TM Editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence. 

NFTs have become a wildly popular hit over the past year, with artists, collectors, celebrities, venture investors, and traders alike driving their prices to record highs.

The pixelated CryptoPunks character portraits, digital pieces of artwork from the artist Beeple, and Twitter (TWTR) founder Jack Dorsey’s first tweet have each been sold as an NFT worth millions of dollars. Our guide will walk you through what NFTs are, how they are used, and then cover a few companies in the sector with promising upside.

What are NFTs?

NFT is an abbreviation for non-fungible token. In economics, the term “fungible” refers to an asset that can be exchanged for another asset or good of the same value. For instance, a ten-dollar bill is fungible, because you can easily swap it for another ten-dollar bill of completely equal value.

On the other hand, if an asset or good is “non-fungible,” it cannot be exchanged for an asset of the exact equal value. An autographed baseball card would be non-fungible since it is unique, and finding another baseball card with the exact same value would be difficult or impossible. Other examples of non-fungible assets include tracts of land, houses, and website domain names.

Art is also a non-fungible asset because its value is highly subjective – and this brings us to the definition of non-fungible tokens. Non-fungible tokens are digital assets, including video clips and jpeg files, that can be sold or bought, just like physical assets.

In the simplest terms, a non-fungible token is a unique certificate that states who owns a video clip, video game skins, images of physical objects, virtual real estate, GIF, tweet, virtual trading cards, or other forms of digital media. Each NFT is unique and cannot be recreated, making them rare by design.

These assets take digital ownership a level higher with the help of blockchain technology. Each token has its own address on the blockchain that can’t be faked or altered.

Although NFTs have been around since 2014, they are becoming hugely popular because they are a great way to buy and sell digital art. They are sold and bought only, commonly with cryptocurrencies such as Bitcoin (BITCOMP) and Litecoin (LTC-X).

How NFTs Work

Traditional artwork such as paintings are often of high value precisely because they are rare. But digital art can be easily and endlessly copied. With non-fungible tokens, artwork can be “tokenized” to create a digital certificate of ownership that can be bought or sold.

NFTs can be viewed as modern-day collectibles. They are traded online and represent digital proof of ownership of a given good or asset. These tokens are securely recorded on a blockchain, the same technology that powers cryptocurrencies.

Blockchain technology ensures the asset is one of a kind and can also make it difficult to counterfeit or alter NFTs. Tokens recorded on a blockchain cannot be duplicated because the ledger is maintained by millions of computers around the world.

Depending on the token, the licensing rights or copyright might not come with the purchase, though that is not necessarily always the case. Some NFTs can also have smart contracts that may give artists a cut of future sales.

As blockchain technology advances, NFTs are likely to have many potential applications outside the world of art. For example, a venue could use an NFT to sell and track event tickets, potentially reining in on resale fraud. Or, a college could issue NFTs to students who have graduated and allow employers to easily verify an applicant’s diploma or degree.

NFT Trading Activity

Selling NFTs has been a rewarding business in recent months. Here are a few examples that have hit the headlines:

•  “Everydays — The First 5000 Days,” a collage of all the images that the digital artist known as Beeple has been posting online each day since 2007 sold $69.3 million through an auction.
• Twitter founder Jack Dorsey put his first-ever tweet on auction as a non-fungible token, where it sold for $2.9 million.
• An NFT of a digital artwork called a CryptoPunk sold for $11.8 million at Sotheby’s first curated NFT sale.
•  Well-known NFT trader Pranksy bought LeBron James' “Cosmic” Dunk #29 for $208,000 in February 2021.

The NFT industry has been booming of late, and stocks linked to the industry continue to be a topic of interest on Wall Street. With multiple catalysts in place, you can expect an even stronger showing for NFT stocks in 2022. And with that in mind, here is a list of NFT stocks with high upside potential over the next 12 months.

Twitter Inc (TWTR)

Twitter has positioned itself as a key player in the NFT space. The social media company has revealed plans to launch a new feature that would allow its site to better serve NFT creators.

According to this TechCrunch article, Twitter will soon explore support for authentication, allowing NFT creators to link their crypto wallets to the platform. This feature would also allow the creators to track and showcase their tokens on Twitter.

However, the plan is still in the early stages and Twitter hasn’t laid out how the feature would work. All the company has said is that it is trying out different ideas for helping creators with authenticated NFTs to stand out from the crowd somehow. This could be done perhaps with something like a differently shaped avatar or a profile badge.

Mada Aflak, senior software engineer at Twitter, teased the first glimpse of the feature with a video clip in September 2021. The video showed how Twitter would enable NFT creators to link their wallets to the platform. It also revealed an option for creators to pick one of their NFTs to use as their profile picture.

