Investors are having a hard time wrapping their heads around the concept of what nonfungible tokens are and why they have any real intrinsic value. Yet, sales of nonfungible tokens (NFTs) jumped to more than $17 billion in 2021, according to Nonfungible.com, a company that tracks sales of NFTs.
Clearly, many investors either get the concept or are willing to let it ride — hoping to profit from a new sensation, much as occurred with early investors in bitcoin, another seemingly nonsensical asset at the time.
A study developed with BNP Paribas-owned research firm L’Atelier said the $17.6 billion in 2021 NFT sales is a 21,000 percent surge from 2020’s total of $82 million.
NFTs are tradable assets that keep track of who owns a certain digital item. That could be a digital piece of art, a video game avatar, a song, an NBA highlight, etc. They entered mainstream consciousness in a big way in 2021, when Mike Winkelmann, the digital artist known as Beeple, sold an NFT of one of his works of art for $69 million at Christie’s, a deal that positioned him “among the top three most valuable living artists,” according to the auction house.
Celebrity buyers of NFTs include Jimmy Fallon and Snoop Dogg.
Gauthier Zuppinger, co-founder of Nonfungible.com, told CNBC that his company measures only legitimate volumes of NFT trades, ruling out transactions involving bots and wash trading, a practice where investors simultaneously buy and sell an asset to artificially inflate market activity.
A CNBC report on the market explained that proponents believe NFTs are a valuable way of proving ownership of digital content, while critics argue the market has attracted predatory behavior. Participants are often encouraged to speculate on prices, and evidence is emerging of a growing use of NFTs for money laundering and other illegal activities.
More than 2.5 million crypto wallets belonged to people holding or trading NFTs in 2021, according to Nonfungible.com’s research, up from only 89,000 a year earlier. The number of buyers rose to 2.3 million from 75,000.
People also got better at making money from NFTs, according to the report, with investors generating a total of $5.4 billion in profits from sales of NFTs during 2021. Over 470 wallets managed to make profits of more than $1 million.
The most popular category of NFTs was collectibles, which accounted for $8.4 billion worth of sales. Gaming NFTs such as Axie Infinity represented the second-largest category, racking up $5.2 billion in sales. There was also a shift in focus later in the year to the so-called metaverse, with sales of digital land and other projects in the space reaching $514 million.
Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser. Follow him on Twitter (@mikeconsol) and LinkedIn (linkedIn.com/in/mikeconsol) to read his latest postings.