The recent growth in popularity of NFTs has taken a slight hit to their reputation due to the larger cryptocurrency fraud perpetrated by the FTX collapse in 2022.
In part from that exchange’s collapse and subsequent bankruptcy, geopolitical events, and rising inflationary costs, digital finance has seen a dip over the past year.
But like all investments, dips are where the profits are made. For successful investors, knowing to buy at the dip, meaning when prices are lower and selling at a peak price, is the difference between maximizing an investment or doing only so-so for a return.
What Are NFTs?
Unlike crypto, NFTs are a singular item, making their own exclusive and providing an opportunity for much higher resale value than most traditional crypto, but there is a catch. Because NFTs are unique, they typically are an item that is singular, like a piece of digital or real-world art, that only one person can possess at a time.
In a nutshell, NFTs are media files assigned to a specific token that is tracked and verified on a blockchain.
The problem with that form of digital currency is that the value of the NFT is derived from the demand for the item. So if a piece of art doesn’t have much consumer demand, then the NFT doesn’t carry much value.
On the other hand, when a piece of art has a lot of demand, its value will rise. While not as volatile as crypto, NFTs have been known to have some fluctuations in their respective values. And because NFTs typically are bought and sold with crypto, the values may be even more volatile due to the nature of crypto valuations.
For example, if you bought a piece of art at the height of Bitcoin’s value at $45,000, at the time, the NFT was valued at $45,000. However, based on today’s price, the NFT would only be valued at the current rate of $26,000 BTC, showing you a loss of $19,000.
But overall, NFTs provide more stable growth opportunities than crypto due to their singular nature.
Pros And Cons Of Investing In NFTs
The Pros Of Investing In NFTs: One of the main benefits of investing in NFTs is that anyone can do it.
Unlike traditional investments, which require specific financial knowledge and resources, investing in tokenized assets is accessible to everyone.
Anyone with an internet connection can invest in these digital assets without going through complicated processes or paperwork.
Another advantage of investing in NFTs is that asset ownership can be transferred more quickly and efficiently among people anywhere in the world.
This makes it easier for investors to buy and sell their assets quickly and securely, as all transactions are recorded on a blockchain ledger.
The Cons Of Investing In NFTs: Investing in NFTs can be risky due to the need for more regulation and oversight.
Many investors have valid reasons to be wary of investing in tokenized assets, as they are not an asset class and are often misconstrued as such. This can lead to inflated values and volatile markets, making it difficult for investors to accurately assess their investments’ value.
Furthermore, the process of generating NFTs is highly energy-intensive, which has led some experts to question its sustainability.
This is especially concerning considering that many NFTs are created with no real purpose or use case other than speculation. With all these factors in mind, potential investors must research before investing in any tokenized asset.
How To Invest In NFTs Safely
To protect yourself from being scammed when buying NFTs, it is essential to do your research before investing in any token. Make sure you verify the artwork’s authenticity by checking out reviews and feedback from other buyers.
Utilizing safeguards like an NFT appraisal platform to verify the token’s authenticity and provide a safe appraisal of the current value of the NFT will provide an added layer of research to your purchasing decisions and give you insights into the potential resale value of the NFT.
Another critical point is to double-check that you are dealing with a reputable seller before making any purchases.
Finally, invest only what you can afford to lose if something goes wrong with your transaction.
Investing in NFTs is an excellent way to make a stable return, but not without risk. Finding a reputable appraisal, understanding the resale market, and watching the overall market trends in DeFi will help you determine if investing in NFTs is worthwhile for you or not.