Dolphin Entertainment Inc (DLPN)

Dolphin Entertainment is a micro-cap that looks like it’s set to become one of the most successful NFT stocks on Wall Street over the next couple of years. Based in Florida, Dolphin is an independent premium content development and entertainment marketing company. It provides strategic publicity and marketing services to independent digital content providers and major film studios.

In August 2021, the company revealed a partnership with FXT.US operator, which would help it set up an NFT marketplace for major entertainment and sports brands. Under the deal, Dolphin will be responsible for developing and executing the production, marketing, and creative branding of these programs. On the other hand, FXT will bring in its technical knowledge about cryptocurrencies and use its crypto exchange services.

The companies seek to program and develop global NFT marketplaces. They will target brands within the sports, gaming, film, culinary, music, television, charity, and lifestyle industries.

Additionally, Dolphin has set up a division to design, make, release and market NFTs for its clients. It has already stuck an NFT deal with Hall of Fame Resort & Entertainment Company (HOFV).

Coinbase (COIN)

Coinbase made its stock market debut through a direct listing in April 2021. Founded in 2012 as a way to simply buy cryptocurrencies, Coinbase has grown to become one of the world’s biggest and most trusted crypto exchanges. The company attracts more than 7.3 million monthly transacting users, a huge user base for exposure to non-fungible tokens.

Coinbase has already announced plans to open a marketplace for NFTs, with roughly 2.5 million users looking to join the list. To put that into perspective, OpenSea is the dominant marketplace for NFTs with 1.8 million users.

Therefore, Coinbase’s massive user base could help its marketplace compete with existing rivals such as OpenSea and even grow bigger than the exchange’s crypto trading businesses. The marketplace, dubbed Coinbase NFT, will facilitate minting, selling, and buying of non-fungible tokens.

Coinbase says in a blog post that it aims to benefit artists by unlocking the full potential of the NFT economy. “We’re making NFTs more accessible by building intuitive interfaces that put complexity behind the scenes,” the company says in the post. “We’re adding social features that open new avenues for conversation and discovery.”

eBay Inc (EBAY)

Online auction and transaction platform eBay joined the NFT bandwagon in May 2021, facilitating the sale of tokens for digital collectibles on the site. eBay looks well set to slowly increase sales of NFTs on the platform, kicking off with a smaller number of authorized sellers.

As per this report, the company plans to “add new capabilities that bring new blockchain-driven collectibles’ to its platform in the coming months. eBay has invested millions of dollars in infrastructure for traditional, physical collectibles like trading cards, luxury watches, and sneakers, which they help verify for buyers.

Given its already a key player in the e-commerce industry, eBay will have its work cut out for it to take on some of the NFT players out there.

Although NFT activity has ballooned in the past year, the infrastructure for buying and selling collectibles still isn’t the most user-friendly. Jordan Sweetnam, eBay’s Senior Vice President in the Americas believes that non-fungible tokens offer more and different types of creators and collectors, similar to how “digital publishing brought more exposure for writers.”

eBay expects the initial phase of its NFT plan will help the company learn more about what its community wants. Later on, the company will launch tools, programs, and policies that make it easier to buy and sell NFTs across more categories.

DraftKings (DKNG)

In a recently released investor presentation, it’s clear that DraftKings has embraced the NFT and the metaverse industry. DraftKings announced a partnership with the NFL Players Association in December. The deal continues to draw attention as it gives the company a piece of the NFT market via gamified NFL player tokens.

By collaborating with the NFLPA, DraftKings will have licensing rights for active NFL players, including the right to use their authentic names, images, and likeness. DraftKings launched its NFT marketplace in conjunction with seven-time Super Bowl Champion Tom Brady and has sold an NFT trading card collection for football start Rob Gronkowski.

The fantasy sports site has designed its NFT marketplace to attract a mainstream audience. It supports secondary-market transactions and has fewer barriers to access NFTs. A leader in betting and fantasy sports, DraftKings will certainly leverage its massive user base to push further into the NFT arena.

Beth Beiriger, DraftKings’ senior vice president of products believes the company is equipped to capitalize on the increasing intersection between sports and NFTs that will be cornerstones of engagement and entertainment within Web3.

Bottom Line

NFTs are here to stay. According to statistics, NFT sales volume surpassed $10.7 billion during the third quarter of 2021, up more than 700% from $1.3 billion in the second quarter.

As billions of dollars pour into the NFT market, many companies are trying to figure out how to get in on the action. Athletes and sports leagues are creating non-fungible tokens and performers and artists have not been left behind as well.

But if you are looking to capitalize on the market without putting money directly on NFTs, the stocks we’ve listed above are definitely worth keeping an eye on.