If you’re an investor, you’ve probably wondered: Are NFTs worth investing in 2023 and beyond? These digital coins have exploded in popularity during the crypto-pandemic, and many investors wonder: How do I buy them? The NFT market has become a hotbed of art and speculators. Buyers have paid millions for digital art pieces, including CryptoPunk character portraits. Not only do they hold great promise for artists, but they’ve also been shown to have used in the business world.
NFT Trading Volume Grew 38,000%
As the emergence of decentralized applications and blockchain technology continues to gain momentum, the demand for NFTs is also growing. NFTs are digital assets designed to prove ownership of digital content linked to an account. As of mid-July, there were over 30 blockchains that were tracked by DappRadar, a Lithuania-based blockchain analytics firm. In the first quarter of 2021, NFT trading volume was just over $1.2 billion. By the third quarter, that figure climbed to $10.7 billion; in the fourth quarter, it hit $11.6 billion.
The popularity of NFTs in the gaming sector has also spurred growth in this sector. The play-to-earn sector, led by Axie Infinity, generated over $776 million in Q3.
As the popularity of NFTs grows, it is becoming a social status symbol in the crypto community. A notable collector of Doge NFTs sold his digital image for $4 million, while a digital image of his first tweet went for nearly $2 million. NFTs are also increasingly used for decentralized finance applications. 37% of the NFT market usage is related to these decentralized finance applications. The hype for GameFi led to over $4 billion in venture capital investment, and Facebook’s rebranding as Meta boosted the value of NFT projects.
The rapid growth of the NFT industry poses novel challenges for tax policy officials. As NFTs create value, they can act as both a record of transactions and a service license. As a result, people who create, sell, and invest in NFTs want to know that what they are doing is legal. To regulate this new industry, countries must consider taxing it.
NFTs Are Risky
While the price of Bitcoin may be incredibly volatile, NFTs can have the same volatility as other digital assets. The same applies to NFTs, which are not native to blockchains. Instead, they rely on smart contracts to enable and verify transactions. This means they are similar to arcade tokens in that they can only be traded for assets – they cannot be used to purchase gas. Some of the most popular NFTs are featured on Ethereum’s blockchain, which is notorious for high gas fees and slow transaction speeds due to network usage.
However, there are also several reasons why NFTs may be risky to invest in. While the barriers to entry are low, there is the risk that too many NFT marketplaces will launch and push their fee take rates even higher. Furthermore, these decentralized NFT marketplaces are running on smart contracts, which may not be audited. Additionally, they are susceptible to hacking, which is a risk in and of itself. Moreover, there are allegations of insider trading on some NFT platforms.
However, there are many advantages to NFTs. First, they allow individuals to buy digital assets and content creators to display their skills digitally. They allow new actors to create new market structures and value exchanges while appealing to buyers’ interests. Additionally, NFTs are a risky investment, according to the Preqin report.
However, the prospects for NFTs shortly may not be as promising as they were a year ago. The Ethereum protocol is still developing, and many projects are in the works. Despite the lack of clarity about the future of NFTs, analysts remain optimistic. They estimate that Ethereum will hit $7K by 2022 and $20K by 2026. That is a 380% return in five years.
They’re Speculative
While the value of a collectible today is still relatively high, NFTs are speculative future investments. They are essentially copies of an item that has been made available digitally. Anyone can make a digital copy, but the original exists only once. The Verge explains how NFTs work. One example of an NFT is an art print that anyone can buy. Many products feature a print of famous artwork, such as Vincent van Gogh’s Starry Night.
The concept behind NFTs is simple: digital data is becoming securitized. The goal is to turn these digital assets into speculative financial instruments. The internet has revolutionized the way we live and work. Companies are already monetizing attention with the help of algorithms. And in 2023, they may become the next bubble of digital currency. So, how do you get involved? Read on!
While the value of NFTs is still uncertain, collectors are already looking for them. These collectibles are often sold for millions of dollars. You can purchase them on non-fungible token marketplaces. These marketplaces run auctions or set a fixed price for each token. Since NFTs are so new, tax regulations are nebulous. There is no specific guidance from the Internal Revenue Service (IRS) on the taxation of NFTs.
The art market is only the first sector to adopt this technology. In the future, NFTs may become the underlying asset in a virtual economy. The Steinwold fund invests in video game assets, collectible art, and virtual land and believes that NFTs will become a trillion-dollar market. However, it isn’t clear if the art market will be a significant driver of the financial trade in NFTs.
They’re Collectible
In July, artist Damien Hirst released a project called “The Currency,” selling ten thousand NFTs for $2,000 each. Hirst’s project requires the collector to keep the peace for two months, forcing them to gamble on its future value. Its future value could be worth as much as $500,000 by 2023, which is precisely the kind of gamble art investors want to avoid.
The problem with NFTs is that they do not generate a cash flow, so their prices primarily depend on the value of the assets they enclose. Once they’re sold, the collector makes their money when someone else pays more. Smith warns that this trend could lead to “treacherous times” for collectors. However, he doesn’t see this slowdown as the end of the road.
The following significant change in gaming will probably be the NFT’s adoption in the video game industry. Gamers increasingly find intrinsic value in their digital identities, spending hundreds or thousands of dollars to buy virtual items that improve their avatars or unlock new stories or worlds. NFTs are a valuable form of currency in the digital world, so it’s only natural that gamers would see NFTs as collectibles.
The technology behind NFTs is remarkably similar to that used for cryptocurrencies. They use the blockchain to record ownership transfers. As such, a transfer of ownership in an NFT is impossible to fake. The NFT is not royalty but a digital sports card or piece of digital art. For example, an album NFT is a digital rights asset, giving a user the right to use the album asset in a certain way.
Read More: Tokens Are a Good Way to Invest in Cryptocurrencies
Crypto Asset
Cryptocurrencies were used to facilitate millions of dollars of ransomware payments in 2021. Another question is whether NFTs will see a similar transformation in the gaming industry. It will be necessary for investors to understand the blockchain on which NFTs are minted. This knowledge can help them determine whether or not NFTs are a crypto asset worth investing in 2023.
The Doodles collection is one example. This consists of over 10,000 pieces of art from well-known digital artists. Unlike the CryptoKitties, these works of art are not regulated. These artists have created a unique blend of aesthetics and traits. Other examples of NFTs include skeletons, spacemen, and aliens. Some are rarer than others.
While the NFT market is relatively new, the early bullish investors rushed in and skyrocketed the value of some of the NFTs. Because of their collectible value, NFTs are highly speculative. Many NFTs have incredibly high prices based on their format and who owns them. Then again, it’s essential to understand that NFTs are not worth investing in unless they are destined to become mainstream, which is likely to happen.
The popularity of Axie Infinity, a blockchain-based NFT game, is another reason to invest in NFTs. The games are top-rated, making them prime for value increases. Additionally, NFTs from well-known creators like CryptoPunks tend to do better than other NFTs. That is why they are a good choice for 2023.
