What is a Sports NFT?
The easiest way to describe a sports NFT (Non-Fungible Token) is by comparing it to traditional sports cards. There are several major differences.
- Sports NFTs are generally referred to as ‘moments’ thus distinquishing them from traditional ‘cards’.
- You do not own a physical copy of the moment, rather you have ownership of a digital asset.
- Sports NFTs are generally digital video highlights and not static images.
- Every moment has a set and limited supply with a serial number making them unique or “Non-fungible”.
- Ownership of sports NFTs are logged on a blockchain making ownership easily verifiable, transferable, and secure.
What gives an NFT Value?
Sports NFTs are subject to valuation by classic supply and demand constraints as in any other market. They also have valuable properties that traditional assets cannot match.
The value of an NFT is primarily driven by its scarcity. The number of editions of any NFT can vary greatly. The most valuable of which will always be unique editions or 1/1s. In contrast, some NFTs have hundreds of thousands of editions which obviously makes them less valuable.
Not all sports heroes are created equal. Demand for league superstars, and sometimes rookies, will always be higher than more common athletes. Legends of their sports such as LeBron James or Tom Brady will always demand a higher price for their NFTs than do lesser stars.
Sports NFTs can provide their owner’s entertainment value through gamification. Platforms exist that allow owners to compete with other collectors by using their NFTs in games. The rewards for competing successfully often have real dollar value or provide an opportunity to expand and grow one’s collection.
NFTs are quickly becoming a way for people to identify themselves as members of a group. This exclusivity provides owners with admission to real-life events or perks such as access to special product offers. The application of this feature has enormous potential and will change the way business will be done in the future.
Ownership of valuable NFTs are quickly becoming a social status amongst younger generations who have grown up with access to digital mediums most of their lives. It is not difficult to conceive of a future where one’s social status is no longer derived by their physical assets, like cars or homes. Rather pride of ownership in digital assets will be the primary way people will display their wealth and status.
Why are Sports NFTs a Legitimate Asset Class?
Diversification is a valuable way for an investors to protect their wealth from volatile markets. Spreading one’s assets among multiple assets groups is a common way for investors to achieve this.
The NFT sector is negatively correlation with more traditional sectors such as the stock market. This is a highly desirable trait that financial advisors often seek to achieve for their clients. Essentially, if the stock markets see a drawdown in valuations, one could reasonably expect the NFT sector to increase.
NFTs are closely associated with cryptocurrencies due to their existence on blockchains. Thus NFTs are an alternative way for investors to gain exposure to the cryptocurrency sector.
Collectables have long been deemed a good asset to hedge against inflation. Traditional sports cards and the art industry are two a good examples of alternative assets classes deemed to be good hedges against inflation. Sports NFTs fit nicely into this category.
While NFTs do offer exposure for owners into the cryptocurrency space, their true nature is really that of a collectable. Unlike traditional financial assets whose value can be derived by financial models, the value of NFTs is very subjective and unique to every owner. This provides opportunities for for savvy investors to speculate through their own intuition on future valuations.
As with any new technology or industry, the biggest returns always go to the early adopters. This is where the industry is in at the moment and those who identify this opportunity early could profit handsomely.
A highly coveted characteristic of NFTs and cryptocurrencies in general is decentralization. Sports NFT are being built on cutting edge block chain technology designed outside, or at least parallel to, traditional financial institutions. The are also currently outside any kind government regulation.
What does this really mean for investors? NFTs are not currently subject to capital gains taxation. It is inevitable once the industry reaches a substantial level that governments will attempt to regulate it. But because of their anonymous and private nature of a blockchain, NFTs will prove to be a nightmare for governmental regulators and its oversight will rely heavily on individual participation of collectors to inforce.
Block chain technology offers value to investors who value privacy.
Store of Value and Asset Transfers
The technology of which NFTs are based on is groundbreaking for those looking for alternative ways to store and transfer wealth. Blockchain technology allows collectors to buy or sell digital assets over the internet in a matter of seconds. In contrast, when purchasing traditional financial assets settlement times still typically take up to three days to settle. Making transfers or purchases through online intermedaries such as Paypal still requires significant time to clear and has multiple points of failure and regulation.
Barriers to Entry
One great aspect of this asset class is that it is open to almost anyone. Collectors can start their collections for as little as $9 with a starter pack, while still providing the opportunity for larger speculators to make major investments. This kind of level playing field is generally unavailable in traditional markets.
Sports NFTs should be considered a high-risk and volatile investment due to their speculative nature and exposure to new technologies. As with any high-risk asset, the potential for high returns does exist. But exposure needs to be reasonably balanced to limit potential losses.
Understanding market supply and demand for this high dynamic market requires experience and often guidance. Investing in NFTs without a well thought out strategy could result in a significant loss of capital.
The Sports NFT market is currently being led and innovated by a company based in Vancouver, BC called Dapper Labs. They produce three of the biggest sports NFT products currently available for three major sporting leagues.
NBA Top Shot
NBA Top Shot is the leader in the sports NFT marketplace. They are pioneers of industry setting the standard for all that come after them. This is where I was first exposed to the industry and where keep the majority of my NFT assets.
NFL All Day
NFL All Day came into the market in December 2021 with a major splash. It is an ambitious project for North America’s most popular professional sporting league. While this project is still in its infacy, I belive it holds tremendous growth potential.
UFC Strike is the leading NFT site for MMA fans. MMA is well suited to the NFT market due to its intense and dramatic highlight nature. This project is also very new but they do have a timeline for aggressive growth.
Sports NFTs are a new and exciting asset class with massive growth potential over the coming decades. Savvy investors have an opportunity to take advantage of a new asset class still in its infancy. Driven by blockchain technology, the sports memorabilia industry will never again be the same.
I have experience offering financial advice for traditional investment portfolios and am now positioning myself as an early adopter and adviser in this new field of investing.
Are you interested in learning more? Let’s have a chat to see if Sports NFTs are good investment choice for you. Contact me, for a free initial consultation.
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