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One

What are NFTs? – Time Magazine defines them as “computer files combined with proof of ownership and authenticity.” They can be anything digital: artwork, memes, sports cards, music, etc. For example, Twitter CEO Jack Dorsey sold the first tweet as an NFT for $2.9 million (see FIGURE 1 for more examples). Unlike traditional money or bitcoin which are essentially interchangeable, NFTs are non-fungible, meaning each token has a unique worth and cannot be traded for another. 

Two

Digitizing and monetizing  Artists have been creating easily accessible art online for years, often times with nothing to show for it­—especially in a monetary sense. NFTs allow digital artists the ability to truly own and sell their creations while benefiting financially.

Three Who is buying NFTs? – NFTs aren’t just for high-end collectors. Some tech-savvy buyers are purchasing them as a way to support their favorite artists, athletes, or celebrities. Others are just hopping on a booming trend in the hope that the value will increase.

Four

The pandemic, the Internet, and NFTs – NFTs aren’t a new concept and have been around for years. Their popularity has been boosted by a combination of Bitcoin’s success and people spending more time online due to COVID-19.

Five

How big is this market? – Bigger than you may think. The NFT market grew by 299% in 20201 with sales in the first quarter of 2021 soaring to more than $2 billion2—and it’s shown no signs of slowing. Auction houses are already getting in on the NFT craze and NFT-related stocks have been on the rise.

Six

Is this the future of digital-asset investing? – Some investors see NFTs as a modern approach to investing in art, but how this may pan out remains to be seen. The growing field of digital assets is volatile, but it’s a trend both investors and financial professionals should keep an eye on.

Seven

Risky business – Like all investments, NFTs have risks. They’re unregulated and the mania surrounding them may lead to volatility: buyers may purchase an expensive NFT only to discover later that it’s not worth much. NFTs aren’t readily exchangeable for cash, so liquidity is an issue.

Eight

Environmentally unfriendly – Digital assets might be paperless, but, unfortunately, they’re far from green. The computers, storage, and security required by NFTs (and cryptocurrency in general) use a lot of energy.

Nine

Surprise! They’re not tax-free – Both buying and selling NFTs is a taxable event. Because NFTs are considered collectibles, they’re taxed at the maximum capital-gains rate of 28%. Investors can also expect to be taxed when buying and selling NFTs with cryptocurrency, selling an NFT for another NFT, and when converting cryptocurrency back into US dollars.

Ten

Bubble trouble? – With so many people trying to “get in early” and pushing prices to exorbitant highs, some worry that this market isn’t sustainable.

FIGURE 1

The 10 Most Expensive NFTs Sold

NFT Price
Everydays: The First 5000 Days by Beeple $69.0 million
Cryptopunk #3100 from Larva Labs $7.6 million
Cryptopunk #7804 from Larva Labs $7.6 million
Crossroads by Beeple $6.6 million
First Tweet by Twitter CEO, Jack Dorsey $2.9 million
Cryptopunk #6965 from Larva Labs $1.6 million
Auction Winner Picks Name by SSX3LAU $1.3 million
Not Forgotten, But Gone by WhIsBe $1.0 million
Hairy by Steve Aoki $888 thousand
The Complete MF Collection by Beeple $777 thousand

Source: Business Insider, “11 of the Most Expensive Pieces of Crypto Art Ever Sold, From Beeple to Steve Aoki,” 3/21/21.

Talk to your financial professional to help you find investments that are right for you.

 

1 The New York Times, “What Are NFTs, Anyway? One Just Sold for $69 Million,” 3/20/21

2 CNBC, “NFT Sales Top $2 Billion in First Quarter, With Twice as Many Buyers as Sellers,” 4/13/21

Investing involves risk, including the possible loss of principal.


CCWP104   223083

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