Is Investing in the NFTs of Your Favourite Things a Good Long-Term Investing Strategy?
Is investing in the NFTs of your favourite things a good investment? If you’re one of the progressive investors who got into NFTs last summer, your answer is probably yes. That’s because the entire NFT market as a whole is up big time from where it was just nine months ago.
You can thank the overall bull run in the broader cryptocurrency market for that, but there are also other factors to consider. Not the least of which is the coronavirus pandemic and the fact that people all around the world are sitting at home in isolation looking for a hobby to pass the time. Not to mention, many of us also have some money to play around with because of governments printing money. Also because of the fact that many progressive investors are probably up handsomely on their crypto investments right now.
So, for today’s Progressive Investor post here at Netcoins, let’s take a deeper dive into whether or not investing in the NFTs of all your favourite things is a good short-term and long-term strategy for earning precious crypto capital gains.
Why NFT Collectibles and Traditional Collectibles Are Good Investments Right Now: A Real Example
If you want proof that the pandemic is responsible for what’s happening with digital collectibles, look no further than the old-school world of trading cards. NBA basketball cards for example are trading at many times more than they were before the pandemic began. The same goes for Pokémon cards, Magic the Gathering cards, and almost every other form of traditional physical collectible.
Scanning through eBay is probably the best way to find recent sale prices of trading cards en masse. But for now, I’ll save you some time and give you my example of what happened when I invested in a basketball card.
Investing in a Luka Doncic Rookie Card
The NBA was in a bubble in Florida last August as the league decided to go ahead with the NBA playoffs. I purchased a Luka Doncic rookie card in July 2020 with the condition being Gem Mint according to Professional Sports Authenticator, a popular company in the collectible world that grades cards for their condition out of 10.
Luka Doncic is the brightest young star in the NBA, he’s an international talent and basketball just happens to be my favourite thing (yes, even more than crypto), so I figured even if the card didn’t go up in value in the short term, I would be happy keeping it for a long time anyway.
Just 90 days after I purchased the card, sellers on eBay had it listed for double the price. By the time the NBA started the current season on Christmas Day of last year, my Luka card was worth nearly $1,000, multiple times more than what I paid for it. Unbelievable, right?
Investing in Basketball NFTs with NBA TopShot
NBA TopShot is run by a company in the same city as your favourite cryptocurrency exchange in Canada, Netcoins. That’s Dapper Labs in Vancouver, British Columbia. The company has a licensing agreement in place with the NBA to sell 10-second video highlights (called Moments), give them unique serial numbers, register them on the blockchain and sell them to NFT investors and sports fans like myself.
I purchased my first pack of NBA TopShot Moments in August of last year. The packs were nine dollars USD, and there was no need to win a lottery or a spot in line in order to purchase those packs.
At the height of the TopShot boom just two months ago, individual Moments were selling for $2,000 USD each, which was the case with my lone moment of Los Angeles Clippers forward (and former Toronto Raptors NBA Finals MVP), Kawhi Leonard. That’s even more mind-blowing than the Luka Doncic card.
Here’s the thing. When it comes to investing in both cryptocurrencies and NFTs, the statement ‘what goes up must come down’ rings true. Perhaps more so than progressive investors want to believe during an epic bull run like the one you and I are living through now.
Why NFTs Drop in Value after Setting the World on Fire
I just told you in the section above that my Kawhi Leonard TopShot moment was purchased in a pack for nine dollars USD and ended up reselling for $2,000.
Here’s the thing. I didn’t sell mine. I got that price from the price listings of other sellers on the platform. Now copies of that Moment are selling for as low as $1,500.
What I’m learning is that just because something is listed at a high price, doesn’t mean that it is selling for that price. Alas, I’m still holding onto my Kawhi Leonard moment (even though I could sell at a huge profit right now).
As progressive investors in the world of fast-moving cryptocurrencies and NFTs know, experience is the best teacher. But when you’re investing significant capital, you can get burned if you can’t find a buyer willing to pay a higher price than you for an NFT that you weren’t planning on keeping.
Why is it that NFTs like NBATopShot, CryptoPunks, and CryptoKitties, the one that started the NFT craze several years ago, drop in value after setting the world on fire? There are many reasons this happens.
Profiteers Move onto the Next Opportunity to Capitalize
Given some of the financial figures in the section above, it makes sense that early adopters of NFT projects who are not actually fans of the NFTs being sold might jump in just to make a quick buck. Especially those who managed to purchase NFTs nine months ago when the price of Bitcoin and Ethereum were much lower.
Those lucky profiteers not only had the opportunity to 10x on the sales of their items. They’ve also experienced significant gains in the price of Bitcoin and Ethereum since then.
Flippers don’t have any sentimental attachment to the NFTs they buy, but they still add to the user base of a new project and thus inflate the demand artificially. Once they lose interest, prices can drop dramatically and you can be left holding the bag. That’s especially bad news for you if you’re also just in it to flip.
