Fintech can create new investment opportunities. The rise of NFTs (non-fungible tokens) has fueled the development of the virtual art market and opened up a new way of art investing in recent years.
While art goes beyond the physical limits, NFTs have solved the long-standing problem of proof of ownership and trading. The virtual art market has witnessed some record sales over the years, such as a digital work titled Everydays: The First 5,000 Days that fetched US$69.3 million in March 2021 and became the talk of the town, attracting the public to look into the NFT market.
However, investing in art requires specialised knowledge and a discerning eye. It is always difficult to determine the value of a piece of art, and the prices may fluctuate significantly with evolving market trends. Some collectors admit that it is easy to know the price of an artwork, but it is difficult to tell its value. And this applies to virtual art, too.
While thousands of artworks are traded every day, only multi-million-dollar sales hit the headlines, leading to a perception that art pieces are outrageously expensive. However, according to the study Mapping the NFT revolution: Market trends, trade networks, and visual features published on Nature Portfolio in October 2021, the top 1% of NFTs categorised as art (equivalent to 8,593 pieces) recorded an average sale price of US$6,293 or above and only four pieces were sold for over US$1 million.
Investors should beware of counterfeits or scams when investing in physical or virtual art. Many NFT marketplaces and digital wallets lack basic security measures to protect consumers, and fake NFTs, scams and thefts are common in the market. For example, scammers may impersonate a certain artist to sell his or her NFTs, or create a fake platform to unlawfully collect the users’ credit-card or financial information. Copyright infringements are also common in the NFT market, and investors may end up with a stolen or unauthorised copy of virtual artwork.
The regulation of NFTs
There is an increasing concern over the regulation of NFTs. In fact, most of the NFTs are digital collectibles, representing the unique versions of digital images, artwork, music, or videos. Activities related to NFTs are not regulated by the Securities and Futures Commission unless they cross the line between collectibles and financial assets and share similar structures with securities or Collective Investment Schemes.
While many people see NFT trading as a way to invest in art or collectibles, they should conduct in-depth research before making a decision, and should avoid speculative trading.