not investment advice, do your own research, etc.
While it’s difficult not to roll your eyes the idea of a million $$$ dollar jpeg, there is a special shift happening that will fundamentally change the way that humans behave on the internet.
Crypto vs. NFTs as investments – some context:
At their best, cryptocurrencies like Ethereum have gained notoriety and traction as development platforms for blockchain applications (aka dapps).
At their worst, the ICO mania has seen many cryptos pump to extremely high valuations, to later crash back to pennies after early investors dump their holdings (aka pump and dump schemes).
NFTs, on the other hand, haven’t been around as long as Bitcoin or Ethereum. Even an NFT from as recent as 2018 is considered historical and hence more OG by groups of self-proclaimed “NFT Archaeologists”. Still, we haven’t yet seen a true bear market in the space just yet, and only time will tell if these hypothesis will remain plausible.
Regardless, the steady value accretion among communities like CryptoPunks and the Bored Ape Yacht Club provides evidence that NFTs are in fact more than just overpriced .pngs.
Wherever a person chooses to invest, one thing is for sure: NFTs and crypto are risky, and you can lose the money you put in.
Whether you should allocate more of your investments towards crypto or NFTs is dependent upon your own situation and investment goals.
That being said: NFTs and crypto have both had huge price swings in recent months. So, which might be a better investment – crypto or NFTs?
Why might a cryptocurrency like Ethereum be a better long term investment than an NFT?
As cool as NFTs are, there is a high chance they will not outperform a cryptocurrency such as ETH.
Most NFTs are built and hosted on top of the cryptocurrency protocols within the Ethereum ecosystem. Although there are NFTs built on other chains like Solana or Tezos, the largest market share by far sits on Ethereum.
Because that Ethereum powers the majority of the NFT market as a development platform and smart contract programming language (Solidity), owning ETH could feel safer than owning any one individual NFT.
After all, platforms tend to be accrue more value than the sum of all the individual items they support.
Developers are actually building new products and applications on top of the Ethereum Virtual Machine, which inherit the security and decentralization protocols of Ethereum itself.
Another property that makes Ethereum unique is that the asset is burned during each transaction, via gas fees. This reduces supply making ETH progressively more scarce as a result. This decrease in supply is one of the key tenets surrounding the ultrasound money movement.
Ethereum also has a strong development community.
The most significant upcoming item on the dev roadmap is the Merge, in which the Ethereum consensus mechanism will transition from proof-of-work to proof-of-stake. This means that new blocks are validated by nodes that have staked their ETH, instead of by doing energy-intensive computations.
Once Ethereum transitions to proof of stake, owners will be able to earn interest on their staked ETH, which could further drive the charts up and to the right.
The downside of purchasing NFTs
Given the large amount of questionable NFT projects he risk / reward ratio may not be there for NFTs. Extremely high fees mean your ETH stack is dwindling every time you make a purchase.
NFT markets are unpredictable, yet there are few sound and known fundamentals that back them up as an investment. They’re largely focused around hype, which whales are involved etc.
There is a lot that goes into deciding how to invest and which project to put your eggs into, finding high-ROI investments is an art as well as a science.
An investment portfolio is like a bar of soap. The more you handle it, the smaller it gets.
Does it make sense to own NFTs as a part of your crypto portfolio?
In my view, NFTs should not be held as investments, but for FUN and for the community.
Although NFT value increases can be quite unpredictable, a strong community is a good sign.
If you choose to hold an NFT, take your time, do your research, and find an NFT project with real world utility.
NFTs give you the opportunity to become part of a group that is focused around any specific thing.
One sign of legitimate community within an NFT project is the willingness for the founder as well as active holders to be doxxed and in the public eye, as well as seeking to build community for the long haul.
One thing that I always look for is whether or not there are in-person events or meetups happening within the community and among members from different regions around the globe.
Do the NFT holders know each other in real life?
That being said, being a member of an NFT community can be valuable because it is just fun.
Its like joining a fraternity or sorority in college, playing competitive club soccer, or joining the varsity wrestling team.
NFTs create groups of like minded individuals with stake in the focus area.
Diminishing returns: Once you purchase a few NFTs and join a few different communities, any future NFT purchases may only slightly (if at all) increase the amount of value you get from being part of the community.
Because of this, owning more than 1 NFT isn’t necessarily valuable unless you plan to flip it for profit.
Spreading yourself too thin: Being in a community means investing time and energy hanging out in discords, going on trips / attending events, and building relationships in that community.
A single person can only spend so much time. I feel that it is more impactful to be a dedicated member of a small number of communities rather than loosely tied to many different ones.
Sure, the NFT markets are fun to watch. Perhaps they’re worth keeping an eye on in case something truly special comes around that you’re dying to be a part of.
When I get the drive and conviction to own a specific NFT, I do so while making sure to maintain as much ETH ownership as possible.
Number going up is simply a by-product of being part of the group.
Most of us aren’t building the future of the internet – that’s the job of software engineers and designers. But we are the ones that will be more affected by crypto and NFTs potential use cases – we are the ones who will actually use it.
From the content we consume, to how we communicate… from how we spend money, to the career paths we choose… if blockchain technology and its applications continue to advance, the world and our relationship with the internet will be extremely different in the years to come.
Regardless if you’re allocating more capital towards NFTs, crypto, or neither, when we take a step back and look at the larger impact of this technology on our society, we should feel lucky to be around during such an exciting time.