Rishi Sunak is to forge ahead with plans for an “NFT for Britain” despite market turmoil that has wiped billions of pounds off the digital assets.
The Chancellor and Royal Mint remain committed to creating a state-backed non-fungible token, spokesmen said, even though the size of the market has fallen from a peak of $37bn (£29bn) in April to around $26bn and several high profile sales have flopped.
Mr Sunak surprised economists last month when he announced plans to delve into the craze for NFTs, which are effectively online certificates showing that the holder owns something, usually digital art.
Simon French, chief economist at the stockbroker Panmure Gordon, criticizing the decision at the time and warned on Sunday that it now looks like a worse idea than ever.
He said that while there is nothing fundamentally wrong with making digital memorabilia similar to the Mint’s commemorative coins, the Treasury should not be backing a suspect asset class at a time of market turmoil.
Mr French pointed out that surging NFT prices are based on the flawed theory that an army of eager buyers will always keep buying even though they have no intrinsic value.
He said: “Where I think the problem emerges is actually whether it acts as a signal to reinforce the “greater fool theory” that underpins a lot of these digital assets.”
Demand for NFTs appears to have fallen sharply in the past few weeks. In the last 30 days, the volume of trades carried out has totalled just $4.3bn, compared to $16bn for the month of January.
An entrepreneur who paid $2.9m for an NFT of Twitter boss Jack Dorsey’s first ever tweet was forced in April to admit he might never be able to sell it.
Crypto enthusiast Sina Estavi put the tweet up for sale demanding a price tag of $48m, but attracted bids no higher than $6,800.
Experts have also warned of a spate of scams that has accompanied the rapid rise of NFTs, withs tricking internet users into criminal handing over access to the digital “wallets” where they keep them.
Julian Jessop at the Institute of Economic Affairs said: “Frankly, I don’t see the point of this, other perhaps than raising a relatively small amount of money.
“The NFT market is either going to recover and thrive on its own, in which case there is no need for the Government to get involved, or it won’t, in which case no-one will thank the Treasury for encouraging the general public to jump on board.”
Despite this, the Mint is still intending to push ahead with plans for an NFT for Britain.
Details of the proposal remain scarce, with little revealed since the idea was first announced.
A spokesman said: “This is still in development.” She added that the 1,136-year-old institution had no updates on when it would be released.
A spokesman for the Treasury also confirmed there had been no changes to the plans to release an NFT and pointed to a speech given by the City minister John Glen in April.
Speaking at Innovate Finance Global Summit in London, Mr Glen said the NFT plan is “an emblem of the forward-looking approach we are determined to take” and added that the Government may even one day consider issuing a debt using the blockchain technology that underpins the crypto market.
He said: “We are already effectively using crypto-technologies to make government more efficient.
“There’s a genuine opportunity to build on our strengths in fintech, seize the capitalist energy which has already made UK financial services what it is and use it to unleash the potential of crypto-technologies.”
An annual wealth survey published by Knight Frank earlier this year said NFT ownership was on the rise, with 11pc of ultra high net worth individuals now in possession of one.
The highest-value artworks range from enormous digital collages to simple pixelated cartoons, with works from Bored Ape Yacht Club and Bored Ape Kennel Club collections selling for a total of $26m last year.
They have been endorsed by celebrities such as Paris Hilton and Gwyneth Paltrow, as well as footballers including Paul Pogba, John Terry and Michael Owen.
Overall, Knight Frank said sales of NFT art climbed to an estimated $25bn in 2021 – representing almost one third of the global art market’s value as a whole.
In the UK, Matt Hancock, the former health secretary and digital minister, is among the enthusiastic political backers of crypto assets in the UK.
Despite their abuse by criminals, he has argued cryptocurrencies “are a force for good”.
“Bad people are going to use all sorts of currencies and have since currencies were invented,” he said in a speech to the London Crypto Club.
“But the advantage of a currency that is based on the blockchain is that if you get the regulatory piece right, then you get more transparency, not less.”