NFTs Will Go Mainstream In 2022

Summary

  • NFTs had a breakout 2021 and trends have accelerated again in 2022.
  • Use cases for NFTs are growing, which is likely to drive mainstream adoption.
  • Several publicly traded companies are positioning to catch the NFT gravy train.
  • Cryptonative investors have several ways to play the trend.

NFTs will permeate our lives

After a huge breakout year in 2021, it’s clear that non-fungible tokens (NFTs) will become part of our everyday lives when consuming content and interacting with apps including digital photos, images, games, music, videos, and perhaps in other areas like real-estate.

What’s an NFT?

Coingecko defines NFTs as “a form of digital ownership that represents something unique: photos, images, game artifact, music, videos, etc. NFTs leverage innovative smart contract technology to store and record unique information on the blockchain, which means that whenever an NFT is created, only one of it verifiably exists. With NFTs, one can digitally certify that an asset is authentic. NFTs can be traded on specialized marketplaces.”

Growing Use Cases

So far, four key NFT categories represent the majority of the activity: visual art, profile-pic-projects (PFP: CryptoPunks, Bored Ape Yacht Club, CrypToadz), cultural collectibles (sports, music, photo, video), and gaming.

NFTs are a global phenomenon

Much like Bitcoin (BTC-USD) and other cryptocurrencies, NFTs are traded by investors around the globe.

2021 was a banner year for NFTs

NFT activity exploded in 2021 with signs of mainstream adoption. If 2020 was the year of DeFi, 2021 was the year of NFT.

Competitive Landscape

OpenSea has had the lion’s share, until LooksRare (LOOKS-USD) launched on Jan 10th with a “vampire attack”.

  • LooksRare — direct competitor to OpenSea
  • SuperRare (RARE-USD) — focused on high end visual art
  • Foundation — many cultural asset categories
  • Rarible (RARI-USD) — collectibles and artwork

What’s ahead for NFTs in 2022?

NFT sales volumes are off to a strong start in 2022, with January volumes setting all-time records.

How can investors participate in NFT growth?

Investors who are still outside of the crypto trading ecosystem can participate through proxies like Coinbase, GameStop or wait for an IPO of OpenSea, which hinted at an IPO recently.

Investment risks

It’s exciting to be at the early stages of a whole new asset subclass. Being early has potential for massive gains but it also exposes investors to high risks. Investors ought to consider spreading their bets across a basket of NFT related investment ideas to capture the overall trend, yet minimize unsystematic, company specific risks.

  1. Competition is likely to heat up. As demonstrated by LooksRare vs. OpenSea, the barriers to entry for new NFT marketplaces are relatively low. We expect many launches this year, which could pressure their fee take rates.
  2. Decentralized NFT marketplaces run on smart contracts (programmatic code-based), which may or may not have been audited but even if they were, could run the risk of getting hacked.
  3. There have been “allegations of insider trading”, even in the leading marketplace (OpenSea) by their own executive.

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