Non-fungible tokens (NFT) are a special kind of cryptocurrency token. Basically, these tokens are not stackable or exchangeable, each individual token is different from the other token.
In other words, each NFT is unique because they cannot be reproduced. This is a little different from standard cryptocurrency that is fungible. For instance, each individual bitcoin is replaceable by another bitcoin – they’re all the same and worth the same amount of money.
You can think of NFTs as cryptocurrency art.
Anyway, an emerging market has formed with people collecting NFTs and paying a large amount of money for certain NFTs. However, is investing in NFTs a wise investment?
This article will cover when it is a wise investment and when it is not a good investment. We will also cover some popular places to purchase NFTs.
Reasons to Invest in NFTs
There are few reasons that you should invest in NFTs. It mostly comes down to making a profit and the ways that these tokens can make a profit. But it’s still worth mentioning these reasons because they are the primary reason people invest in NFTs.
They Can Appreciate in Value
The first, and primary, reason people invest in NFTs is that they can appreciate in value. In fact, they can gain quite a bit of value if the use for the NFT becomes popular.
So, what causes an NFT to appreciate in value?
First, you need to understand the use case of NFTs. Anyone can create artwork NFTs or anything like that. However, those have a tendency to not appreciate much in value unless they were created by a well-known artist.
The reason most NFTs appreciate in value is because the NFTs are used in blockchain games and the games become more popular. The best example of this is, of course, CryptoKitties. A blockchain game that allows users to create their own virtual cats.
The cats are tokenized as NFTs, and some of these NFT cats became insanely valuable as the game became increasingly popular.
Well that in mind, many people will create NFT on new blockchain games with the hope that the blockchain game will one day become popular and the NFT will be worth money.
For instance, some users will create unique usernames – an NFT – on blockchain games with the plan on selling the unique username if the game becomes popular.
Anyway, this reason alone is a good one to invest in NFTs. But blindly buying NFTs with the hope that they will increase in value is a losing bet.
We’ll cover how to find profitable NFTs later on in the article.
The NFT Market is Growing
A relevant point that is often overlooked is that the NFT market is growing. The first big wave of growth occurred after the popularity of CryptoKitties brought the Ethereum network to a standstill in 2017.
However, there is still room for growth in the NFT marketplace. This is especially true as blockchain games become increasingly popular.
In our opinion, blockchain games will become more popular as the blockchain itself becomes more popular and used by more people. And NFTs play a critical role in blockchain games.
That said, just because blockchain games become popular does not mean that the NFTs you hold will become more valuable.
This point ties into the above point, but it’s worth repeating.
NFTs are inherently unique. There will never be another one like it in existence.
The uniqueness gives NFTs the potential to become very profitable. It also adds some excitement to your NFT investment. Instead of just hodling bitcoin or other fungible cryptocurrencies, you have a unique investment that no one else will ever be able to replicate.
Sure, the value might go to zero one day, but it also could be worth thousands of dollars. Either way, it’s something unique that no one else will ever have, and that makes the investment a little more interesting.
It might not be straight profit, but it’s worth
Reasons to Not Invest in NFTs
Here are some reasons that you should not invest in NFTs. These are mostly the usual reasons you should not invest in risky investments. Again, it’s worth mentioning these reasons for full transparency reasons.
They Are Risky
The biggest problem with NFTs is that they are risky. This is especially true if you decide to buy these tokens rather than create them yourself.
If you invest in an NFT, then you have a few risks. The biggest one is that you overpay for the NFT and are subsequently unable to find a buyer at a profitable price.
In that case, someone did make money on the NFT, but it was not you. You were the source of the increasingly large NFT market.
This is why we recommend purchasing speculative NFTs rather than well-established NFTs in the hope of being able to find a buyer willing to pay more than you paid.
Finding Buyers Can Be Difficult
Finally, an often overlooked aspect of NFTs is that it can sometimes be difficult to find a buyer. This mostly applies if you have an NFT in a blockchain game that is not particularly popular.
The good news is that you can find a buyer. But the bad news is that it can sometimes take a long time to find a buyer of your NFT.
This is bad news if you’re used to the higher liquidity of standard cryptocurrencies like Bitcoin or Ethereum. On the other hand, the increased profit can sometimes make it worth the extra trouble of finding a buyer.
Every NFT Will Not Become Valuable
A point so important that it deserves its own section:
Not every NFT will become valuable. There is a misconception that every NFT will one day be worth tens of thousands of dollars.
That simply is not true.
You will sometimes buy NFTs that are duds – the value goes to zero, the blockchain game becomes irrelevant, or no one wants your NFT for whatever reason.
Remember, the value with NFTs is in the eye of the beholder. Sometimes you can do everything right, but simply end up with an NFT that no one actually wants to purchase. It’s similar to art where people will purchase ugly art for large amounts of money.
Why is that art so valuable?
No one really knows, but someone did pay for it, so it is valuable.
Due to this reason, NFTs are a bit of a gamble and do require some understanding of what people want in NFT.
Unfortunately, this is not something that can really be taught. The only way to understand what NFTs will become valuable is to try your hand at investing in NFTs yourself.
That covers it for if you should invest in NFTs or not. If you like risk, understand the purpose of NFTs, and what makes NFTs valuable, then they might be a good investment for you.
On the other hand, if you simply want a passive investment that you can hodl without much thought, then an NFT probably is not the investment for you.