NFTs As Investments

The creators of the internet wanted a way for government researchers to share information. They also wanted a way to share information if the phone system went down during a nuclear attack. This was in the 1960s. Back then nobody envisioned a world where everyone communicated via smartphone. And nobody expected a world of investable and tradable digital assets like cryptocurrencies or non-fungible tokens. Today we look at NFTs as investments rather than multiple silly images of fantasy creatures or one of William Shatner’s dental x-rays. Are these investable assets? If so, how does the average person go about investing in non-fungible tokens?

What Is an NFT?

Non-fungible means unique and not replaceable. A non-fungible token is a digital asset that has a unique digital “signature” making each one different from digital asset like Bitcoin tokens which are interchangeable. An NFT is a collectable asset like a rare oil painting instead of a mass produced print of the same image. An NFT can represent virtually any kind of asset including media generated by computer, physical artwork, share of a company, real estate, or sports trading cards. Unlike assets like uranium backed crypto tokens, each NFT is unique. A lighthearted approach to NFTs was when the actor, William Shatner of Star Trek fame, turned his unique dental x-rays into NFTs and sold them to fans.

NFTs As Investments

How Do You Invest in NFTs?

NFT marketplaces and crypto exchanges offer NFTs as do dealers and brokers. NFTs have even been sold by high-end auction houses like Christie’s and Sotheby’s. Buying and selling NFTs via an online NFT marketplace like Top Shot, Super Rare, Nifty Gateway, Rarible, or OpenSea typically requires that you do your transactions with a token used by the specific blockchain in question. Most commonly this token is that of the Ethereum platform. That means that a person needs a digital wallet and the keys or codes needed to access their digital assets. These are the basics of how to buy and sell NFTs. If you look at NFTs as investments you need to consider how to pick the best investments, decide when to buy, and decide when to sell. This gets us into the worlds of intrinsic investment value and technical trading based on market sentiment.

Does an NFT Have Intrinsic Value?

Back in the 1920s, long before computers existed, the US stock market was in an extended rally. This example is important for crypto and NFT investors to understand. That is because of the similarities between the 1920s stock market and the crypto and NFT experience of the last few years. In the 1920s many people “played the market.” Stocks kept going up from 1921 to 1929 with brief pauses in 1922 to 1923 and 1925 to 1926. Brokers let you borrow money in order to buy stocks. Those whose investment experience was limited to this time frame came to believe that stocks always went up. Likewise, up until the end of 2021, folks in the crypto and NFT realms came to believe that these assets “always went up” despite occasional corrections. This naïve belief in the stock market disappeared with the 1929 to 1932 crash that took away 90% of the stock market’s value. The crypto winter crash with 75% of the value of Bitcoin disappearing was similar. In the aftermath of the stock market crash and during the Great Depression Benjamin Graham developed the concept of intrinsic stock value. This turned out to be a reliable guide to long term investing that made multimillion dollar fortunes for the likes of Warren Buffett.

Intrinsic value is the capacity of an investment to make money in the future. With a stock this translates into forward-looking earnings. With a commodity like gold or cryptocurrency like Bitcoin it translates into scarcity as the asset has an eventual limit. With non-fungible tokens each and every asset is unique and not reproducible. However, there are 10,000 Bored Ape NFTs. That begs the question how unique is yours? When investing in NFTs an investor needs to look at how active the market is and NFTs are in the doldrums at this moment. And they need to look for truly unique assets that do have thousands or tens of thousands of virtually indistinguishable cousins coming out every year!

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