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  1. Home
  2. / Investing

It Would Be a Mistake to Dismiss the NFT Market Because You Don't Understand It

NFT stands for non-fungible token, and it's one of many tokens now associated with the blockchain.
By TIMOTHY COLLINS
Mar 15, 2021 | 12:29 PM EDT
Stocks quotes in this article: GME

By now, unless you've been living under a rock, you've no doubt heard the initials NFT dropped somewhere. NFT stands for non-fungible token. It's one of many tokens now associated with the blockchain. We've all heard about coins like bitcoin, which in its most basic form is a currency. Utility tokens give the holder a right to a product or a service. Security tokens give the holders a representation in an asset or investment product. NFTs fall into the category of a unique digital asset. Unlike security tokens, they aren't backed by any underlying asset or than the NFT itself, whether it be something akin to a JPEG, GIF, or meme or other digital creation.

Traditional Wall Street is looking at NFTs and wondering who would be willing to buy such a thing. Moreover, who's willing to pay hundreds of thousands, if not millions of dollars, for a digital asset. If we examine NFTs ("Moments") from NBA Top Shots, the cynic will proclaim that they can watch the same highlight on YouTube or ESPN, so why should they pay for it? It's a valid question. But some of these same people grew up collecting baseball cards or football cards. Some of those same people probably tell stories about their mom or dad giving away, or worse, throwing away their card collection now worth ump-teen million dollars.

Those parents view collectible cards the same way then how naysayers view NFTs today. A collectible is abstract in terms of conceptually value. Its "worth" is defined by demand and scarcity. Obviously, several factors drive demand, but scarcity is something we can measure. A lack of scarcity drove the baseball card market into the ground in the early 1990s. A lack of scarcity is having the same impact on the SPAC market today. However, I think the biggest mistake being made by NFT naysayers is the belief that everyone thinks the same as they do.

Look. I get it. In fact, most of the folks I talk to that are close to my age or above are seeing no value in NFTs, but we're thinking like our parents or our grandparents did about baseball cards. Sure, NFTs could turn out to be the next Beanie Babies or they could turn out to be a set of 1952 TOPPS. We won't know until we know, however, the mindset of many NFT buyers harkens to that of the early bitcoin adopters. It's a HODL (hold on for dear life) mentally. And as we've seen from GameStop (GME) and the like, there is also a "prove old school Wall Street wrong" mentally that exists among new traders.

The fact exists that as long as NFT buyers have capital, the market doesn't become ridiculously saturated, and major cryptocurrencies like bitcoin and Ethereum hold their value, the NFT market can persist much longer and stronger than traditionalist believes. I'm not ready to declare this market is here to stay for the better part of the next decade, but I think it would be a mistake to dismiss it because you don't understand it.

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At the time of publication, Timothy Collins was Short GME (bullish) put spreads.

TAGS: Bitcoin | Investing | Markets | Trading | Cryptocurrency

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