Yahoo Finance 
Millennial Money: The good, bad and ugly of investing in NFTs
SINGAPORE — Non-Fungible Tokens, or NFTs for short, are digital assets that everyone seems to want to own these days. But are they really a good thing, or is it just going to be a passing trend?
This is part of a series where Yahoo Finance Singapore will focus on different aspects of millennials and their finances. In this second part, we discover whether it’s good for millennials to invest in NFTs.
What are NFTs?
For the uninitiated, NFTs are basically certificates of digital ownership which have gained huge traction in recent years. The certificates have a unique record that is written into the fixed code (that cannot be changed) of a blockchain at time of creation or minting, which makes it a cryptographic asset. This can take the form of anything from digital art pieces, in-game items, music, fashion items and even virtual land.
To put it simply, NFTs are crypto assets that record the ownership of a digital file such as an image, video or text. Anyone can create, or "mint", an NFT, and ownership of the token does not usually confer ownership of the underlying item.
Profits are generated when one sell’s the NFT to someone else who wants it more and is willing to pay a higher price, usually paid with cryptocurrency. Since it lies in the hope of selling it at a higher price to a willing buyer, the value of NFTs is heavily driven by sentiment and hype. This exposes sellers to the risk of price manipulation.
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For instance, Twitter CEO Jack Dorsey created an NFT out of his first tweet and sold it for US$2.9 million in early 2021. Digital artist Beeple sold an NFT of his work for US$69 million, making him one of the most valuable living artists.
The utility of NFTs varies massively across the globe too. For example, there can be security tokens (to prove your identity) and even governance tokens (to indicate the right to vote). One can buy a NFT with crypto coins and NFTs can also represent a store of value, with some tokens worth more than others.
In fact, NFT sales volume totalled US$24.9 billion in 2021, compared to just US$94.9 million the year before, according to market tracker DappRadar.
Speculative and volatile
Despite the huge number of people turning to NFTs, financial experts warn that unlike traditional financial assets, there is little or no basis for the valuation of NFTs.
This is because the asset prices of NFTs are determined by demand and supply. Meanwhile, traditional financial assets have some kind of yield or value being created. For example, if you invest into stocks of a company, and it has a business model that is growing, the value of your investment will grow along with it as well.
“NFTs do not have an underlying economic return based on economic activity of companies or countries. Their payoff structure is speculative and volatile: You can win astronomically but you can also lose everything”, said Chuin Ting Weber, CEO of MoneyOwl, a bionic financial advisor.
As such, Weber recommends that millennials look into buying NFTs mainly as a bet or venture. This means keeping the invested amount small and only putting in only what you are prepared to lose.
Providing a similar analogy, Gavin Chia, Head of Managed Investments and Investment Advisory of Standard Chartered Bank Singapore, said: “NFTs are a little bit more like buying a luxury car or watch, which is something that is sought after but doesn’t actually create value or yield a return.”
Financial experts warn that because NFTs are speculative in nature, the hope of attaining financial freedom through investing in NFTs is not a plan for financial success.
“Regardless of one’s age, speculative investing products should not dominate your investment portfolio,” said Gregory Van, CEO of Endowus, a Singapore-based financial technology company.
“It is crucial to build your core wealth through an investing strategy that is strategic to your goals and passive in asset allocation while being globally diversified and low in cost,” he added.
Van also advised that millennials do their research and verify the information they find online before taking action, especially when it comes to riskier investments like NFTs.
Lack of regulation
While the Monetary Authority of Singapore currently doesn't regulate activities related to NFTs, it has reminded consumers that investments in digital tokens, including NFTs, are not suitable for retail investors, Senior Minister Tharman Shanmugaratnam said in a written reply to a parliamentary question on 15 February.
"For NFTs in particular, their perceived uniqueness, combined with speculative demand, has served to inflate prices. This potentially puts investors at risk of outsized losses should speculative fervour abate," said Tharman, who is also chairman of the Monetary Authority of Singapore. He noted there are significant legal complexities and risks involved in NFTs.
Despite the lack of regulation, some Singapore companies are quick to jump on the bandwagon.
Singaporean ride-hailing app, Ryde, launched its first NFT project in April this year. Called “RydePals”, the NFTs will give owners exclusive in-app rewards and benefits like discounted rides and cashbacks. The RydePals NFTs can also be traded on secondary NFT exchanges like OpenSea.
“We want to deploy NFTs in a way that generates more real world value, especially for the rapidly growing market segment of Singaporeans who hold crypto”, says Terence Zou, founder and chief executive of Ryde.
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