Complexities muddle non-fungible token values

The local gaming and music industry has started to create non-fungible token digital art pieces as a new source of income but business insiders reckon it is hard to value digital collectibles, which may trigger an asset bubble.

Non-fungible token, NFT, represents ownership of unique items and tokenized art and collectibles, such as music, viedo and painting. The token, which is secured by blockchain, can only have one official owner at a time and no one can modify the record of ownership. NFT can be exchanged as cryptocurrencies, like Ethereum and Bitcoin.

The price of cryptocurrencies rose to record highs as a large amount of corporate funds poured in, which has also affected the development of blockchain assets. NFT is popular among the creative community as it has irreplaceable characteristics. People who invested in cryptocurrencies in the early stages are more interested in NFTs.

NFT's sales was tripled to US$250 million (HK$1.95 billion) last year. In the first quarter, the sales skyrocketed more than 20 times quarter-on-quarter to US$2 billion.

The trend has begun with the launch of NBA's Top Shot product last year, which is a limited edition film of ball games and sells in the form of NFT.

It has generated over US$470 million sales so far, according to CryptoSlam. Over 330,000 people have bought the products.

Last month, an NFT digital art piece created by an American artist Beeple was sold for around HK$540 million through Christie's first-time NFT online auction and it is the most expensive artwork created by a living artist.

In Hong Kong, a classic game Little Fighter's developer Marti Wong has also launched NFT art. The two digital artworks were sold within 12 hours after Wong uploaded them into an NFT trading platform Rarible last month.

Wong then made 10 game characters into 300 NFTs and is selling them at a fixed price. He wants to use the profits from NFTs to support game renovations. The second batch of NFT character may be launched if the first batch of NFT character are sold out.

Singer Hanjin Tan introduced an NFT song in another trading platform Opensea last month as CD and mp3 are outdated, and the current free music platforms degrade the value of music.

Tan created an original song "Nobody gets me" and combined it with his one-hour talk session with Zoom. It was sold for seven Ethers (HK$110,000). He hopes that the new generation of musicians can also create NFTs and have the confidence to establish a new business model.

In addition to releasing songs, he believes that NFT can also be extended to other creative areas, such as a commercial, exclusive songs and autograph letters.

However, market watchers worry that the high transaction price of NFT collections reflect a bubble.

Initial coin offerings consultancy Standard Kepler founder David Tang, says it is difficult to estimate the value of NFT collectibles and the NFT used for recording may not be indispensible.

Cryptocurrency service company CoinUnited.io co-founder Louis Li Sze-chung, agrees it is knotty to look at NFT collections from a normal investment perspective. Just like auctions of antiques, it is difficult for laymen to understand the value.

"Traditional auctions have at least reference prices for similar products. However, as the NFT collection is an emerging market, buyers and sellers are not able to evaluate the value."

He says NFT collections are sold at fixed prices or through auctions. The value often depends on the issuer reputation.

Senior trader of cryptocurrency over-the-counter trading platform Genesis Block, Chu Hau-tat, says emerging markets will experience a bubble at the beginning, just like the internet bubble. It also applies to NFT.

In the long term, Chu believes NFT applications will be a general trend. "If NFT is to be popularized, applications must be made in daily life. Music is one of the general directions."