NFTs are attracting huge prices at auction, and lots of media attention. But will they be good stores of value long term? Maybe. Find out more below.
Non Fungible Tokens (NTFs) have invoked interest from many people and the media recently. This is because of the huge amounts of money that have poured into high profile NFT auctions. The first tweet ever was recently sold for a whopping $2.9 million. Prior to that, Beeple sold the highest grossing NFT ever at $69.4 million. The question that’s arising for those who have invested in NFTs, or those who are thinking about it, is – will there be returns to be had on reselling NFTs? Will they be good investments, or a flash in the pan that will lose value over time?
An NFT, is simply a collectible digital asset that has value due to its rarity. It is mostly perceived as a value-holding investment. But will it continue to be a good store of value in the long-term? Let’s find out.
There are several different factors that make NFTs good stores of value. These are as follows:
• Value Creation for Tokenized Asset: Factually, NTFs create a medium in which enabled physical objects to be tokenized. Given the fact that such physical artifacts are already rare, they are meant to grow in value (due to demand and supply) over the course of time. NFTs allow a collective to own shares of physical assets in a new way. For example, an investment club could co-own rare works of art through using a NFTs. Owning a part of the particular physical instrument tends to be a source of pride and prestige for the owner. Since these physical assets already have intrinsic value, increasing the number of investors who could have access to the asset will increase demand while leaving the supply the same, causing the price to rise.
• Scarcity and Limited Supply: NFTs are mostly released as one-off instruments, though some are limited editions. Consequently, they hold value because their supply is strictly limited. This element makes it very rare, and hence, this tends to be a store of long term value for the owners. The rarity of the particular asset is encoded in the block chain using smart contracts. Therefore, the buyer has proper clarity regarding how many assets are going to be minted, and an easy ability to resell the asset if they choose.
• Higher Liquidity for investors: The greatest advantage of tokenized assets is the fact that it provides the investors with opportunities for greater liquidity than a traditional art investment would have. This is because it enables the owner of the particular NFT to rent out the stated virtual asset, thereby generating an income in the form of rent for it. It is also easily tradable because they are not subject to the damage or strict controls that traditional art is.
• Potential for Growth and Development: As mentioned earlier, it can be seen that NFTs hold value in terms of growth and development on numerous fronts. The combination with the land sector, in particular, tends to be helpful because of the fact that land has continued to appreciate over time. Therefore, the avenues in this regard are numerous, and it is likely to continue to grow with the passage of time.
Therefore, it can be seen that the current state of the NFTs does imply positive stores of value in the longer run. The fact that it includes substantial opportunities for growth and development gives investors much needed security from the perspective of returns, as well as on grounds of liquidation. Regardless of the fact that there have been rumors and speculations regarding a potential burst in value of NFTs, yet nothing leading us to think that there will be a bursting of the current NFT bubble as of yet. The best course of action for investors is to diversify their portfolios, which is a relatively easier feat to achieve given the variety of options available in the market today. However, ruling out NFTs altogether would be unfair and unwise, because they can safely be classified as a good store for long-term value.