Is NFT Art A Good Investment?

Is NFT Art A Good Investment?

Is NFT art a good investment? To help you find the answer to such an open question, our expert art advisors have defined what NFT art is, how investment in this new market works, the pros and cons of investing in NFT art and what the future holds for NFTs.


What Is NFT Art?

Non-fungible token (NFT) based art comes in many forms; it can be jpegs of traditional fine art, photographs, videos, memes, animated gifs, digital art, musical compositions, writing, video game assets, and fashion items. In short, NFT-based art can be anything that is considered a digital artwork in its own right, even if it’s a physical artwork that has been converted into a digital format.

NFTs are used to demonstrate ownership of digital assets, they’re validated and stored on the blockchain. NFTs are typically held on the Ethereum blockchain, which holds over 95% of all NFTs, although other blockchains support NFTs as well.

Both the ownership and the provenance of an NFT are guaranteed and public to everyone due to Ethereum’s smart-contract technology. 

While it’s true that anyone can copy and paste or save a jpeg they find on the internet, only the non-fungible token which is held on the Ethereum network and recorded on the blockchain proves its authenticity and ownership. 

The value of a fine art NFT lies in the asset of the token and the associated blockchain technology that establishes the authentic ownership, not merely the physical image itself.

For instance, saving an image of an artwork from Picasso doesn’t make you the owner of a Picasso.

Blockchain technology enables anyone to verify the ownership of digital assets and this is an important facet because not many people would want to invest in something that they’re unable to prove ownership of.


How Does NFT Art Investment Work?

An NFT is created when a person takes a creative work in the form of a digital file and adds it to the blockchain through a process called ‘minting’. Once a digital file is minted, it becomes established on the blockchain, and the non-fungible token is what represents the ownership.

Once an NFT is minted, it can then be sold on one of the many online marketplaces. For investors and collectors, once you purchase an NFT you then have exclusive guaranteed ownership of the asset.

When you have decided on the best time to make a return on your art, or once your specialist broker has recommended when to trade in on your investment, your NFT can then enter the secondary market, meaning the original investor of the NFT artwork can transfer ownership to the next collector, working in a similar manner to collecting limited edition prints.

Similarly to traditional fine art investment and collecting, NFT art is fairly speculative, with a variety of subjective and intangible factors determining the value of an artwork. 

Key features to consider when looking to invest are much the same as with traditional fine art investment; the artist’s reputation, the quality of the artwork, scarcity, uniqueness, the demand for their art, and how much other collectors and investors are willing to pay for the artist’s work.

One of the major differences between NFT art and traditional fine art is that NFT art is always publicly available; as result, the value of these artworks can be determined with greater frequency as opposed to traditional artworks that be kept in a private collection or hidden in storage for many years.


The Pros And Cons Of Investing In NFT Art

As with any investment, NFT art comes with its own set of pros and cons, for the purpose of this article we’ll take a brief look at 3 of each.


Pros 

Cons 

NFT art is accessible to everyone

Lots of misinformation available

Established ownership of a digital asset

Ownership doesn’t necessarily mean control

Guarantees a clear record of provenance

There Are Environmental costs



Pros Of Investing In NFT Art

There are many reasons for investors to consider purchasing NFTs. Some advantages of investing in NFT art include: 

NFT art is accessible to everyone

It’s as simple as setting up a crypto wallet and heading over to your NFT marketplace of choice. Asset ownership, tokenised into an NFT can also be easily traded and transferred around the world.

Established ownership of a digital asset

Blockchain technology is a safe way to establish an investor’s ownership of an asset in a secure way; using the blockchain offers a distinct record of authenticity and also makes asset ownership more transparent.

Guarantees a clear record of provenance

The blockchain operates as a digital ledger of transactions that is copied and distributed across an entire peer-to-peer network. This technological system records information and data in a manner that’s difficult to hack, alter or delete. 


Cons Of Investing In NFT Art

There are also reasons for investors to be cautious when purchasing NFTs. Some disadvantages of investing in NFT art include:

Lots of misinformation available

The danger for those new to the NFT art market, is the abundance of misinformation that can be found online. Investors need to be diligent in conducting their research, relying on NFT experts and authorities on the subject.

Fine art publishing house Zeno Fine Art has a growing selection of resources on fine art NFTs that offer clear, expert guidance and advice.

