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8 Apr 2022

Royal Mint to launch NFT range - should you invest?

There's a huge gulf between NFTs and collectable coins

The Royal Mint plans to launch a range of non-fungible tokens (NFTs) this summer. So is it time to treat NFTs as mainstream collectables - or even investments?

Chancellor Rishi Sunak asked the Mint to create an NFT in an attempt to display the UK's 'forward-looking approach' towards cryptoassets, according to the Treasury.

NFTs - digital tokens that convey ownership of something, usually digital art - saw a rapid rise in popularity last year. Collins Dictionary chose 'NFT' as its word of the year, and some NFTs sold for huge sums at auction.

The Mint might be hoping to replicate the success of digital artist Beeple, who sold an NFT for a record-breaking $69 million at Christie's in March 2021.

But NFTs are far from a safe investment. The unregulated market has been described as a 'Wild West', rife with the potential for scams and huge losses.

Here, we'll share what we know about the Royal Mint's upcoming range, and dig deeper into what makes NFTs such a risky asset.

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What will the Royal Mint's NFT range be like?

NFTs work using blockchain technology, and they're purchased using cryptocurrency.

While they convey ownership of something, usually an image, they do not give the owner copyright of that image. Many NFTs of freely available and widely reposted online images have been sold.

The most popular NFTs are digital cartoons, like Bored Ape Yacht Club's caricatured primates - as of December the highest priced NFTs in the world - and CryptoPunk's pixelated portraits.

The Royal Mint said it will launch a range of NFTs, available from summer, and that as 'one of the world's leading providers of premium collectables, making this a natural progression for us.'

NFTs are usually linked to works of digital art, but the Mint has not shared what its NFTs will be based on. As the country's provider of coinage, it's possible they'll convey ownership of specific coins or coin designs, but we'll have to wait for further details to find out.

Nor have the Mint explained which cryptocurrency will be used to purchase its NFTs, or if you'll be able to pay with pounds.

How much will Royal Mint NFTs be worth?

There's no word yet on how much the Royal Mint's NFTs will cost. The Mint currently sells some collectible coins around the £10 mark, but others are made with extremely wealthy buyers in mind, selling for six figures.

The average price of an NFT was $3,080 on 6 April, according to industry tracker NonFungible.

Investors will be keen to know the potential long-term value of a Royal Mint NFT, but this is almost impossible to predict. With the Mint's coins, you can make an estimate by looking at how much similar coins are selling for on secondary marketplaces like eBay. But with NFTs it's far more complicated.

It's hard to value an NFT for resale. The lack of a thriving secondary market - where NFTs' original buyers resell them - is partly why. There are websites that offer to do this for you, but we can't vouch for their accuracy.

Many wealthy investors turn to the Knight Frank Wealth Report to track the value of unregulated, 'luxury' investments. This year, it dedicated several pages to NFTs, but left them off its Luxury Investment Index, which tracks the value of other assets such as classic cars and physical art.

Andrew Shirley, editor of the Wealth Report, said: 'I only include stuff in my Luxury Investment Index if I've got 10 years of robust data to enable me to do decent price trends.'

NFT pricing data only goes back to 2017 and until 2020 the average price of an NFT tended to be very low, at around $10.

Are any NFTs worth buying?

When announcing its range of NFTs, the Royal Mint claimed that 'by creating NFTs we plan to help customers own digital collectables in a secure and trusted way, while engaging a new audience.'

Combined with headline-grabbing sales, such as Beeple's at Christie's, you might get the impression that NFTs have become a reliable way to make a fortune.

Shirley says, 'The same things that make items valuable still surely have to apply even if they are virtual.

'So rarity is important, and so is provenance. A lot of people wouldn't understand why you would pay good money for Tracey Emin's messy bed. But there are people who will because she has provenance as an artist.'

Shirley believes NFTs will still be around in 10 years, and that some artists will build up a reputation. But he warns that 'an awful lot of NFT art that people have bought this year won't be worth a sausage.'

Even with Royal Mint's branding behind them, there's no guarantee Royal Mint NFTs will increase in value - or you'll even be able to recoup your initial investment.

Why are NFTs so risky?

If you're buying NFTs with the aim of making money, it's best to treat them like very high-risk luxury investments.

They're not regulated by the Financial Conduct Authority, which means you're not covered by the Financial Services Compensation Scheme and you can't take complaints to the Financial Ombudsman Service.

Shirley calls NFTs a 'total Wild West', even compared with the unregulated traditional art market.

One well-known NFT-related scam is a 'rug pull', where developers set up an NFT project, drive up the price through promotional hype, sell their NFTs, then abruptly stop backing it, plunging its value to zero.

The Royal Mint's other collectibles, coins, will have a face value and in some cases a precious metal value, even if they're not desirable to collectors. NFTs are only worth something if other collectors think they are.

Shirley says people should buy what they love and if its value goes down, they'll still love it. With NFTs of digital art, which you can admire without owning, it's harder to see how this applies. So what would he suggest instead?

'Buy it for fun, I suppose. But if you're really hoping to make serious money, the only thing you're relying on is somebody having more confidence in NFTs as an investment than you do.

'At some point that chain could end when somebody decides, u201cOh actually no I don't think these things do have any valueu201d.

'It's a bit like pass the parcel. When the music stops, someone is holding this thing.'

Are NFTs bad for the planet?

Many have criticised NFTs, and cryptocurrency more broadly, as being bad for the environment.

The Royal Mint has not said which cryptocurrency its NFTs will use, but most are powered by Ethereum - a cryptocurrency network that uses a 'proof of work' model to stay secure.

In 'proof of work' cryptocurrencies, millions of computers compete to solve mathematical puzzles. This is called mining.

All these computers use electricity, much of it generated using fossil fuels. Later this year, Ethereum plans to switch to a 'proof of stake' model, which is claimed will use 99% less energy.

At the moment, you can find the energy use and carbon footprint of Ethereum transactions in the table below, as reported by Digiconomist.

Single Ethereum transactionEthereum transactions over a year
Energy use267 kWh - Equivalent to the average UK household use over six days113 TWh - Equivalent to the energy use of the Netherlands
Carbon footprint149kg CO2 - Equivalent to 24,838 hours of watching YouTube62Mt CO2 - Equivalent to Montenegro & Serbia combined

Source: Digiconomist