Non-fungible tokens, or NFTs, recently have come to prominence as the digital assets have gained celebrities’ attention and fetched sale prices in the millions of dollars.
Christie’s sold an original NFT artwork for a whopping $69,346,250. Basketball fans can buy moments of NBA games, kind of like video trading cards, which regularly list for six-figure prices. So, what are these NFTs all about? Let’s take a look at investing in NFTs and if it makes sense for you.
What Are NFTs?
While NFTs are digital assets such as bitcoin and other cryptocurrencies, they are fundamentally different.
Cryptocurrencies are fungible tokens, which means they can be interchanged. Non-fungible tokens are unique assets that only exist for one owner at a given time.
Like bitcoin and other cryptocurrencies, NTFs are bought, sold, and held using blockchain technology. If you buy an NFT, you typically hold it in an online account or cryptocurrency wallet. Because it’s a digital-only asset, you can’t carry it around in your pocket–unless you have a hardware wallet.
With an NFT, virtually anyone on the internet may be able to view the asset. However, like traditional physical artwork, there is only one owner. So you should consider how you would feel investing money in something others potentially could view for free, just for the sake of owning it.
Do I Need NFTs in My Portfolio?
Most people do not need NFTs in their portfolios. Like cryptocurrencies, NFTs are somewhat new and are very risky. However,unlike bitcoin and other popular cryptocurrency tokens, there may not be a consistent market of buyers for your NFT.
In 2017, the SEC issued a statement warning investors about the risks of cryptocurrencies, initial coin offerings (ICOs), and the blooming digital-asset space. NFTs use the same technology but arguably carry even more risk.
According to Michael Anderson, a financial advisor at Maranatha Financial in Ventura, California, you should avoid putting too much money into the NFT market. “As a new and unproven asset, most investors should stay clear of NFTs,” he says. “If you do decide to invest, don’t put in any more money than you can afford to lose.”
Is Investing in NFTs Worth It?
NFTs have exploded in popularity. After some investors made millions from NFTs, you may be wondering if you should get in on the hype.
Vignesh Sundaresan, the buyer of the $69 million artwork through auction, believes NFTs are a legitimate store of value and represent a shift in how the world views art and collectible assets. In an interview with CNBC, Sundaresan said that NFTs would become a new commodity class that connects buyers and sellers worldwide.
However, the NFT he purchased arguably is just a digital image anyone can copy paired with a unique asset address. This has many people skeptical of the value of NTFs. After all, people once thought Beanie Babies and tulips should fetch astronomical price tags. Those fads fell away. Only time will tell if NFTs will hold the value of a Picasso or a pet rock.
Even some in the cryptocurrency industry question the value of NFTs. In a thread on Twitter, litecoin founder Charlie Lee says the ability to duplicate the underlying asset negates the value of owning the NFT.
He also questions what will happen to the value of the NBA Top Shot Moments if the website goes down, pointing out that physical baseball cards remain valuable long after the manufacturers or leagues cease to exist.
How to Invest in NFTs
If you want to get started with NFTs, you have a few ways to begin. Various NFT platforms allow you to buy, list, and sell specific assets. Depending on the platform, you may need an account there or another form of accepted cryptocurrency wallet.
If you buy on a platform like NBA Top Shot, you fund your account and hold your Top Shot assets in your account at the official website. Other marketplaces, such asOpenSea, require you to pay with cryptocurrencies such as bitcoin or ethereum and receive your asset through an outside digital wallet.
For those who find this process confusing and convoluted, it may be best to avoid NFTs. However,if you’re fairly tech-savvy or already have some experience with blockchain-based assets, you should find the process rather straightforward.
Some popular NFT marketplaces include:
- NBA Top Shot
- Nifty Gateway
Fortunes have been made in the NFT space. There’s no guarantee this trend will continue, but current hype and excitement around digital assets have them reaching sky-high prices. If you are thinking about an NFT purchase, consider your risk appetite and evaluate how much money would you be okay losing.
- Non-fungible tokens are digital assets a single owner holds. However, others may be able to view and effectively duplicate the asset.
- Similar to bitcoin and other cryptocurrencies, NFTs are bought, sold, and stored using blockchains.
- Unlike bitcoin and other cryptocurrencies, NFTs cannot be interchanged.
- NFTs may increase in value, but they could become worthless. The future of NFTs is highly speculative.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.