Non-fungible tokens have been around for several years, but not many were interested in how to invest in NFT then. However, the popularity of NFTs didn’t really explode until March of 2021, when a number of celebrity artists, musicians, and athletes began to create and sell NFTs tied to works they had made or personalized. Grimes, Beeple, and others sold creative work for millions. NBA Top Shot tokens brought in similarly high amounts.
Since then, the NFT ecosystem has been growing at a record pace. Creators are entering the space on masse, and investors along with them.
What are NFTs, really? How can one invest in them? And should we consider them as a good long-term investment?
TL;DR: What are non-fungible tokens (NFTs)?
Non-fungible tokens are unique “coins” based on blockchain. No two tokens are alike, and therefore, they are not interchangeable. These tokens are typically associated with pieces of creative content. However, they do not necessarily represent the ownership of intellectual property.
NFTs have received their fair share of criticism. Many in the artistic community are concerned about the carbon footprint of non-fungible tokens on the Ethereum 1.0 blockchain technology. Others have pointed out the lack of protection against fraud in the space. Some experts even suggested NFTs could exacerbate the money laundering problem of the art world.
However, proponents of non-fungible tokens have said that the technology could act as the basis for a more stable and functional creator economy. Because NFTs can be programmed to pay out “royalties” to their creators each time they trade hands, they can provide a fairly consistent source of income to their creators. Additionally, because NFTs do not always represent intellectual property, they offer a more flexible model for creative sales and ownership.
Some have also slated NFTs for use in a number of fields beyond art, music, and sports. Pieces of real estate can be tied to non-fungible tokens. NFTs can be used to sell tickets to live events, unique digital objects in video games, and much more.
Are NFTs a good long-term investment?
While non-fungible tokens may be extremely popular at the moment, there’s no telling how long this popularity will last – or if NFTs will be a good investment in the long term. Many analysts agree that at this point, the NFT market is almost purely speculative.
Therefore, it’s wise to treat NFTs as though they were any other type of investment. Do not invest more than you can afford to lose.
However, in some cases, NFTs can be purchased as a way for fans to develop relationships with the creators that they admire. For example, 3LAU sold an NFT that included creating a custom song for its purchaser; Rob Gronkowski sold an NFT that offered the buyer VIP tickets to his next beach party event.
Other non-fungible tokens offer their holders an opportunity to participate in the way that a piece of digital art or music is presented. For example, NFTs tied to “Betty’s Notebook,” a piece of programmable music by the Verdigris Ensemble, allow their holders to manipulate certain elements of the piece.
How to invest in NFT: what you need to know
When you have chosen a piece of digital art or music, a digital trading card, or another kind of digital collectible, the next step is to purchase it. Pretty simple, right? Yes – but buying an NFT is not always quite as simple as buying a “real-world” collectible.
The methodology of purchasing a non-fungible token depends on the NFT marketplace in which you will be making your purchase. Some NFT marketplaces may allow investors to buy their tokens with credit cards; others will require that you use cryptocurrencies directly.
If the latter is the case, the type of cryptocurrency you will need to make the purchase will depend on the blockchain that the NFT has been created on.
For example, the OpenSea.io and Nifty Gateway marketplaces only sell non-fungible tokens that have been minted on the Ethereum blockchain. Therefore, to purchase NFTs on these platforms, you will need to use ETH tokens. Similarly, other platforms may offer sales in BNB, ADA, DOT, or native tokens belonging to other smart contract-enabled networks.
Storing your non-fungible tokens
Storing your NFTs securely is vital for protecting your investments in the longer term. Some NFT platforms offer their users the option to keep their tokens on-platform. However, there have been several examples of theft from platform-based accounts.
Therefore, NFT holders should consider a safer, self-custodied wallet. Depending on which blockchain your NFTs have been minted on, you will need a different kind of wallet. Some NFT marketplaces have integrated with crypto wallets that have browser extensions, like MetaMask.
Anytime that you create a crypto wallet of any kind, be sure that the seed phrase is visible to you and you only. Only create wallets with trusted providers. Ensure the site you are using to generate your wallet is not a phishing scam.
NFT stocks to invest in
Investing directly in a non-fungible token can be risky. If you don’t feel comfortable with such a high level of risk, you might consider investing in stocks related to the NFT market.
Even with NFT stocks, however, there is a varying level of risk. Each level of risk depends on the business model of the company that is issuing the stock. For example, is the company offering a platform that people can use to create NFTs? Or are they issuing NFTs themselves? Or something else?
When you’re considering whether or not to invest in an NFT stock, make sure you keep the following in mind:
- How old is the company? What is the company’s annual rate of growth of earnings from investments?
- How volatile has the stock’s price been in the past? What is the Price/Earnings (P/E) ratio? How about the Price/Book Value Ratio (P/B ratio)?
- What is the company’s business model? In other words, how does the company plan to earn a profit?
- Does the company have a competitive advantage?
If you are considering purchasing an NFT and need some Ether (ETH) tokens to get started, Coinmotion has got you covered. Coinmotion offers several crypto assets to all our users and an extended range of crypto-based investment services for Private Banking customers. Visit Coinmotion.com to learn more.