Why 1 Investor Believes Most NFTs Will Lose Value Over Time

In March, famous artist Beeple sold a non-fungible token (NFT) named Everydays: The First 5000 Days for a record $69 million. This NFT was a montage of the first 5,000 pieces of digital art made by Beeple.

But not all NFTs are like this. In fact, perhaps the most popular NFT collection is CryptoPunks, pixelated headshots of people and apes that resemble something out of the 1980s. But don't let the low resolution fool you; several NFTs in the CryptoPunks collection have sold for more than $1 million.

With prices like these, the NFT trend is certainly hot. And some investors might be hoping that video game companies better monetize their content by hopping on this wagon. However, not all investors believe the NFT trend is here to stay. In this video clip from Motley Fool Backstage Pass, recorded on Sept. 27, Motley Fool contributor Jon Quast explains to analyst Sanmeet Deo why he believes many NFTs will be lose value over time as the market becomes saturated.

Sanmeet Deo: FI Fee Father [asks], "Regarding NFTs, could they support a limited edition run of, say, 10,000 copies of an item? So middle ground of Balenciaga collab and a truly unique item?"

Jon Quast: Yeah, I'm glad that you brought up this question because this is the one that I wanted to get to. Yes, I think that in a way that they can. I think you're already seeing this NFT market where you have collections come out and they're all very similar. They might just be a pixel off from each other, and they're still sold as a unique item, and so in a way that is what you're talking about here. Whether or not they could be completely identical and have a different code. I suppose that is also possible. Theoretically, I don't see why that wouldn't be possible, what you're saying.

However, just to broaden your question here on NFTs, this isn't something that I'm super bullish on long term. It really is reminiscent to me in many ways of the baseball card industry and even the Beanie Baby [laughs] craze, whatever you want to call it. Upper Deck did this, they were the first company to come out with these limited-run game-worn memorabilia cards. When they first started doing it, they bought a bat from Babe Ruth and they cut it using a laser and they put that onto a card, and it was limited to something like 250 or something, and they all had this piece of the bat. At first, this concept was very novel and those cards were going just bonkers as far as their value.

What did Upper Deck do? They started releasing infinite number of limited-run cards with game-worn memorabilia. Once it became widespread, the scarcity no longer mattered. It no longer contributed to the value. But some of them emerged as things that people actually wanted to continue to collect, and it still has value because of that. The same thing with the Beanie Babies, they would retire them to create the scarcity. But there's a million different kinds of Beanie Babies. It lost its luster after a while. I would assume that's what's going to happen with NFTs.

As you think more broadly with these gaming companies, I don't think that that really matters. I think that what you're going to see, especially with a company like Roblox, the name of the game is get you in there, get your eyeballs on that platform. Then they'll monetize you with an NFT, or an ad. They'll come up with something. Really, those user engagement metrics are what to watch, not so much, are they launching an NFT collection or not launching an NFT collection. I feel like that's a little bit cart before the horse. Tail wagging the dog is maybe a better way to say it.

Deo: Yeah, that's a great point about NFTs. I like to hear your take because it's been a hot trend and we don't know where it's going to go or where it's going to end up. But linking it back to Beanie Babies, baseball cards, those were hot at some point, too, and then Beanie Babies definitely have been, baseball cards are making a comeback. They're being digitized a little bit, too, but is it going to be a long-term sustainable trend? Your points, you made are very interesting and maybe not. Or maybe it'll take another forum in gaming or other ways that could be there.