NFT Art: Good Investment or Bubble?
You can think of NFT art as a tokenized digital file. It can be a JPEG, GIF, or MP3 minted as a token on a blockchain protocol. Most popularly, on Ethereum. Anyone can mint and trade these tokens on a marketplace or peer-to-peer. The ability to tokenize artwork into crypto assets is quite fascinating!
But how does that justify the crazy high price tags? And more importantly, can you make money by investing in NFT art? Or is NFT art yet another crypto bubble waiting to burst?
Before answering these questions, we will go through a few things to understand the NFT art market fundamentals.
Take a look at this GIF:
Mesmerizing! Isn’t it? Two figures embracing each other; immersed in a galaxy of emotions; it is mysterious, almost hallucinating; you can lose the sense of reality looking at the intricate flow.
Whether this artwork is NFT or not, what do you think it is worth?
I bet for many it is $0. And for a few, it can be more than $10. The point is that art has always been a niche market. Art prices are not determined by overall demand but buyers’ willingness to pay the highest. The NFT art market is no different. As long as a few people believe that assets have value, the market continues to exist.
Pokémon cards and superhero comic books are a few multi-million dollar proofs of niche markets. Assets traded in these niche markets have no value for most people.
However, I can copy-paste an NFT art a hundred times and all of them will be as original as the one originally minted. But that isn't the case with physical assets like rare Pokémon cards. Which begs the question:
Is NFT Art Worthless?
One way of judging NFT art’s worth is by looking at the market activities like resale volume and prices.
The resale volume data is limited. For now, it looks like NFT art has sizable secondary sales. This may not be a signal for an investment opportunity but enough stop bluntly calling NFT art worthless.
In our opinion, a decentralized platform where digital artists can monetize their hard work deserves to be worth millions of dollars.
Why does NFT Art have High Prices?
Total spending in the NFT art market grows and shrinks with cryptocurrency prices. We think the sudden growth of NFT art prices is a combination of absurd crypto wealth gains, hubris, and greed.
During the NFT ‘gold rush’, most NFT art that got had a price tag of $100 or higher. Only 2.5% of primary sales fetched more than $600. While prices do not look crazy high, more than 70% of NFTs fail to get a second buyer.
NFT art investors appear to get carried away with irrational exuberance—when investor enthusiasm drives asset prices much higher than those assets' fundamentals justify. It would be interesting to see how the NFT market performs in the next bull run.
We would also keep an eye on sudden price surge and drops in NFT markets to see if it can be an indicator of the next cryptocurrency bubble. If there’s a repetitive pattern, it can help decide what to do with cryptocurrencies with more confidence.
Can NFT Art be a Good Investment?
After studying the NFT market during 2020-2021, we would call it a splurge or gamble rather than an investment. The exponential wealth gains in the bull run combined with media references gave a push to irrational buying in the NFT art market. The NFT art does not have better investment opportunities than cryptocurrencies.
You might make money by purchasing any artwork by a great artist or something with popular history. Unless you overpay or buy short-lived trends.
But even if you don’t overpay, you might still shell out a ton of cryptocurrencies to buy an NFT art with good potential. That’s because art has always been a market where the most money is made at the top of the pyramid. Small folks like you and I can find a window of opportunity during a bull run.
The volatile and risky nature of cryptocurrencies is incredibly amplified in the NFT art market. So while there’s upside you must not forget about the downside.
It’s also important to note that NFT doesn't confer copyright on the art itself but records ownership of the token. You own or sell the token but cannot reprint, modify, or license the art. So if you buy an NFT art it’s only for personal use, public display, and sell within the crypto universe.
Will NFT Art Turn into a Bubble?
Yes, absolutely. Everything in the crypto universe turns into a bubble. But the bubbles are good. Bubbles can help NFT rethink the fundamental values, innovate, and get stronger.
Summary
- NFT art market trends similar to the cryptocurrency market
- 2020-2021 NFT art prices shot up due to crypto wealth gains and irrational spending
- For most people, NFT art has less opportunity than cryptocurrencies
- Bubbles are natural in the crypto universe including the NFT art world
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