You’ve most likely heard about how priceless art can be considered an alternative investment. However, what about an internet meme or digital photo? An NFT makes it possible to own digital assets the same way you can own a Rembrandt or Monet. These can also be used as an investment vehicle to diversify your portfolio.
Before explaining how to use NFTs to diversify your portfolio, let us explain what they are and how they work.
NFTs, or non-fungible tokens, are unique digital assets bought and sold online through blockchain technology. Think of them as a kind of digital certificate of ownership over a digital asset such as a video, picture, art, or music. The photo or artwork may be copied, but it will not be the original. An NFT specifies the owner and the creator of the original digital asset.
NFTs use the same technology and coding language as other cryptocurrencies. However, cryptocurrencies are considered fungible because they can be exchanged and are a kind of currency and are therefore interchangeable. As an example, one bitcoin could be exchanged for a different bitcoin. With an NFT, you would be trading a digital token such as bitcoin for something different, such as a piece of digital art.
The use of NFTs isn’t an entirely new investment vehicle. In the past, domain names were purchased and flipped for profit. NFTs have exploded into many new avenues, including art, music, and digital real estate. To take advantage of NFTs, you’ll need to know how to invest and where to invest.
Buying an NFT is similar to purchasing any digital asset. There are NFT marketplaces in the same way as there are stock exchange platforms or cryptocurrency trading applications. Once you choose which marketplace you want to use, you’ll create a digital wallet. This will be where you store the NFT certificates. Then the hard part, you have to find the NFT to invest in. The actual process of purchasing an NFT will be relatively straightforward and is similar to most other online purchases.
To choose an NFT that will provide value to your portfolio, you must look at the community. An NFT is only as valuable as the community of people who want to purchase it. This concept is similar to any market — especially real estate. If no one wants to buy your home, you have to decrease the price. If you purchase an NFT and there’s no interest in it from potential buyers, the value of the NFT is reduced. Large companies and celebrities dropped their NFTs in 2021, and these brands and individuals have big communities behind them to drive the asset’s value up. If you were to purchase an NFT from Drake or Nike, the NFT’s value is higher simply due to demand.
So now the question is, what digital markets can you invest in?
Art is one of the most popular markets for NFTs. This space exploded once the artist Beeple made $69 million in one month from the sale of Everydays: The first 5000 Days. If you plan to invest in art, be sure to purchase entire collections where possible — these tend to perform better than individual pieces. The digital art and music market seems to be the most widely used NFT investment market making it less volatile.
The NBA has jumped into the market and created NBA Top Shot, allowing investors to purchase NBA highlights as digital tokens. Don’t think this is lucrative? A video of LeBron James dunking a ball was recently sold for $210,000.
Our world has continued to move into a more digital realm, so even digital real estate has become an investment. With Facebook launching the Metaverse and online worlds like Decentraland selling properties for more than $900,000, it may look like digital real estate investment is the way of the future. However, this is a highly volatile market, and you could lose your entire investment in a single day.
Crypto industry experts estimate that 40% of investors just getting into the market will use NFTs as their entry point. It’s clear that many experts see potential and predict growth in the NFT market throughout 2022. However, there are still many risks involved in this relatively new alternative investment vehicle. If you’re unsure if NFTs are the right investment strategy to diversify your portfolio, consider something with a proven track record that’s also expected to grow throughout 2022: real estate. Investing in mortgage pools has substantially less volatility and still provides the benefits of diversification characteristic of alternative investments. To learn more about alternative investments and mortgage pools, contact Jordan on our team today.
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Since 1994, Cooper Pacific Mortgage Investment Corporation has been helping communities and investors across Western Canada grow and prosper. As real estate experts, our goal is to offer investors outstanding mortgage investment opportunities with an attractive rate of return. We do this by offering short-term construction financing and interim mortgage funding to help builders and developers take projects from planning to completion.
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