Should You Invest Your Crypto On NFTs?
If you’re reading this, you’ve probably seen the headlines. The Nyan Cat meme selling for $600,000. A highlight clip of a LeBron James selling for over $200,000. A drawing of a “bored” ape selling for $2.9 million. A digital art collage by Mike Winkelmann, also known as Beeple, selling for a whopping and record-breaking $69.3 million.
The people who bought these didn’t just pay top dollar for a copy of a short video, a GIF, or a JPEG file. They bought an NFT or a non-fungible token. NFTs, which have been around since 2014, exploded into the mainstream in 2021. According to a market study by Nonfungible.com, NFT trading reached $17.6 billion last year, which is a staggering 21,000% increase from $82 million in 2020.
NFTs, with all the new projects springing up like mushrooms after the rain, are still the hottest trend in the crypto world right now and are continuing to grow in popularity. Like many others, you’re probably asking yourself right now: Should I invest my crypto on NFTs? Is it worth it or is it all just vaporwave?
Before you open your crypto wallet and jump in on the NFT craze, it’s wise to first equip yourself with some foundational knowledge about these blockchain assets and dispel that FUD (fear, uncertainty, and doubt). Here are the things you need to know.
What is an NFT?
As you already know, NFTs stand for non-fungible tokens. But first, let’s define fungibility. When assets of the same type can be traded for one another, such as supplies or dollar bills, they are said to be fungible. On the other hand, rare baseball cards, owned cars, houses, and land are assets that are not fungible because each unit has distinct properties that either increase or decrease value. "Non-fungible" essentially denotes uniqueness and impossibility of substitution.
NFTs are a type of digital token that are used to ensure ownership of a particular asset, such as artworks, images, videos, and other properties. The integrity of original digital ownership is secured through blockchain technology as NFTs are represented and time-stamped on the chain, which cannot be altered or manipulated. Although the majority of NFT tokens are stored on the Ethereum blockchain, they are also supported by the protocols and smart contracts of other platforms, such as Solana, Tezos, Flow, and WAX.
NFTs are especially popular in the field of visual and digital art. Both digital and traditional artworks made by artists are minted, traded, and then sold for thousands of dollars on markets like OpenSea. However, NFTs have also expanded beyond art and are used in many different platforms and industries like sports, real estate, media, gaming, popular and meme culture, and even the automotive industry.
Should You Invest in NFTs?
Like the entire crypto market, NFTs are on a current downtrend, which can be attributed to various factors. This, however, is not a coincidence. The enormous growth experienced by NFTs last year also coincided with a rising market trend for cryptocurrencies in general, illustrating a significant relation between the two. Therefore, if the market as a whole turns bullish, NFTs have a good chance of returning to their prior highs. So, should you buy the dip?
Before investing, you must assess your level of exposure to NFTs because they are speculative and risk assets similar to cryptocurrency, but ever riskier. Since, at its core, NFTs are basically proof of ownership, what you’re purchasing is more like the title to a house rather than the house itself. Similar to how you wouldn't purchase a mansion solely for the deed, it is not a good idea to purchase an NFT simply because it is an NFT.
NFTs don’t work like traditional investments, such as in bonds or stocks, where you can calculate the intrinsic value in addition to its market value. Their value is entirely determined by how much other crypto bros are willing to pay for them.
That being said, purchasing tokenized assets is not always a horrible idea. Hobbyists, collectors, and enthusiasts buy one-of-a-kind items and collectibles all the time, and even sell them later for a higher price. If you find an NFT that you like or resonates with you and have the financial capacity to buy it, you should. Many people buy NFTs not initially as investments but merely because they are enjoyable; their choice to purchase was motivated by emotion rather than by an interest in making money.
NFTs can also help new crypto investors and serve as a gateway for them to broaden their knowledge about the entire blockchain and cryptocurrency landscape. By investing a small amount in tokenized assets, investors can expand their portfolios and increase their understanding of blockchain technology.
In conclusion, NFTs have advantages and disadvantages, but it's not a good idea to invest in any asset simply because it has been tokenized. Finding high-quality NFTs that you'd really like to own, extensively reading about these tokens, and taking the necessary steps to own them is your best course of action as an investor.
Many believe that 2022 will mark the year that NFTs become widely used as more businesses, celebrities, and influencers enter the NFT world. While, even in the ranks of crypto bros, there is a significant gulf in opinion about its future, there is one point of agreement among everyone: NFTs are generating more interest. That’s why you’re here!
How to Invest in NFTs
Anyone can invest in NFTs and it’s also very simple to do. Any NFT marketplace as well as some cryptocurrency exchanges will allow you to purchase assets that have been tokenized or minted into NFTs. You might need to have Ether (ETH) on hand in order to buy an NFT on one of the many NFT marketplaces, which is hosted on the Ethereum platform.