Ownership doesn’t necessarily mean control

When you purchase an NFT, you own the specific digital asset tied to that non-fungible token; however, this doesn’t necessarily mean that you own the copyright to the artwork.

Therefore, you can’t truly control the duplication and distribution of the artwork associated with your NFT across other platforms.

There Are Environmental costs

The creation of blockchain records requires a significant amount of computing energy and as a result, there’s a growing debate about the long-term effects of the process on the environment.

It’s estimated that the transaction of a single NFT requires as much electricity as the average household uses in a day and a half.


Weighing Up The Pros And Cons Of Investing In NFT Art

Covered here are just some of the main pros and cons of investing in NFT art, ultimately, as whether its physical art of digital art, it’s important to invest in artwork that you love, and that resonates with you; identifying quality assets that you would truly like to own.


What Is The Future Of NFT Art Investment?

We’ve seen a growing trend in the art world in recent years when it comes to NFTs, and as more big prices are fetched at prestigious auction houses, they’re garnering more and more attention. There’s been a number of headline-making sales since the big Beeple sale and these are also fuelling the fire of NFTs in the art market.

The future of NFT art investment looks promising, but it definitely hinges on several components. Some art-market experts feel that this is just a passing trend or ‘bubble’ that could soon die down and lose all value; while others strongly believe in the power of NFTs to create new ownership opportunities, as well as bring a new lease of life to old ones.

Artists seem enthused that this is the new golden age for creators and that NFT art is the next form of monetisation that gives an element of power back to the creator behind the work.

As is the case with traditional, physical art, the artworks are mainly valued based on what collectors are willing to pay. Beeple’s Everydays: The First 5000 Days is currently worth just under $70 million, in a century from now who knows what it could be worth. Art history indicates that it will appreciate well, especially considering it made history itself. 

There is still that chance, however, that its value could be passing.

Importantly though, the real value of NFT art is its potential to transform the way the art market functions and operates; the technology behind NFTs is full of exciting possibilities and can definitely minimise fraud and forgery and make the art market a safer space for investment.

The NFT movement has created new communities within the art world and drastically changed the course of art history; as we see marketplaces becoming even more accessible and user-friendly, it certainly seems inevitable that NFT art is here to stay.

There are many experts who firmly believe that NFTs will completely transform the art world in the same way that big cryptocurrencies will transform the financial system.


Is NFT Art A Good Investment?

First and foremost, investing in a digital asset solely based on it being tokenised as an NFT is not a good idea. You’ll want to purchase NFT art that resonates with you or at least understand the value of the asset represented by the non-fungible token.

It’s always wise to understand why you want to invest in art or in NFTs in the first place.

As with any form of investment, it’s crucial to conduct significant research into the market and how it works; enlist the help of experts too and be wary of misinformation. There are many helpful beginner guides and primers on buying and selling NFT art.

Similar to traditional fine art, rare artworks from reputable and established artists are the most likely to rise in value and be sought after by collectors; further driving demand and value through secondary sales, all of which will be transparent thanks to blockchain technology.

The blockchain allows anyone to view the trade data and transaction history for individual pieces, artists, and even collectors.

NFT art is a very interesting investment option inasmuch as it offers the investor a prime role in this new stage of art history that’s quickly revolutionising the art world at large. There have also been many examples of a relatively small investment yielding significant returns in a short span of time.

As the community of NFT art collectors and investors grows, the demand will increase and drive up the value; and as more creators see the potential opportunities afforded to them through NFTs, the supply will increase.

A key principle when it comes to investing in NFT art would be not to put in more than you’re willing to part with, and if you’re new to investment altogether, perhaps consider traditional fine art as an alternative investment too.


Would You Like Help Investing In NFT Art?

Now that you have a better understanding of NFT art investment, maybe you’d like some guidance in getting started, or maybe you’d like to learn more about NFT art beforehand.

At S&P Gallery we specialise in providing the highest level of confidence in the art market and art investment. 

If you’d like to take the first step in your art investment journey, or even if you’re looking to expand or diversify your portfolio, feel free to contact our expert art advisors for the finest professional art investment guidance.

To learn more about the benefits of investing in art and investing with S&P Gallery, as well as our market performance some of the returns realised from our clients, you could also download our free art investment guide, which is packed with valuable information and insights.

Download Our Free Art Investment Guide

 

Featured Artwork: Miss Aniela - The Locket Tree