NFT’s - Crypto’s Latest Trend

Recently NFT’s have been creating a lot of hype. The new ‘unique’ digital assets have created a buzz after several have sold with mind-boggling price tags – this morning Jack Dorsey's (Twitter CEO) first tweet sold for US $2.9M. What does that even mean? Let's break it down further…

What is an NFT?

NFT stands for “non-fungible token”. Something fungible is mutually interchangeable: you can walk into a bank and swap five $1 coins for a $5 note. Cash is fungible.

Something unique is, therefore, non-fungible. A rare stamp, classic car, old comic book, trading card, old coin, vinyl record: these are all non-fungible. It can’t be exchanged like-for-like.

This is what NFTs are imitating in digital form. The “non-fungibleness” of an asset. And it sort of does, as blockchain technology is used to verify NFTs - which are essentially just a series of characters - on a shared digital ledger that no one computer can change, meaning that there can’t be a replica of an NFT.

NFTs are part of the Ethereum blockchain so they are individual tokens with extra information stored in them. That extra information is the important part, which allows them to take the form of art, music, video (and so on), in the form of JPG, MP3s, videos, GIFs and more. Because they hold value, they can be bought and sold just like other types of art – and like with physical art, the value is largely set by the market and by demand.

While NFT’s may seem novel to some, they can have more sober and practical uses too. More importantly, they could one day revolutionise the way we create and execute agreements to exchange money, shares, property, or virtually any asset through smart contracts. These digital contracts could one day do away with the need for a third-party arbitrator, such as a court, and instead, use a computer program on blockchain to confirm that the conditions have been met.

So what is really happening here?

NFTs, even Cryptocurrencies are a product of the excess liquidity in the global system, there is simply too much money, sorry, currency floating around, issued by the various central banks. Take the US for example, it has authorised close to $4.4 trillion, roughly about 27% of GDP in Coronavirus stimulus to reflate and boost an economy still experiencing layoffs. That’s a lot of cash being paid to businesses, individuals, Counties and States and that cash eventually will trickle to the stock and bond markets.

That liquidity is also driving a boom in traditional assets and creating a market for alternative assets like NFTs. Cash is becoming a commodity. Interest rates in most of the world including Europe and Japan are negative. America remains the number one destination for Foreign Direct Investments in the world. The Trump Tax cuts allowed record amounts of cash to be injected back to the United States and companies like Apple took advantage of that.

This has led to rising-falling bond prices and fears of inflation in America, thus a lot of investors are now seeking to hedge against a falling US Dollar by diversifying into new asset classes like Cryptocurrencies and NFTs. NFTs will go up in price and make a huge return for the holders because of demand, but they generate nothing in terms of return. NFTs will continue to post a healthy return to the holders if there is a buyer ready to buy from the holder, and currently there are lots of buyers.

If you had the choice to buy and hold an $100 note or a $100 NFT, you’d hold the N100 NFT. Why? because its "scarcity" protects it from inflation. In effect, NFTs are a hedge on inflation.

So, what’s really going on is that the market is running away from cash to hedge against inflation.

This all also reinforced the value proposition of Ethereum as a smart contract application enabler for such projects.

The following crypto's fall under the NFT's category. Feel free to get in contact with us if you wish to buy or sell – please note that we require you to have your wallet set up for these products:

• Theta
• Chiliz
• Enjin Coin
• Decentraland