Are NFTs a Good Investment? Pros and Cons of NFT Investing

Are NFTs a Good Investment? Pros and Cons of NFT Investing

If you’ve heard of the Bored Ape Yacht Club (BAYC), CryptoPunks, or Doodles, then you are at the very least aware of NFTs. However, if you’re scratching your head and asking what in the world is going on, don’t worry, we’ve all been there.

Non-fungible tokens, or NFTs, are the newest and coolest trend in the crypto world. These digital assets represent ownership of a wide range of digital items. NFTs have drawn the attention of huge corporations and popular celebrities. 

Some people buy NFTs because they’re fun or to add some enjoyment to their lives. These purchases are driven by emotion. Others see NFTs as a form of investment much the same way a collector might purchase a piece of artwork hoping its value will increase.

The question is, are NFTs a good investment? We’ll break down the pros and cons of investing in NFTs for you, so you’ll have the information you need to make an educated decision.

What is an NFT?

First, let’s define NFTs. Yes, we know the letters stand for non-fungible token, but that doesn’t really tell us what an NFT is. The first thing you want to know is that an NFT is a token that lives on the blockchain. When you own an NFT, you are the owner of the item which the NFT represents.

Since NFTs are non-fungible tokens, these items are one-of-a-kind. When we talk about non-fungible, we’re referring to an item’s ability to be easily replaced. Cash, for example, is fungible. It is interchangeable with cash of the same value. Non-fungible, on the other hand, cannot be substituted or duplicated.

Let’s say Banksy made a digital image and sold the rights to that image as an NFT. While you could screenshot the image, you can’t claim ownership of it, which means you probably can’t sell it. However, if you own the NFT, then you own an original Banksy. Having proof of ownership is vital with NFT trading and investing.

Is NFT a Good Investment?

The important thing to keep in mind with NFTs is that the NFT itself isn’t the actual investment. It’s the item that the NFT represents that you’re interested in. In addition to knowing what you’re actually buying, you’ll also need to understand some crypt basics, such as owning and using a wallet, how to buy an NFT, and how to get the NFT into your wallet.

We’ll talk about the cons of NFT investments in a moment, but for now, just know that if you plan to buy an NFT, you should do so because you want to, not because it’s a good investment. The market is volatile and there is a lot of risk involved with NFTs. At this time, they’re just not the wisest investment.

Pros of NFT investing

That’s not to say there are no advantages to NFT investing. There are several. Here are a few areas where investing in NFTs makes sense.

Low barrier to entry

One of the biggest advantages to investing in non-fungible tokens is that anyone can do it. You do have to educate yourself on how they work, which ones have upside, and how to add them to your portfolio. But investing in tokenized assets is available to anyone in the world and investments can easily be transferred from one owner to the next.

Ability to fractionalize ownership of assets

In today’s world, it is challenging to define a way to split ownership of a physical asset among multiple people. NFTs help solve this problem. It is simpler to create a digital representation of an item and split it among multiple owners. These items could be buildings, art, jewelry, and so forth.

If we look at it from an investment perspective, it provides individuals with a way to diversify their portfolios. An investor can set a precise amount, as opposed to going all in on an investment. Similarly, NFTs make diversification much easier, which can lead to increased values and higher prices.

Additional income stream for artists

The group that has benefited the most from NFTs is the artists. With the best NFT marketplaces, artists have an income stream for their creations and content. If an artist’s NFT sells for a significant sum, investors take notice and are likely to purchase more content, which drives up the artist’s value and popularity.

Blockchain technology is very secure

NFTs are created and reside on the blockchain. By its nature, the blockchain is an immutable ledger, storing transactions and information in a way that can’t be altered. That means if anyone has a question about the authenticity of ownership regarding an NFT, it can easily be tracked via the blockchain. 

Additionally, NFTs stored on the blockchain have their digital transaction history records. As a result, they are (theoretically) protected against thieves and other nefarious actors. When ownership of an NFT changes hands, it is permanently recorded, creating a level of confidence typically seen in traditional finance.

Cons of NFT Investing

Let’s take a look at some of the disadvantages to investing in NFTs.

