As the world begins to move towards a post-COVID era, some trends that originated during the lockdown have persisted and will shape the future. Chief among these trends is the importance of the digital environment. From digitising people in the metaverse to digitising communications through Zoom, the digital environment has become a cornerstone of most people’s lives today.
Investing has also become a major post-Covid trend. Many believe that the uncertainties caused by COVID-19 mean that employment is not a guarantee and have a greater sense of agency when it comes to financial planning or as some would say, planning for life. In Blackbox’s latest poll, 37% of surveyed Singaporeans claim to invest in shares.
For a rising number of retail investors, digital assets have become a major part of their portfolios. Despite the wild fluctuation in cryptocurrency and non-fungible tokens (NFTs) valuations, the craze for digital assets remains strong among younger Singaporeans. While overall enthusiasm for NFTs remains low at 26%, as per Blackbox’s latest poll findings, this figure shoots up to 40% among those aged 20-34 years.
The future is digital asset investment
Today, the culture of investing has seen a dramatic shift. Investors care less about investing into companies and technologies with the potential to create massive value, and more about investing into companies that can scale quickly so that they can sell off their stake for profit. This has meant that there is a glut of investors funding speculative assets.
The concern is that the new breed of investors includes many first-timers and younger investors who are more likely to be influenced or drawn to the extremely high potential upside of NFT valuations. Some have even turned away from traditional investment products such as real estate investment trusts (REITs), exchange-traded funds (ETFs), and shares in favour of speculative digital assets.
The change in investment preferences and investing advice platforms have profound implications for the future of investing.
With digital assets becoming a major component of future investment portfolios, platforms such as OpenSea, Gemini and Crypto.com have seen increased popularity and will likely be the main investing platforms for future investors.
It does not help that more Singaporeans prefer using online sources for investment advice and discussions. 32% mentioned Reddit as a key source of online investing advice. Reddit is also the same platform that hosted r/wallstreetbets, most famed during the GameStop short squeeze in early 2021. With online platforms, repeated exposure to digital assets is highly probable.
Why all the worry?
“Retail investors especially should steer clear of cryptocurrencies. We cannot emphasise this enough,” cautioned Singapore’s current Deputy Prime Minister Heng Swee Keat following the crash of Terra Luna, which had a negative knock-on effect on other digital assets and NFTs. In fact, many platforms providing investment advice and discussions had dedicated threads to counsel investors who suffered significant losses. These threads also included suicide hotlines as precautions.
Much of the worry reported comes from the fact that investors might not be fully conscious of their investment decisions, particularly on what they are investing in. NFTs are proofs of ownership, usually of a digital art piece. NFTs are receipts, in essence, and their financial valuation should stem from the financial value of the digital art piece. However, the fear of missing out (FOMO), cryptobros looking for quick “pump-and-dump” schemes, and hype from influencers have resulted in a complete overvaluation of NFTs. Often an NFT’s valuation is 100 times more than the value of the digital art piece itself that the NFT is representing.
Next steps for NFTs
There have been calls for increased regulatory policies to reduce the risks of digital asset investments. It is extremely unlikely such regulations will work since the premise of many digital assets is decentralisation. Regulation will be most effective in a more centralised system. Moreover, outright banning of NFTs is counterproductive to innovation.
It is imperative to recognise that digital assets are a norm today and as other aspects of life become digitalised, so too will investing. NFTs are an innovative concept with the potential to accumulate wealth for the digital investors of tomorrow.
As investors digitalise and seek out digital assets as their mode of investing, long established investment platforms need to find new ways to connect with these new digital investors. Beyond offering digital assets, traditional investment platforms should also focus on providing personalised investing advice to these new yet inexperienced investors.
It would be best if investors shifted their focus away from the ’receipts’ and towards those developing the receipts. Many technology companies are working to further develop the technology behind NFTs, and greater recognition should be given to the digital artists who are the driving force behind NFTs’ actual financial valuation.
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Author: Blackbox Research Team