The NFT sector is ripe for investing, and seems poised to become a permanent and flexible asset class. But this emerging industry comes with noteworthy risks and too many scams. Big-time institutional investors hesitate to dump billions into this space for the time being until some major problems are resolved.
Institutional NFT investing challenges
Famous Shark Tank investor Kevin O’Leary says that blue-chip investors are waiting in the wings with billions of dollars that could see their way into the non-fungible token (NFT) space.
In a new video, the billionaire tells his 556,000 subscribers he’s a huge believer in NFTs but notes there are three prominent issues with the nascent sector preventing institutions from taking the plunge:
The biggest challenge involves compliance issues, according to O’Leary.
“There are billions and billions of dollars of institutional capital that wants to go to work [into NFTs], but we have not given them the compliance infrastructure yet to be able to do that.
For example, when you buy a stock or a bond in a pension plan for a university in Geneva, they immediately are able to see at the compliance department how much you put on, whether you use leverage, the position is reported at the end of the day, the auditors can see it anytime they want, and the regulators have a report generated that they give every quarter, every month or every week or every day depending on the geography you’re in.
We have nothing like that in anything on crypto. You have to manually do it yourself. That makes regulators very nervous.”
NFT regulation concerns
The business magnate says another challenge is determining whether NFTs count as securities and thus would be subject to regulations.
“When an NFT and smart contract has a royalty associated with transfer of ownership, it is distributing capital, and that generally is interpreted as being a security. No different than a bond paying interest or a stock paying a dividend. But we haven’t had a ruling on that yet.”
Wallet safety issues
O’Leary says he’s also concerned about the amount of scamming going on in the NFT space, concluding that wallet security improvements are critical.