You’ll probably need to own crypto to get started

Even though there are no barriers to entry for NFTs, there are some challenges when it comes to purchasing one. One challenge is that most NFTs require an individual to own either Ethereum (ETH) or Solana (SOL) to buy an NFT. While there are some rare instances where this isn’t the case, for the most part, you’ll need some crypto in your digital wallet if you want to add an NFT to your portfolio.

NFTs can lead to fake reproductions

Unfortunately, there are people out there who would rather steal someone else’s work and take credit (and payment) as opposed to working hard on their own. The same is true for NFTs as many creators have complained about finding their artwork for sale on sites without their permission.

This is a direct contradiction to the intent of NFTs. They are meant to show and authenticate ownership of an item. Fraudulent NFTs give no credit to the original creator while stealing money from them. 

Ownership does not mean control

In the world of NFTs, owning a non-fungible token is a lot different than controlling it. When you own an NFT on a platform, you don’t have control over what happens to it on other platforms. This includes distribution and duplication rights. Basically, the only thing you do own when you purchase an NFT is the image itself and the right to create prints of it, if you so choose.

The NFT market is volatile and illiquid

Even though they’ve been around for a few years, NFTs are still a very immature financial market. More often than not, they are viewed as an asset class, instead of as a means through which ownership is verified. 

The reality is that the NFT market is still in its nascent stages, which means many people don’t understand them or their purpose. As a result, the buying and selling market for them is still small and underdeveloped. Additionally, misinformation in the NFT market can cause prices to drastically rise and fall, which makes them both volatile and illiquid.

How RebusChain Can Help With NFT Investing

Because the current NFT market is not liquid, RebusChain created NFT products to solve for this. They allow the holder to leverage held NFTs as collateral. That means you can borrow fiat currency, and if the loan is not repaid, the pool simply takes possession of your NFT to sell on the open market.

NFT Liquidity Product 1 - Digital Backing

The idea behind this product is to use your NFT as collateral to borrow money. This is a low-risk, NFT-specific investment that is partially market neutral. It requires a larger participation window than Product 2. However, your rewards scale with the size and frequency of liquidation.

While you stand to see a good return here and the redemption period is perpetual, you do run the risk of seeing a rapid decline in the price of your NFT.

NFT Liquidity Product 2 - Physical Backing

This product has a similar structure to Product 1, but it focuses on borrowing for a specified time frame. If you want to leverage your NFTs for a shorter period of time with low to moderate risk, this product is for you.

It comes with the same risks and rewards, but the redemption period is specified ahead of time and is not perpetual.

The Future of NFT Investing

As you can see there are plenty of advantages and disadvantages to NFTs, which begs the question, are NFTs here to stay or just a passing trend? We say it will be a little bit of both.

The NFT financial market is young, which means it’s still similar to the Wild West where anything goes so long as you don’t get caught. We believe the NFT market will grow and mature as serious investors and projects continue to enter the industry and as more use cases are discovered and applied.

Unfortunately, the market is rife with fraud and scams, which is the piece we believe will eventually die out. The real value of NFTs lies in the blockchain and smart contracts, which is what investors will focus on as they enter the market. 

Of course, for this to happen, NFT marketplaces need to be accessible to everyone, including everyday users and investors. When this happens, adoption will increase, which will drive the growth of the NFT market.

FAQs

Why is NFT so valuable?

An NFT will be valuable if the community and the buyer believe the item has financial value. This is true for many collectibles, including artwork. Other factors can contribute to an NFT’s value as well, including who created it, how it’s been used, and who has owned it in the past.

What is an NFT investment?

An NFT (non-fungible token) exists on the blockchain as a unique token that represents ownership of an item and cannot be duplicated. These tokens can represent digital and physical items, making it possible to easily buy, sell, trade, and invest in NFTs, while helping to reduce potential fraud.

How do I start investing in NFT?

To invest in NFTs, you’ll need to follow a few steps. First, you need to open an account with an NFT marketplace like Solanart, Rarible, or OpenSea. There are other platforms as well, so find one that works for you. 

Once you choose a marketplace, open a wallet that works with the platform. Usually, this is MetaMask or some other wallet that works with the cryptocurrencies used by the marketplace.

Next, you need to fund your wallet with the appropriate crypto. Typically this is either Ethereum or Solana, but there are other marketplaces that accept other cryptos as well. With your wallet loaded, you can now find and purchase an NFT. You’ve now started investing in non-fungible tokens. Congratulations!

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