BATANAI MATSIKA
For many years now, investing was driven by ticker symbols and traditional asset classes such as properties and commodities.
However, this is fast-changing as there is now room for passion-aligned investing that extends from digital art to sports clips and cat cartoons.
A new trend that is baffling many is that of the investment in Non Fungible Tokens (NFTs).
NFTs can really be anything digital (such as drawings, music and games) but a lot of the current excitement is around using the technology to sell digital art.
Twitter co-founder and CEO Jack Dorsey put his first tweet up for sale as an NFT. The tweet which read “just setting up my twttr” was sold for over US$2.9m on the “Valuables” platform, which is run by Cent, a blockchain-powered social media network. Dorsey plans to convert the proceeds to bitcoin and donate them to charity. Meanwhile, Tesla and SpaceX CEO Elon Musk withdrew the offer to sell one of his tweets as an NFT even though a bidder had offered more than US$1—m for the digital asset.
Another example involves a bidder at Christie’s auction house (New York) who paid US$69.4m to own an NFT artwork by Mike Winkelmann (Beeple). This was the third biggest sale by a living artist to date.
An NFT is a unit of data on a digital ledger or blockchain that can represent a unique digital item and provide proof of ownership.
NFTs are commonly created by uploading files, such as digital artwork to an auction market. This creates an entry on the blockchain’s digital ledger which includes a reference to the cryptographic hash of the digital file which the NFT represents.
The tokens can then be bought with cryptocurrency and resold. NFTs can also be thought of as “bitcoin for art”. Just as bitcoin created the ability to spend and save a sort of digital money without any centralised authority, so too do NFTs allow for pictures, videos, music, or anything else that can be digitally represented, to be wrapped up in a format that can be traded, stored or authenticated without needing to turn to a gatekeeper.
Once an NFT is created, it can be digitally traced for ever. And unlike a simple image file, for instance, an NFT cannot be duplicated, giving it a similar cachet to an original artwork.
NFTs are not new as they have been around since 2017 when a company called Dapper Labs began selling NFTs in the form of unique digital cat cartoons called CryptoKitties.
Those kitties were the subject of a short-lived craze and some sold for tens of thousands of dollars before the craze quickly fizzled. The market for NFTs has resurfaced in 2021 as trading volumes have been on the increase.
It appears that each day, there is new evidence that people think NFTs are valuable and will pay good money to own one. According to Music Business Worldwide, more than US$25m in music sales via NFTs have occurred in the past month. American band Kings of Leon recently announced their next album will be available as an NFT.
The Shift to Alternative Investments
A global trend that we are witnessing is that investors are looking at new categories of “things” or “valuable objects” that have had striking advances in market value over the years. More and more investors are looking at collectibles as an alternative to traditional investment assets.
Collectibles are items that can be purchased or sold for much more than their original value. Global wealth managers have reported that clients are asking for help with investments in collectibles and non-traditional asset classes such as art.
Unlike shares, bonds and commodities, for instance, each work of art is a unique entity that cannot be replaced by another. The rarity of a work of art is what gives it value.
The boom in NFTs is a good example of how investors are looking to other alternatives to store value and speculate on price trends. We contend that the increased focus on alternative investments amongst retail and institutional investors could potentially transform the investments space.
Overall, one may consider collecting “things” in anticipation of a shift in the universe of assets considered as alternative investments.
This may even entail collecting paintings, old records, cigar rings, marbles, coat hangers or better-still, an electronic version of this article.
Batanai Matsika is the Head of Research at Morgan & Co, and Founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or batanai@morganzim.com / batanai@piggybankadvisor.com
