Modern graphics and rare trading cards are starting to look a lot like a new asset class through digital non-fungible tokens, but institutional investors — some of which have long been attracted to fine art markets — are not sold on the concept yet.

Non-fungible tokens, or NFTs, are non-interchangeable, digital signature-based collectible goods, which are stored in a digital format. NFTs exploded in the first quarter of the year on blockchain-run platforms such as OpenSea.

Modern artists or holders of extremely rare sports cards put ownership status to their digital goods for buyers to trade.

Sources said that digital tokens, just like bitcoin did, could soon come on the radar of institutional investors.

“It’s a bubble at the moment,” said Anatoly Crachilov, founding partner and CEO of Nickel Digital Asset Management in London, who compared NFTs’ rise to bitcoin bubbles seen in the last decade. The London-based digital assets firm has around $200 million in assets under management.

“There is a stunning number of people who will invest and will see the price collapse aggressively,” he said, noting that in the next two years the NFT space will be “uncomfortably volatile” and could lead to 95% of today’s tokens to fall in value.

But the rest will “survive” and some will “make a killing,” he said.

Mr. Crachilov compared NFTs to an online, much more efficient auction house, such as Christie’s International SA.

His firm is also interested in entering the market once the liquidity improves as cryptocurrency assets are good diversifiers that can improve portfolio return and Sharpe ratios, he said. “We need (a) far more liquid market with $10 billion of trade volume a day,” he said.

But other investors see challenges, including yield-related obstacles and market structure risks.

Thijs Knaap, Amsterdam-based senior strategist at APG Asset Management, the in-house manager of the €492 billion ($578.4 billion) Stichting Pensioenfonds ABP, Heerlen, Netherlands, said that NFTs are closely comparable to art and collectibles markets.

But even though prices of paintings and memorabilia sometimes can go up, he added, there is no yield advantage because the only source of return is capital appreciation obtained through selling to a higher bidder. APG doesn’t have plans to invest in NFTs at present, Mr. Knaap said, adding that NFTs lack longevity that spans decades for long-term investors to be interested in investing.

Still, fine art investors — once regulatory clarity and guidelines are given — would want to approach NFTs, said Lawrence Wintermeyer, executive co-chairman of Global Digital Finance in London, a member association that advocates best practices for digital assets.

Mr. Wintermeyer added that investors also have to find cryptocurrency-ready custodians to store and transact for them.

“Pension funds, if you exclude the progressive ones, are the most conservative but … it is about institutions understanding the risk and assurance from the custody and settlement system that they can transact. Once they understand how to measure the risk, they would look at it as part of their own diversification (efforts).”