Have NFTs made a comeback?

After remaining in the bear trend for six months, the NFT market is slowly recovering with trading volume increasing in the following two months. In January 2023, total NFT trading volume was $946 million, which was up 38% from the previous month. Sales of NFTs also increased by 42% from last month, to 9.2 million. In October, the trading volume of NFTs fell to a low of $662 million, but in November the market halted its downward trend and remained at $662 million. In December, however, it recovered and rose slightly to 683 million dollars.

NFT blockchain Ethereum was the winner with a trading volume of $659 million. Sales figures also increased by 7.37% from last month. Solana was second, with a 23.7% increase in trading volume, reaching $86 million, but its sales figure was down 5.79%. The third slot went to Polygon, which recorded a whopping 124% increase in NFT trading volume, reaching $46 million. The number of sales of Polygon NFTs increased by 157.39% from last month, reaching 4.5 million.

Why the volumes are up

According to experts who track this class, there are a number of factors responsible for the rise in the NFT market. Says Kameshwaran Elangovan, Co-Founder and COO, GuardianLink. “The first is that people have started to understand the dividing line between NFTs and cryptocurrencies. The second is that the NFT market has matured a lot, creating more metaverses of stories and NFTs with utility rather than limiting themselves to simple images .”

Says Vikram R Singh, Founder & CEO, Antier, “The increase in trading volume for NFTs in the last two months can be attributed to the increased demand for digital assets, such as art, music and videos. This has been in response to the digital transformation that has taken place in the entertainment industry, as well as the growing popularity of blockchain technology.”

What are NFTs

NFTs are short for “non-fungible token” and are used to indicate ownership or another right to use an asset – usually a digital asset such as a work of art, musical composition or an object in a video game. These tokens are built and managed on a blockchain, the same digital ledger technology system used by Bitcoin and other types of cryptocurrencies. They are digital proof of ownership originally designed for digital assets and art. However, NFTs can also be used to guarantee ownership of unique physical assets for everything from real estate to collectibles to physical works of art. They are bought and sold on marketplaces such as OpenSea, Rarible, SuperRare and Foundation. To bid on these digital asset tokens, you need to open and fund a crypto wallet on an NFT marketplace.

Should you invest?

The primary objective of investing in an asset is to generate profit by selling it after its value increases. NFTs are speculative and one cannot expect a fixed return on them unlike an asset class like fixed deposit. The return depends on various factors, including the uniqueness of the asset, the popularity of the creators, ownership history and the real connection to an asset. But at the end of the day, the decisions that buyers make are mostly based on emotion and buzz around an NFT. In the past, some NFTs achieved really good prices in a short period of time, while some did poorly after initially doing well. Take for example Amitabh Bachchan’s ‘Madhushala’ collection, autographed posters and collectibles received bids close to $1 million at the end of the auction. Similarly, Twitter CEO Jack Dorsey’s first tweet was sold as an NFT for $22.9 million in March 2021. However, the same tweet, a year later, failed to fetch bids above $280.

Says Elangovan, “There are two sides to an NFT. One is the unique value of it and the other is the monetary value of it. Even though the price of the first tweet NFT has fallen, there is still no denying that the value remains. If any management decides to delete all tweets that have existed, this will increase in value,” says Elangovan. “Whether or not NFTs are a good investment option depends on the individual’s risk tolerance, but they certainly have the potential to be lucrative investments,” says Singh.

However, compared to other asset classes, NFTs are lagging behind , especially on the tax front. In the Union Budget 2022, the Finance Minister proposed 30% tax on the gains on digital assets such as NFTs. No other expenses or deductions are allowed either. This is twice what you pay when you make short-term gains on shares (15%) and three times what you earn on a fixed deposit. What further differentiates NFTs from other asset classes is that they operate in a non-regulatory space. They are not backed by the government, which makes them risky. However, unregulated nature also gives them some advantages according to experts. “The benefits are that the space can be explored with a greater degree of freedom, and the market remains fair by ensuring that the right projects are rewarded,” says Elangovan.

“Crypto operated in an unregulated space until a few years ago, when the first licenses started to appear, and since then several countries are still working on it to make it a safe and regulated space. The same will happen with NFT- is in the near future. future,” says Kumar Gaurav, Founder and CEO, Cashaa.

Right assignment

So if you decide to buy NFTs for investment, how much should you allocate in your portfolio? The expert suggests that the decision should be based on your risk tolerance, as it is not a currency, and in most cases has no intrinsic value. However, they are a great way to show proof of ownership and can be a great way to diversify your portfolio and gain exposure to the burgeoning NFT market.

“The amount one should allocate to NFTs depends on the individual investor’s risk tolerance. What today may be worth millions, tomorrow may be worth nothing. The same can happen vice versa,” adds Kumar