Crypto-Collectible investments are gaining traction
by Nick DonarskiMr. Donarski is the founder and the key technical expert of ORE System, a blockchain gaming platform built for gamers, content creators, and developers to simplify blockchain and give gaming back to gamers.
It is not unusual for investors to include valuable collectibles like fine art, rare coins, vintage wine, and even classic cars in their portfolios. Art investment funds, which pool assets from individuals to invest in promising fine art, have been around for more than a decade. Recently, projects like Yieldstreet’s Art Equity Platform have allowed individuals to join such funds and own shares in a collection of blue-chip Post War & Contemporary artworks.
For those considering diversifying their portfolio with art or other collectibles, a natural question is whether non-fungible tokens (NFTs) should be considered a solid investment. NFTs, which recently entered the mainstream thanks to a booming NFT art market, are a type of digital asset built on blockchain technology. In 2021, the NFT art market experienced $25 billion in sales, which marked an increase of more than 200 times the sales in 2020.
Why Invest in NFTs?
Obviously, the booming NFT market has attracted the attention of short-term investors. CryptoPunk NFTs, which appeared in June 2017, were originally available for free as part of a project launched by crypto artists at Larva Labs. Early on, a single work from the project known as CryptoPunk 1422 was purchased on a secondary market for $74. In October 2021, it sold again for $2 million. During the same month, eight other CryptoPunks sold for more than $1 million. That kind of return on investment is hard to argue with.
In addition, the growing interest in the NFT art market means that there are plenty of new projects launching, or dropping, all the time. For those looking to acquire NFTs from a project that has yet to become popular, opportunities abound.
Some investment advisors are encouraging that NFTs be added to portfolios because of the diversification that they bring. Because NFTs and other collectibles are not tied to the fluctuations of the stock market, they can serve as a stable investment to sure up portfolios when stocks and other traditional investments underperform.
How to Invest in NFTs
NFTs, just like any other new asset, carry a high degree of risk. As a result, adding NFTs to an investment portfolio should involve a number of steps to ensure that the right investments are found and that they are managed well.
Investors should commit to doing their homework before buying any NFT. NFT value is based primarily on the fame or popularity of the creator and the scarcity of his or her work. Identifying an artist who either has had past success or exhibits some unique skill is an important step. Also, the amount of work that the artist plans to release should be considered. Projects with limited scope will result in work that is more scarce and most likely more valuable.
Investors should also consider diversifying their NFT collection. Buying exclusively from one artist or one project is the equivalent of limiting your portfolio to the stock of one company. Including the work of established and emerging artists in an NFT portfolio is one way to add stability while still having the opportunity to take advantage of explosive growth.
Unlike the stock market, the NFT market is not regulated. Fraud is not uncommon. Those wishing to steer clear of scams should take advantage of the blockchain technology on which NFTs are built. Blockchain provides an immutable provenance for NFTs that confirms when they were created and by whom. It allows for NFT art to be authenticated.
Homework should also be done before committing to an NFT platform. While Ethereum is the most popular platform for NFTs, it is not the only one. The platform on which an NFT is built can dictate the cryptocurrency that is exchanged in the buying and selling process. In some cases, committing to a particular blockchain could mean committing to a particular crypto environment, which could ultimately affect the value of an investment.
Finally, investors should remember that NFTs are an art form that can be enjoyed by the purchaser regardless of whether a profit is realized. When you buy with your heart as well as your head, a downturn in economic value will still leave you with an investment that has aesthetic value.