, and inspired confidence in retail and institutional investors that were watching with intrigue from the sidelines. However, beyond a buzzword or trend, there is an expansive ecosystem of non-fungible assets that carry value. Further, NFTs are a malleable technology with diverse applications across industries. Though the full scope of the utility of tokenization is in its infancy, the adoption of NFTs will likely impact all aspects of our economy.
Ultimately, NFTs can represent any asset, any right, any record; and this is a value proposition that extends far beyond the JPEGs that people associate with the acronym. As is often the case with historically significant innovations, the realization of potential is slowly being uncovered while the rising rate of innovation and adoption signals a profound cultural and financial shift. The ubiquity of NFTs is likely to broaden as innovators continue to uncover ground-breaking applications, use cases and value propositions. The investment landscape is extensive and ever-growing, as NFTs spark the creation and improvement of businesses. While NFTs may not currently be an appropriate investment consideration for everyone, they are certainly a technological development of which all investors and advisors should be aware.
Here are a few examples to ponder: