BOITUMELO NTSOKO: Welcome to the Money Savvy podcast. I’m Boitumelo Ntsoko. Non-fungible tokens or NFTs as they’re popularly known seem to be all the rage right now. According to recent data from market tracker DappRadar, NFT sales volumes totalled $24.9 billion [around R386 billion] in 2021, compared to just $94.9 million the year before. But what exactly are NFTs and are they worth the hype?
Francois le Clus, who is an independent financial advisor at Attooh! Financial Wellness, joins us on this episode to shed some light on this asset class. Welcome, Francois.
FRANCOIS LE CLUS: Hi, Tumi, thank you so much for having me.
BOITUMELO NTSOKO: For those of us who are not familiar with NFTs, can you please explain what they are and how they work?
FRANCOIS LE CLUS: Basically NFT is an abbreviation for a non-fungible token. Now, this sounds a lot more complicated than it’s actually supposed to be. Let me just quickly break it down for you. Obviously, we all know what ‘non’ means, but fungible – that’s where you sort of lose people. So [does] the ‘fungible’ basically mean it is something replaceable or replicable? The token is the asset. So what this means is a non-replicable or [non-]replaceable asset that you’re trying to buy.
BOITUMELO NTSOKO: How are these tokens different from cryptocurrencies?
FRANCOIS LE CLUS: You can see these tokens basically as an asset. They take the form of art or a video or a song, but what you do is you buy these assets with cryptocurrencies.
The very, very important thing to understand is this asset that you’re buying has actually got an underpin of a cryptocurrency. So, as the cryptocurrency fluctuates, the price will also fluctuate.
BOITUMELO NTSOKO: What role can they play in your investment portfolio?
FRANCOIS LE CLUS: These are highly speculative assets, so need to be addressed as such. Your chance of making a profit or losing some or all of your capital is basically 50:50. Well, that’s according to me and what I’ve seen. You must always remember: do not invest what you are not supposed to lose, or that you cannot [afford to] lose. So don’t go and take a second mortgage out on your home or anything like that to buy these NFTs because you might get it wrong and you could lose it all or a lot of it.
BOITUMELO NTSOKO: For those who are keen on buying NFTs, how can they do so?
FRANCOIS LE CLUS: It all starts off with buying cryptocurrency. So how you do that is you just open up a ‘wallet’. You can do that with Coinbase or Luno; there are loads of wallets out there. You can buy them with your debit card, credit card, or you can transfer your money over to the wallet. And then you can just buy cryptocurrencies.
Now, the cryptocurrency that you need to buy is Ethereum or Solana; mostly it’s Ethereum that you use. From there you will register yourself a portfolio on OpenSea, which is the biggest NFT seller out there. You just link your wallet, and from there you can start transacting and start buying these NFTs.
BOITUMELO NTSOKO: What is the average sale price of an NFT?
FRANCOIS LE CLUS: It’s actually very, very interesting.
Before all the hype, NFTs used to go for about $150. Now at the end of 2021, they averaged about $4 000. From the end of 2021 until now there’s been a little bit of a drop, about a 50% drop in the price of the average NFTs, and they go for about $2 000.
So they’ve taken a little bit of a hit over the past six months or so. It’s very, very interesting – the artwork The Merge, which is an NFT, sold for $92 million, which is huge.
BOITUMELO NTSOKO: How can I, as an investor, tell if an NFT is worth buying or investing in?
FRANCOIS LE CLUS: Okay. Some may say that they know, but in my opinion – I don’t honestly know. So NFTs are mostly driven by hype and demand. Some NFTs are created by well-known or famous artists, and I could imagine them being investible. There are NFTs that are held by famous people, and I would imagine that people would like to purchase these NFTs just to have bragging rights in the future to say ‘Well, I own the item that this artist used to have’ or ‘I have the item this famous person used to have’. So it’s highly speculative, and it remains art.
BOITUMELO NTSOKO: And what risk should investors be aware of before investing in these?
FRANCOIS LE CLUS: Well, obviously there’s the risk of not making a return on your investment and losing some or all of your capital. You’ll also see if you go onto the OpenSea platform that this is an auctioning system.
What they’ve seen is a user scheme called ‘wash trading’. So the seller takes on the roles of both the buyer and the seller, and then they just push prices up, and they push prices up.
Then you’ve got a buyer on the outside, having the fear of missing out and thinking well, this asset is really popular, everybody wants it and this pushes up the price – I need to buy this. And at the end of the day, you are sitting there with an NFT that’s been pumped up; the price has just been pumped up and you are sitting with the short end of the stick and you can’t recoup what you’ve paid for it.
BOITUMELO NTSOKO: Francois, in your opinion, would you say NFTs are worth buying?
FRANCOIS LE CLUS: Well, Tumi, I don’t know enough about art – and that’s basically what NFTs are. If you do know something about art, and good art at that, I think it’s worth having a look at.
Art is evolving and it’s changing at a very rapid pace, and maybe one of these artworks will be the future Mona Lisa [by Leonardo da Vinci] or The Starry Night [by Vincent van Gogh].
BOITUMELO NTSOKO: Thank you so much, Francois. That was Francois le Clus, who is an independent financial advisor at Attooh! Financial Wellness.