In January 2022, the soccer star Neymar spent the princely sum of R$6.2 million to buy two NFTs (non-fungible tokens) from the Bored Ape Yacht Club (BAYC) collection. Looking back, it was the highlight of this phenomenon that attracted the attention of investors and companies throughout 2021 and into early 2022. Could it be the new Eldorado, the Indian legend of a city made entirely of gold that has attracted countless interested parties over time?
Well, it did not take long for this golden land to show one of its main characteristics: volatility. In June, five months later, the total value of these two assets fell 87%, to be quoted at R$800,000 – a loss of R$5.4 million. It is quite possible that Neymar does not care about this because he understands the real meaning of this proposal. But many investors have been counting their losses in recent weeks.
Not a few have jumped headlong into the market for non-fungible tokens. Here in Brazil, for example, more than 5 million people own at least one NFT, either in electronic games or on other platforms, according to Statista’s Digital Economy Compass 2022 study. We are the second country in absolute numbers, behind only Thailand, but ahead of more consolidated digital markets such as the United States and Canada.
Curiosity, innovation and digitalization are important attraction factors, there is no doubt about it. But what made most of these people interested in this type of token was the high trading volume. The crypto universe as a whole has caught the attention of both experienced and novice investors for the appreciation of key assets. In the case of NFTs, this niche will move an incredible $40 billion over 2021, according to a survey by Chainalysis.
The point is that non-fungible tokens are assets that represent experience, influence, and a sense of belonging. As the name suggests, it represents something unique in its digital and encrypted version. Music, digital arts, images, among other immaterial goods gain space within this model. Blockchain technology protects copyrights with the smart contract and facilitates their distribution among consumers and, especially, collectors.
In other words, the main goal is to promote this experience (or engagement, to use a trendy term in digital transformation) that unites creators and their audiences. Anyone who buys an NFT does so with the intention of having something to be proud of. Those who buy it as a financial asset, with the interest of reselling it at a possible appreciation in value, will probably die with it in hand.
It is just like the art market. The person who buys a Picasso wants to exhibit the painting, enjoy it, and spread the word to his family and friends.
Can you resell it in the future and gain from a possible appreciation? Yes, but that is not the central idea.
The NFT segment is experiencing a speculative bubble like so many others that have occurred over time – and it is about to burst.
Total transactions of these tokens fell 47% in the first quarter of 2022 compared to the previous quarter (October to December 2021), according to data from the NonFungible platform.
Even so, the financial volume through April 2022 was already close to $30 billion, according to Chainalysis – very close to the total traded in the whole of last year. This, however, occurred thanks to trading peaks that moved well above the weekly average. If on February 13, 2022 the transactions were close to US$ 3.9 billion, a month later they had already fallen to US$ 964 million.
The indications are clear, but, as in every bubble, there is a strong tendency to market rather than monetize and raise awareness.
In other words, transacting as much money as possible instead of ensuring the greatest understanding of the topic and promoting truly valuable business for users. In the end, when this boom passes, NFTs will deliver the only thing they can: the experience and the sense of belonging.
There is no problem in seeing NFTs as sources of investment. However, it is crucial to understand which ones actually promise to deliver financial returns and which ones are used for other purposes. There is no shortage of options in a scenario where tokenization is advancing by leaps and bounds, turning physical goods into digital ones. Not least because when the NFT bubble dries up, the difference between digital assets that represent transactions and those that represent only experiences will become clear.