NFT art investments? | SOPRG

How much sense does it make an investment in NFTs?

NFT painting Vavříček   NFT painting Vavříček

The explosion in popularity of NFTs (Non-Fungible Tokens) have invited the question of what it means to have ownership in the digital space. Why do people invest the money that they do on something that they can’t physically touch? As you ponder on that question, you could actually ask yourself: well, what is the actual utility of being able to touch an asset? The more people’s lives take place inside digital spaces, the more sense it makes to have some sort of ownership of it. If these assets can increase in value, then you could start thinking of these purchases as investments.

People already buy things to enhance their online presence. Younger generations (those who play the popular videogame called Fortnite) already spend money to get different clothes —referred to as skins— for their avatars. One might say that this is a frivolous way of spending money. But it is also indicative of new ways of showing status through purely digital means, without any sort of reference to the physical world. That principle can be applied to world of physical things, where utility can be seen as secondary. For example, what is the difference between a luxury car and a mid-range car? Status. As you can see, utility for a physical asset can —at times— be socially constructed.

Since its inception, the Internet has been a place where creativity could flourish, as long as it was completely selfless. Creativity for the sake of expressing itself. In this context, piracy was abundant. Think of what Napster did to the music industry, and how those who created content were negatively affected. In this phase, it was the flow of content what was the actual novelty.

Blockchain —the ledger book technology that is able to record transactions and the owners of any digital asset within its ecosystem— has allowed that creators get their dues in online world. NFTs that are sold can have a smart contract attached to it so that it generates a commission for the artist as the artwork is bought and sold in secondary markets. And of course, they will always be recognized as the actual creators of the NFT.

So artists have a fairer situation in the Web3. But how does this make sense from an investment point of view? Well, you would have to look at it like you would look at traditional art-buying. How unique is the NFT? Is the artist relevant? What is the relevance of this particular piece of art? Let’s use the example of one of the first NFT collections: CryptoPunks. 10.000 NFTs were created, with varying attributes that made them more or less scarce. There was one specific artwork from the collection (CryptoPunk #7804) that was deemed as especially rare out of the 10.000 that were made available. This particular piece caught the eye of Dylan Field, the CEO of the design software company, Figma. Deeming this particular NFT as a “Mona Lisa” of blockchain, he decided to pay in January of 2018 the sum of 12 Ether ($15.000) to acquire CryptoPunk #7804. Three years later he sold it for $7.5 million (4.200 Ether).

What was the reason for the price of Cryptopunk #7804? In short, its cultural significance. This NFT collection was one of the first to be created. In this collection, #7804 was deemed to be one of the rarest. The historical significance and the rarity within the collection made it very valuable.

As investors jump into the NFT space, some of the principles that apply for the traditional art space come into play as well. Who is the artist? How has his or hers artwork sold in the past? Who has owned this artist’s  NFTs? Is it an NFT that can be licensed for a fee? Is it possible to charge fees to view it? What kind of privileges can it provide in a given setting?

You should also do your own research (DYOR, in web3 jargon) in terms of the blockchain technology. For example, take into account the volume of projects that take place inside the network that you are looking into. The most popular place to buy NFTs is in Ethereum. It was here where it all started. However, today you might want to take a hard look at the costs that are involved with every transaction. The “gas fees” have become quite large as Ether (the Ethereum cryptocurrency) has increased in valuation. So you could look into Solana, a network that has appeared recently which has become quite popular and has very interesting NFT projects.

As the Non-Fungible Tokens have generated more and more interest, and they have shown to be an investment vehicle, it makes sense that you could have something like an NFT art gallery. That is the case with Somnium Prucha Gallery. Visiting such galleries, via the web or through their metaverse presence —where you could have a fully digital immersive visit— could start to open your eyes as to what kind of things you can expect in this world. Also, take a look at secondary markets such as OpenSea and MagicEden. Have a feel of how it all looks and what is trending.

Most important, is that things can get volatile in this very new landscape. That is something that needs to be understood. So think that your investment is going to be for the long haul. Don’t panic and don’t sell at a loss, and just let the ups and downs occur.

Try to visit every once in a while an NFT art gallery. Understand that more aspects of our lives will become digitalized. Keep a cool head with your investments. And do your own research. That should be enough to start to dip your toes inside the NFT environment.