Non-fungible tokens have made lots of headlines for the incredible prices some of them have garnered. In Dec. 2021, for example, an NFT created by the artist Pak dubbed “The Merge” went for a collective sum of $91.8 million. This followed the previous record-setting $69.3 million that Beeple’s “Everydays – The First 5000 Days” sold for in Mar. 2021.
Figures like that make it seem like NFTs are the path to easy wealth, but as with other investments, the reality is that getting rich by investing in NFTs isn’t easy. In fact, most NFTs are nothing more than speculations at this point. If you apply the same discipline and investment principles that you use when buying stocks, however, you may be able to generate long-term wealth in the NFT space. Here are some suggestions for how to proceed.
Start by Getting in the Game
It’s hard not to view NFTs as another playground of the rich and famous when some of them sell for tens of millions of dollars. Yet, while it’s true that many wealthy and well-known individuals have dabbled in the NFT marketplace, most NFTs are priced in the $10 to $500 range, putting them within range of the average investor.
In other words, you might never be able to afford the most expensive NFTs, but it doesn’t mean that you don’t have plenty of options to choose from.
Do Your Research
If you’re just getting into the NFT game, start by looking at some of the more popular marketplaces and NFT brands. OpenSea, for example, is the first and largest NFT marketplace, and it’s also a vast resource for those looking to learn about what’s hot in NFTs.
Some of the most popular NFT collections that you can find on OpenSea include CryptoPunks, Doodles and Bored Ape Yacht Club. Beyond the fanciful names, it pays to dig into why these collections are popular. After all, the key to a successful NFT investment is a large and growing audience of supporters that will continually pay higher and higher prices.
Use Basic Investment Principles
The investment world hinges on supply and demand. In the stock market, for example, prices go higher when there are more buyers than sellers. In the collectibles market, prices go higher when an item is rare, popular and/or unique. These same principles can drive up the price of an NFT.
Not all things that are rare, even one-of-a-kind items, necessarily go up in price over time. However, if you can identify items that are currently undervalued but likely to become popular, you have a winning combination. An example might be an NFT issued by a relatively unknown musical artist who goes on to become a huge star. In that case, it’s highly likely that the artist’s NFT will rise in price along with their stardom.
Invest in What You Know
This axiom is usually reserved for the stock market, but it applies perhaps even more directly to the NFT market. There are nearly limitless NFTs available for purchase, but most are relatively valueless, and many will stay that way. To try to randomly pick the winning needle out of that haystack would take an incredible amount of luck. However, if you have extensive knowledge about a particular area of the market, you might have an edge on other investors.
For example, if you are a film buff who goes to see every independent movie released, you might spot a rising star before they become famous. If they issue an NFT, it will no doubt be inexpensive while they remain unknown, but could spike in value if and when they become famous. Similarly, if you are a baseball nut that goes to minor league and Spring Training games, you might see a future MVP in the making before most of the world does. The same holds true for a variety of industries, from art and gaming to technology. Anywhere you can use your specific knowledge to identify “the next big thing,” getting in on an NFT attached to it can potentially make you rich down the road.
The Bottom Line
NFTs are an exciting new investment class that has attracted big money in its relatively short existence, but they aren’t for everyone. At this point, NFTs are speculative investments that may never rise in price. Some may end up completely valueless. But if you apply a disciplined investment strategy, only buying NFTs in fields that you know something about with money that you can afford to lose, there’s nothing wrong with adding them to the speculative portion of your overall portfolio.
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