• Account Access
  • Contact Us

    Pre-Sales Support
    Mutual Funds and ETFs - 800-456-7526
    Monday-Thursday: 8:00 a.m. – 6:00 p.m. ET
    Friday: 8:00 a.m. – 5:00 p.m. ET

    Post-Sales and Website Support
    888-843-7824
    Monday-Friday: 9:00 a.m. - 6:00 p.m. ET

  • Advisor Log In

10 Things You Should Know About NFTs

NFTs, or non-fungible tokens, are digital-only collector items backed by blockchain technology. Here’s what you need to know about these sought-after crypto collectibles.


 

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.

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.

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.

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.

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.

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.

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.

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.

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.

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