Many NFT Projects Are Still in Beta
I can personally attest to the challenges of operating within a Beta environment. NBA TopShot is still in Beta. Dapper Labs is still trying to figure out ways to make buying, selling, and trading both packs and Moments fair for everyone. As of right now, there are an estimated 250,000+ users on the platform.
When I started collecting them last summer, I didn’t have to wait in line for hours to buy packs (and deal with the fact that only 10% of users in line would get a premium pack for instance). I didn’t have to compete with bots to buy them, and I didn’t have to maintain a certain number of Moments in my TopShot account to qualify for a pack drop.
Nine months ago, it was fun collecting because I wasn’t competing with anybody and I didn’t even know that what I was collecting would give me a 200x return in a matter of months.
On the other hand, newer users are leaving the platform because they have to navigate all kinds of rules and restrictions that didn’t exist when the project first launched.
Other Opportunities to Profit in a Broader Bull Market
Experiencing a 200x gain on a nine-dollar investment is certainly exhilarating. The thing is that many NFT platforms are still having a hard time managing hundreds of thousands of buyers and sellers trying to cash out at the same time. In waiting for the right time to do so, you’re likely sacrificing opportunities to capitalize on the price appreciation of crypto projects as altcoins continue to exponentially increase in value.
There is always an opportunity cost to investing. While you may or may not be earning more crypto off of TopShot, CryptoPunks, and digital artwork, you’re also tying up crypto capital in something that you may not be able to sell at all.
That brings us to a broader point about what you should consider when weighing the pros and cons of investing in NFTs versus cryptocurrencies.
Profiting off of NFTs Is All about Finding a Greater Fool Than You
Investing in the NFTs of your favourite things is a great idea, but it’s not just because you can earn a huge profit. It’s also because you might spend a lot only to end up keeping what you are collecting for a long time.
I invested in NBA collectibles because I love basketball, not because I thought that what I was collecting would be worth thousands of dollars. Yes, I hope to end up with more crypto than I started with, but even if I don’t, I’m happy just enjoying what I own.
Investing in NFTs for a profit is a high-risk/high reward game. The NBA is a brand that sports fans love. It has a global following and features famous real-world athletes (who have their own huge followings) performing at their best.
On the other hand, CryptoPunks that sell for $250,000 in Ethereum tokens are nothing more than pixelated images of fictional characters.
If you got one of the rare CryptoPunks characters early, you might be filthy rich right now. But if the crypto market (and broader investing market) takes a massive bearish trend (it’s going to happen again sooner or later), it might end up being very difficult to sell something that only appeals to a specific niche. Especially if you’re the buyer of a $250,000 CryptoPunks NFT and looking to sell it for more than that.
Buying a Bitcoin for $75,000 today and having to sell it for a 75% loss the next time a bear market happens is no doubt going to be a bitter pill to swallow for many investors (if and when a big correction happens).
But that’s the thing about holding crypto versus NFTs. If an investor decides they need to cash out of Bitcoin, the market for buyers will still be there when the price drops, even if it means selling at a huge loss.
In comparison, selling a $250,000 CryptoPunk for even $50,000 could prove to be very difficult in a bearish market. You could even theoretically end up not selling it at all. Imagine if that bear market ends and you’re still holding that NFT, but now it’s valued at just $200 because there are thousands of other NFTs and everybody has lost interest in pixelated punks.
NFTs offer huge upside, but there is also a downside risk because the market for investors willing to spend $250,000 on that pixelated punk will probably always be smaller than the market for investors willing to spend $250,000 on Bitcoin for example.
Two Solid NFT Investing Tools for You
This Progressive Investor post is different from most of the ones you’ll find here at Netcoins, but I always try to write these posts with some pragmatic value in them.
The cool thing about NFTs being minted, bought, and sold on the blockchain is that you can view the sales history for any NFT that exists. There are many cool tools out there, but I’ll give you two of the easiest to use.
JuicyNFTs is a simple one-page website that gives you the historical sales volume of NFTs as a whole along with some other cool statistics.
CryptoSlam.io is by far my favourite tool. You can log on there and see the sales data for nearly every popular NFT on the market. Search by top sales of individual NFTs, top NFT products, individual NFTs, individual buyer or seller, or even specific Ethereum addresses.
The amount of data you can sift through using this tool is overwhelming.
Buying Cryptocurrency with Netcoins to Start Investing in NFTs
There are many marketplaces where you can buy and sell NFTs. Most NFT products have their own proprietary ecosystems and accompanying marketplaces, but you can also use marketplace aggregators like OpenSea.io and Lazy.com to buy NFTs or display your own for sale.
In order to sink your teeth into the NFT craze and gain some experience, you need to get your hands on some Ethereum tokens first. Do that at the most trusted cryptocurrency exchange in Canada, Netcoins. Register for free today!
Keep in mind that you should only invest what you’re willing to lose. Also remember that if you’re going to get into NFTs, sticking to your favourite things is probably a good idea if you want to be in it for the long haul.
Happy NFT investing!
Writer, content marketing at Netcoins.