Where is the 2021 New Years NFT boom heading?

Non-fungible tokens, or NFTs, are the new buzzword in the blockchain world. Relatively unknown until last year, global usage grew sevenfold in 2021, with sales exceeding $ 23 billion, according to Market Tracker DappRadar. Will the enthusiasm continue in 2022, or are we in an asset bubble?

NFTs are digital files that exist on a blockchain. Anything online, from tweets and music videos, gifs and musicals, can be exchanged as NFT. Buying one not only gives you access to the file, but also to bragging property rights, much like buying a painting in real life.

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Celebrities with an interest in NFT

The initial trend was fueled by cryptocurrency traders, but NFTs now present a welcoming market for investors and venture capitalists. The frenzy in India was led by celebrities from Bollywood and cricket. Last month, actor Amitabh Bachchan auctioned NFTs of his signed vintage posters and digital recitation of his father’s collection of poetry, Madhushala. Fashion designer Manish Malhotra, cricketer VVS Laxman and actor Kamal Haasan have also launched digital souvenir NFTs.

While celebrities, charities and artists can use the booming market to raise funds, critics wonder why consumers are paying huge sums for files they can access online for free. They also call for caution, as more and more tech-savvy individuals are joining them. “said Vishal Dhawan, Managing Director of Plan Ahead Wealth Advisors.” Using cryptocurrency to pay [to buy an NFT] is itself risky because cryptos are not yet regulated. “

boom 2021

NFTs have been around since 2014, but recent exponential growth has been fueled by our increasingly digital lives and excess market liquidity during covid-19.

The most popular types of NFTs are collectibles, which are rare assets that give owners some form of social status. The collectibles segment held a 76% market share of sales in the July-September quarter, NFT database Nonfungible.com reported.

Digital art was next, with a 9% share. Artists line up to explore avenues to exhibit their work and earn money. NFTs also provide them with a way to earn royalties whenever their creations change hands. In March, an Indian crypto trader known as Metakovan paid $ 69 million for a digital collage created by an artist called Beeple.

But many in the art world are divided. Some argue that this is a new way to make money, while others argue that NFTs are not a good long term investment because they are not physical copies.

Regulatory node

However, blockchain technology is increasingly looking at regulatory controls. While speaking about a bill to regulate cryptocurrencies last month, Finance Minister Nirmala Sitharaman said controls on NFTs will also be considered. The interest of Indian users in online NFT research has since increased and reached unprecedented heights.

Industry experts largely believe that regulation would only bring clarity to the emerging market by establishing a legal framework for digital assets, including legal status, classifications and taxation.

Due to the lack of regulation, NFT traders may actually want to “let this space grow and be regulated and then start participating rather than joining the current frenzy,” Dhawan said.

Vishakha Singh, vice president of India’s premier NFT marketplace WazirX, said regulation would be good for NFTs because “only real blockchain users will then be on the bandwagon.” It won’t affect sales much, as NFT attendees are innovators and tech savvy people who understand the underlying technology and the challenges associated with it, ”she said.

Growing bubble

But as 2022 approaches, legal uncertainty is not the only challenge. Greater risk for NFTs comes from within, as all young booming markets face: a hole in an asset bubble.

A red flag is that collectors are willing to spend six to eight figure sums on digital works that they can also view for free. A report from Nonfungible.com noted that the market has become more speculative and volatile than ever, and several resales are already being made at a loss, a sign of impending deflation.

High prices could indicate “very large excesses, possibly more than they should be,” Dhawan said, urging buyers to be careful before buying into “a fairly untested asset class.”

One of the main reasons for the craze is the excess money resulting from the pandemic. Dhawan called for caution as central banks are set to start absorbing excess liquidity from 2022. A collapse could hurt vulnerable artists and collectors much more than venture capitalists in this market.

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