NFT: What do non-fungible tokens and gold likely have in common? Ahren Posthumus, CEO of NFT marketplace Momint, says more than you might think.
The NFT sector has been hit hard by the crypto market crash and economic uncertainty. The fusion of NFTs and safe assets like gold could solve this global problem.
NFT: Promising but unstable
A good NFT collection lost up to 80% of its value when the overall market fell. Everyone talked about obvious reasons such as Terra’s crash and Celsius’ bankruptcy, but these are just the tip of the iceberg.
The main cause, in my opinion, is the lack of projects and collections with solid foundations and true values at their core. Some investors may be interested in tokenized memes, tweets, digital goods and art. But these applications are not enough to move the entire sector forward. So, in just a few weeks in May, the average number of non-fungible token sales per day dropped to around 19,000. According to the Wall Street Journal, citing nonfungible.com, this was a 92% decrease from September, when about 225,000 non-fungible tokens were sold each day. After the boom ended, it became clear that there were too many projects that were all about the same, with immediate profits.
NFT is not the only bubble
The same thing happened when the dotcom bubble and the housing bubble burst, so nothing new here. This simply means that NFTs and cryptocurrencies must mature to regain investor confidence.
People usually associate irreplaceable tokens with art, but this is either untrue or partially true. NFTs act as digital certificates of authenticity and can represent anything from IP and property rights to legal agreements and membership access. Only one holder can be owned at a time. Ownership is governed by a unique identifier that cannot be duplicated by other tokens. Partial digital ownership, in particular, offers nearly endless opportunities, from owning part of a sports team to owning a portion of the earnings of his content creators on social media platforms.
On average, 80% of NFT projects fail and close within 18 months of entering the market. This means that users need to weigh good and bad projects carefully when deciding to invest in a project. Even experienced investors aren’t sure they’re putting their money in the right things. You can rely only on solid foundations such as the team of the project, unique solutions (such as his eco-friendly NFTs and tokenization of historical coins), trusted sources of funding, trusted partnerships, and real-world underlying asset values. I can do it.
I’m not saying there will be no more speculative NFTs. Opportunities for quick buys and sells always exist in any market. After purging, however, it becomes easier to distinguish between long-term and short-term assets, helping users make better decisions.
Gold: A rare product with a proven track record
Gold has always been seen as a sign of wealth and power. It has been used from the beginning to assist governments.
Gold’s resilience to economic uncertainty has been demonstrated for decades. When the dollar, one of the most important reserve currencies, falls in value against other currencies, people flock to gold’s security, pushing up metal prices. As such, the price of gold almost tripled during the period of several financial crises from 1998 to 2008.
Therefore, when inflation erodes fiat purchasing power, people turn to gold to save money. Investors will also turn to this asset class when deflation drives down prices.
Another factor that favors gold is its scarcity. Bringing a new mine into production can take five to ten years. The amount of gold that can be mined is decreasing year by year.
But gold’s role is not limited to being a hedge against inflation and deflation. It is used in computers, communications equipment, spacecraft, and jet engines. According to World Gold Council data, demand in all of the aforementioned industries remains strong, contributing to scarcity.
However, there is a problem with this precious metal that must be resolved.
Tokenized Gold: Low Risk, High Potential
One of the most important things NFTs can do for gold is scarcity verification. There is now more gold in circulation than there actually is in the world. This is because it is very difficult to see physical gold when trading promissory notes. On the blockchain, scarcity is immutable and transparent. As a result, investors have access to safe assets that he can buy as easily as NFTs.
Gold is a safe asset that has played an important role in human society for centuries. Rare, durable, and often used as a store of value. During periods of economic instability, gold prices tend to rise. At times this rise is simply tantamount to inflation, but it is a good currency hedge and a stable asset class in the long run. NFTs are still relatively new in the world, but they are growing in popularity. They are digital assets that are unique and can be used in many different ways. NFT stands for Ownership. Combining the two assets creates a stronger investment portfolio.
NFTs and Gold: Using Smart Contracts
One approach is to implement smart contracts that allow users to exchange NFTs for gold. This allows investors to benefit from price volatility of non-fungible tokens and gold, potentially diversifying their portfolios and reducing risk.
Such integration possibilities are not limited to gold. This mechanism can be applied to other metals as well. There are already use cases demonstrating the viability of the concept.
A $1.2 million worth set of historic 1892 ZAR (Zuid-Afrikaansche Republiek) gold coins were recently tokenized. This was to make investments in gold and historic assets accessible to a wider range of South Africans and people around the world.
Additionally, VNX, a Liechtenstein-based exchange, has made tokenized precious metals available for investment. The company owns physical gold bars certified by the London Bullion Market Association (LBMA). Another example is SilverBacked. SilverBacked tokenizes physical silver on the blockchain and pools it for use in NFTs.
The price of this type of NFT is not much different than the price of a regular NFT, but much cheaper than the price of gold bars or coins. Hybrid NFTs may also be more affordable due to their split ownership.
Outlook for NFT-Gold Duet
Several factors may have contributed to NFT’s success. The first is the project team. For a company to thrive, it needs people with relevant experience and a proven track record.
Another important factor is the technology employed. The blockchain that underpins NFTs must be robust and scalable.
Finally, having a clear and concise vision of your project is essential. Investors and users need to know what the company is doing and why they are using NFTs. Without a detailed plan, it’s difficult to get people hooked on your project.
The popularity of hybrid NFTs could have a significant impact on the future price of gold. As more investors start buying hybrid tokens as safe-haven assets, demand for gold will likely increase, driving its price higher. However, the popularity of NFTs may also drive gold prices down. Only time will tell what the future holds for this asset class.
In my opinion, non-fungible tokens and gold are complementary. Hybrid NFTs do not always provide high returns and therefore do not compete with standard NFTs. Almost certainly, new NFTs will become a popular option, but they will not replace other digital assets.
About the author
Ahren Posthumus is CEO of NFT marketplace Momint. Ahren is a seasoned entrepreneur who has been active in the cryptocurrency market since 2016 and was awarded the Investec Entrepreneur Leader of the Year award around the same time. He was also selected to present at the JSE (Johannesburg Stock Exchange) on Breaking Barriers to Code and Poverty in Africa. In 2020, Ahren was named Editor’s Choice for Innovation in the Mail & Guardian’s Top 200 Young South Africans. In 2021 he won the GQ Man of the Year award and now he is focused on launching his projects with global impact using blockchain and Web3.
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