In today's global investment community, non-fungible tokens (or NFTs) are all the rage. Essentially, they are a type of virtual token that is wholly unique and can't be replaced with something else, which is an important characteristic in the matters of collecting and investing practices. What makes them most appealing, however, is the fact that almost anything that is digitized can have NFTs—images, videos, music, memes, tweets, you name it. In recent months, they have skyrocketed in popularity as people have found ways to make outlandish sales with them and get rich quickly.
One of the most buzzworthy NFT trading platforms as of late is NBA Top Shot, an app where users can collect, trade, and sell virtual tokens that are attached to popular NBA highlight clips. Within a few months, it managed to conduct exchanges worth upwards of US$370 million, proving that there definitely is a market for it (and a lucrative one at that). Even Michael Jordan himself has expressed his interest in investing in the app. So how does it even work?
Well, traders can choose to purchase NBA highlight clips as part of booster packs (which are similar to those seen in trading cards) or as individual NFTs. The valuation of each NFT is determined by multiple factors, including the level of hype surrounding the depicted moment, the star power of the featured player, and so forth. For example, NBA Top Shot moments that feature a lesser-known player in a less thrilling NBA moment are valued less than those that feature a star player in a more exciting NBA moment. This effectively makes the former NFTs more common than the latter NFTs.
When you do come across a rare NFT, however, they can be worth a whole lot of money—one NBA Top Shot moment, which showed LeBron James' epic dunk against the Houston Rockets, even sold for hundreds of thousands of US dollars, which is astronomical considering most highlights are priced between US$1 and US$100.
It's undeniable that the NFT craze is absolutely booming right now; however, it's hard to predict how sustainable the success of apps like NBA Top Shot actually is. For the time being, it looks like NFTs are making some people a whole lot of money, so there clearly is an appeal to it all. Dapper Labs, the company behind NBA Top Shot, recently secured US$250 million in fundraising, indicating that they are expecting a lot more investors to join the movement.
However, it is important to remember that, unlike stock trading, NFTs have no inherent value outside of that which is assigned through investor supply and demand. The bottom line is, the hype around NFTs will only continue to exist as long as the potential to make money from them is there.
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