If you’re a creator, then chances are you heard about NFTs inside a Clubhouse discussion and once you recognized their potential, made the mad scramble to create your own.
But what if you’re an investor? What if you want to add NFTs to your portfolio? Is it worth doing? What kind of returns can you expect, and is the market still hot?
Let’s consider NFTs from the perspective of an investor.
The Value of an NFT is in the Eye of the Beholder
At the outset, it’s worth noting that NFTs are highly speculative, and their value contingent upon the individual.
Whether Beeple’s Everydays – The First 5,000 Days art collection is worth $69 million, if you would pay $6 million for Canadian artist Grimes’ artwork and music videos, or if $2.9 million is the right price for Jack Dorsey’s first tweet is really anybody’s guess.
If someone wants it badly enough, an NFT could obviously be worth the money they went for, and maybe even more.
But whether you’re a casual or experienced investor, the crux of the matter is whether the value of the token goes up over time, even if it goes through dips and corrections.
And if there were ever a good place to erect a “proceed with caution” sign, it would be before every NFT purchase.
Rolling Stone compared buying NFTs to investing in vintage sports cars or historic mansions.
On the one hand, you could be investing in something rare, a piece of art that could hold its value and even increase over time.
But if there’s anything we’ve learned from the bartering on shows like Comic Book Men (even if staged), it’s that supply and demand play heavily into the negotiation.
Specific items aren’t worth more just because they’re rare. Without a buyer, the rarity of the item is inconsequential, and can end up serving as a bargaining chip for the investing party.
Rarity is basically a guarantee with an NFT (except that you can basically download most if not all digital assets if you know how). Desirability is another matter entirely.
NFT Boom: Blessing or a Curse?
As the NFT boom began in earnest early this year, the hype fed the frenzy, inflating their value.
But we must face facts – everyone, their dog, and the fleas living off their dog is now generating NFTs like it was going out of style.
Scarcity can drive up the price of physical or digital goods, even NFTs.
Now that there is more choice than ever, it’s going to get much harder to separate the wheat from the chaff as an investor.
Could you be buying the equivalent of Apple stock, which was $24.17 in 2016 and $139.96 today, or could you be buying Borders stock, which was probably worth something in the early 2000s, but not worth a dime since the company went defunct in 2011?
Since we don’t really know without further investigation, and in some cases can’t know, the best approach to take would be to diversify your token portfolio.
Basically, invest slowly and be willing to hedge your bets with a mix of NFTs, rather than gambling on one.
Sifting through the options won’t necessarily be simple or easy. And you might end up picking some stinkers regardless.
But so long as all your hopes and dreams don’t rest on the shoulders of a single NFT, you have a better chance at cashing out long term.
Plus, the market will begin to sort itself out over the long haul. A long-term mindset can be a huge help.
Use only the most aggressive part of your aggressive growth fund to invest in NFTs.
Finding Reliable Information
In my opinion, the most challenging aspect of investing in NFTs is trying to find reliable information.
The mainstream media loves uncertainty, and it’s the part of NFTs they’ve latched onto most.
Personally, I don’t give much credence to the notion that terrorist groups and delinquents use cryptocurrencies (NFTs are a part of the Ethereum blockchain).
If transactions are indeed immediate and fully transparent, why would people who don’t want to be tracked deliberately rely on technology that guarantees an easily findable record of their wrongdoings?
The newness of the market doesn’t exactly excuse the hype or opinions posing as fact. We all know that, when we buy a new car model, that it’s basically untested and unproven, and we live with the purchase, or find other solutions.
But if I were investing in NFTs, I would keep an eye on the cryptocurrency market.
I mentioned in this passing already, but it’s worth emphasizing – NFTs are part of the Ethereum blockchain.
And if my observations so far are any indication, every coin, regardless of function, seems to rise and fall with Bitcoin. If Bitcoin goes up in value, all other coins go up in value. If it goes down, all other coins follow.
If that’s how influential Bitcoin is, then it stands to reason that its value will have an impact on NFTs as well.
NFTs can be worth investing in. But as with anything else you’re thinking about putting your money into, it’s critical that you do your homework.
Some NFTs are going to be worth something down the line. Other tokens aren’t. And gambling away your money on a single NFT is probably the worst strategy overall.
If you aren’t already invested in other worthwhile asset classes, then NFTs are not a substitute, and they are not a good place to start.
But the NFT market is indeed hot, and there is a lot of potential long term. So, invest smart, and think long term.
- KTNV Las Vegas, Nevada, List of most expensive NFTs sold so far, https://www.ktnv.com/13-investigates/list-of-most-expensive-nfts-sold-so-far
- Rolling Stone, NFT Explainer 2021: What is an NFT? Are NFTs Worth Investing In?, https://www.rollingstone.com/product-recommendations/finance/nft-explainer-are-nfts-worth-investing-in-1170059/
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