- •The NFT market is poised to become a trillion-dollar sector, according to experts
- •As demand grows, scams also increase, so novice investors need to take a few key steps to avoid losing millions
- •Institutional money has changed the betting game in mid to large cap deals
No one is more excited about non-fungible tokens (NFTs) revolutionizing the art world than crypto expert Scott Morgan, who started out as an artist and creator himself.
“I want enough regulation and enough ethical people to enter [the NFT world] so that the buyer of [an NFT] feels the investment was worth it, the artist feels that the internal energy they released in creating the art was sold to the right person and shared with the world in the right place,” Morgan, who is the founder of Crypto Integrity Tao, told Insider. “As an investment vehicle, I see it expanding three-dimensionally and exponentially.”
Demand for these digital assets shows no signs of abating, with the market capitalization for them valued at $15.6 billion and a trading volume of $2.3 billion, according to CoinMarketCap.
NFT token sales have also reached the $100 million mark with everything from art, video games and digital plots of land being tokenized. They are part of a rapidly growing virtual economy that’s valued at $100 billion, with some experts saying it could grow into a trillion-dollar industry in the years to come.
NFTs are broadly defined as cryptographics on blockchain that possess unique identification codes and metadata that distinguish them from each other, according to Investopedia.
They are unlike cryptocurrencies, which can be traded for the exact same value, similar to cash being physically handed from one individual to another. Non-fungible tokens are intended to give you ownership over the original piece, and you can increase its value based on market demand.
Despite the increasing normalization of digital art transactions through NFTs, the celebrity-fueled mania surrounding the industry has also invited scammers.
“We need to keep out the unethical players and the manipulators and realize how easy it is to insert scams into [the marketplace]” Morgan said. “I always err on the side of the technical – the artists and the buyer and the brand of the NFTs. The brand of NFT is more valuable than the NFT itself.”
Passionate about the long-term growth potential of the industry, he is equally circumspect about how NFTs could become culturally irrelevant if they don’t achieve mainstream appeal, instead existing purely on hype that eventually fizzles out.
“NFTs are going to have sort of a shakedown,” Morgan said, pointing to increased regulatory scrutiny of the industry.
How to spot value
“Culture will eat strategy for breakfast every time,” Morgan said. “You can strategize an NFT, but it’s the culture that will drive its long lasting popularity.”
People “appreciate a moment in time” he added, such as the slam-dunk clip of LeBron James blocking a shot at a Los Angeles Lakers basketball game that sold for $100,000 in January.
Other popular digital tokens that have recently sold include a Twitter post by investor and Dallas Mavericks owner Mark Cuban that went for $952. Actress Lindsay Lohan also succeeded in selling an NFT of her face for over $17,000, which was quickly resold for over three times that value.
“A good NFT will be viewed from one of three perspectives: voyeuristically, vicariously, or viscerally,” said Morgan, “Just like great films are emotionally viewed. And a great one, he quipped, will engage two or all three of these perspectives.
“People that love LeBron James love basketball,” he said. “The person that made money from that is like, ‘wow, this moment means something to me.’”
“NFTs will engage people in a human and also financial way because that is actually what [gives] traditional art its value – to look at it voyeuristically, you just buy it and you want to flip it. You want to make some money.”
He also shared other visceral examples to watch for in the NFT space, including Climate Change accomplishments, the tearing down of the Berlin Wall, and the moment a baby is born.
“When these things can start to be captured in ways, just like the painting called ‘The Scream’ can capture inner anxiety, then you’re going to start to see NFTs that last forever, that are transferable from person to person at a higher value.”
Spotting a ‘fake’ NFT
NFT mania has brought a range of frauds to the forefront.
“An actual ‘fake’ NFT could be one that the seller hasn’t the legal right to sell,” Morgan said. “This would usually occur only in mid-level NFT sales: the lowest level would not be worth the scammer’s time, and the higher level would have experts authenticating the art and owner.”
To avoid becoming the victim of an NFT scam, he stressed that one should fully understand the platform they are selling on, and also not be driven by Twitter or Reddit-fuelled advice, such as the kind that fueled the GameStop phenomenon a few months ago.
“Do your homework, study the trade, and find reliable exchanges or platforms,” he said. “Buying a second-hand NFT is like buying a designer handbag or used iPhone on the Internet. Each example comes with different caveats.”
An auction house like Christie’s, or a tightly governed exchange, such as Celsius Network, are legally accountable platforms, Morgan said.
Beyond fraudulent digital works, institutional investing strategies could also be behind some major losses for NFT novices, as he conceded there is an “incredible amount of market manipulation right now” in the industry.
In auctions of popular NFTs, he said “most of the high bidding was actually generated by two entities, or large financial corporations that could bid against each other.”
“The big and first entities are called ‘Smart Money’,” he added. “They have a game plan. ‘We’re going to drive up the price of this NFT’. And so to do this they start the action with competing large bids.
But then they pause for what they call the rush into the bidding by ‘Dumb Money,’ which is unfortunately the social media people and small investors you’re talking to now. People [with about] $100 or $200 who decide that they’re going to jump in and [think] they’re going to get ahold of an NFT at a low price, or they’re going to own a fraction of an expensive piece of NFT art – and they expect the value to go up. It is these manipulated people that bid it up, which is a ‘GameStopping vehicle’ that lends the appearance of global appreciation for this NFT. The Smart Money adds big lump sums, which leads to an even greater frenzy of social hype.
This is when the Smart Money has a choice. The competing ”insiders” stop buying a Dogecoin or bidding on an NFT (or GameStop.) Deep pocket individuals think they have proof the NFT art is actually worth that much, and they pay this high price. Pretty soon, you start getting people with $65 million sales.”
Now, why would the “insider Smart Money” do this? Morgan explains, “Because they make money in multiple ways. They could be sharing a percentage of the total sale with the artist or auction house. Or, they could be a DeFi or cryptocurrency Exchange that makes money off of surges in fees or Ethereum if that “wraps” the sale, or they could own stock in various crypto companies and need the illusion that this arena will only go up. But there is another nefarious side to this game: Bitcoin price goes up for the most part only when a new type of Exchange, Derivative, Futures manipulation, or asset class appears. And these surrounding ways to invest can stay a few steps ahead of regulators, and a lot of NFT’s will be seen as pump-and-dump schemes, like ICO’s. But, truly valuable NFT’s will survive and develop by the few people that can be both the source and innovator of what NFT’s can be at maximum potential – like Crypto-Integrity-Tao working with Creativity First Films is capable of delivering.” Consulting on this is available by him.