Non-fungible tokens, or NFTs, the decade’s hottest emerging asset class, will become a standard feature of investment portfolios within five years, according to Nigel Green, CEO of a leading financial advisory and fintech.
“Over the last year, the NFTs market has exploded, with a digital-only piece of art selling for $69 mln in 2021. Since then, an ever-growing number of celebrities and artists, and fashion, music, tech and sports brands have been creating, buying and selling tokens,” said Green, chief executive of deVere Group.
Last week, Nike filed a lawsuit against a Detroit-based sneaker and apparel exchange accusing it of selling NFTs that infringe on its trademarks.
Similarly, in January, luxury fashion brand Hermès sued a digital artist for “seeking to get rich quick by appropriating the brand… and facilitating the exchange of digital assets known as non-fungible tokens (‘NFTs’),” according to the complaint.
An NFT is a digital asset that can be an image, audio clip or GIF and whose ownership is recorded on a tamper-proof digital ledger known as a blockchain.
Green explained that investors have been piling into NFTs for three main reasons.
Blistering pace of digitalisation
“First, this new digital asset class has value due to the blistering pace of the digitalisation of our world. Millennials and Gen Z especially have digital lives and it’s natural to want to take digital representations of, say, luxury brands, music, sport and art into these worlds – and now they can with NFTs.
“Second, NFTs are making business models, especially in the creative sectors, more profitable and rewarding.
“Artists and musicians for example can provide enhanced virtual experiences for collectors and buyers, they can prove if their works are counterfeited, and they can include criteria to get royalties every time their works are re-sold in the future.
“And third, this asset class can act as a major diversifier in investment portfolios.”
This last reason, says Nigel Green, is arguably the most important for the majority of investors.
“Proper diversification of a portfolio across asset class, sector, region, and currency is the best way an investor can best position themselves to mitigate risks and to seize opportunities when they are presented.
“NFTs have a very low correlation to other assets, such as stocks and bonds, and can, therefore, lower your portfolio’s overall risk and volatility levels.”
He concludes: “I believe 2022 will be the breakout year for NFTs and, due the diversifier factor, within five years the decade’s hottest emerging asset class will become a standard feature of investment portfolios.”