Just as the world began to understand the concept of cryptocurrency, NFTs came in to set another confusion. Their popularity rose during the pandemic, with someone selling their NFT for $69 million. This has left many wanting to learn how to invest in NFT.
Not sure what NFTs are, how investing in NFTs works, or whether investing in NFTs is profitable? You’ve come to the right place. In this article, we have compiled everything that you need to know about how to invest in NFT.
What are NFTs?
Although NFTs have been around for some years, they are still a mystery to many people. Hence, before learning how to invest in NFT, it is good to have a good understanding of the technology.
NFTs (Non-Fungible Tokens) are records of digital files with unique information that is stored on the blockchain. NFTs can be digital records of collectibles, artwork, sports, domain names, trading cards, and virtual property that can be traded on the blockchain.
It’s worth noting that NFTs are not an asset class but simply blockchain technology that validates the ownership of the digital item or commodity. Thus, you can view NFTs as certificates or deeds that show digital ownership of intangible assets that cannot be replicated.
The transactions are recorded on the blockchain, which serves as a public digital ledger for recording deals on the web, providing some transparency. The nature of the blockchain also ensures that NFTs are immutable.
Investing in NFTs: Fungible vs Non-Fungible Assets
Knowing the difference between fungible and non-fungible assets is key to learning how to invest in NFT.
Fungible assets are interchangeable commodities, thus, they cannot be distinguished from one another. For example, currency is fungible because it can be exchanged for other items of equal value. For instance, you can exchange £1o for two £5 and remain with the same spending power. You will not have gained or lost value.
Non-fungible items cannot be exchanged for the same value since the unique properties of the items cannot be exchanged with that of another. For example, sports trading cards. They cannot be exchanged without the loss or gain of value.
Placing a monetary value on non-fungible tokens is subjective because their unique properties make them sentimental to the owner, mostly if sold and stored in their mint condition.
Why Investing in NFT is Important
Some people desire to learn how to invest in NFT because it’s a way of making money from buying and selling digital collectible items. Investing in NFTs can help you make profits just like investing in other cryptocurrency-related assets. It also comes with some advantages over investing in other types of assets. Below are some of the reasons why people like investing in NFT:
#1: Increasing access to ownership
Access to ownership is the first reason why people want to learn how to invest in NFT. Historically, collectibles were only accessible to high-net-worth individuals. However, NFTs have changed this since anyone can access them for use in the metaverse. NFT tokens can be bought, sold, and transferred to anyone across the world without paying taxes. NFTs are also sold at different prices, some cheap others expensive, making them affordable to individuals belonging to different social classes.
#2: Reducing maintenance costs
NFTs reduce maintenance costs, and that’s why you should know how to invest in NFT. Collectors of physical collectibles often find it challenging to keep the items in their original form at the time of sale or in mint condition. However, this is not a big issue after investing in NFTs because of their lower maintenance costs. After purchasing an NFT, you only have to maintain its security.
#3: Increasing collectible security
Most traditional insurance companies don’t offer security for collectibles. This means that the collectors are not protected against damage or loss of the physical asset. Although NFT tokens are not insured, they offer high security considering they are stored on the blockchain where they can’t be modified or deleted. This is another reason you should know how to invest in NFT.
#4: Easily transferrable
It is easy to transfer NFTs to anyone regardless of their location.
Next, we will be discussing how to invest in NFT.
How to Invest in NFT
So, how do you invest in NFTs? Let’s find out.
The following are some of the ways how to invest in NFT:
#1: Invest in NFT tokens directly
This method of how to invest in NFT involves trading NFTs on marketplaces such as OpenSea and Magic Eden. NFTs are unique and they cannot be replicated on the blockchain. They can be used for buying and selling physical items available in the real world or digital assets used in the metaverse.
OpenSea is the leading NFT marketplace and has NFT categories for art, audio, videos, collectibles, and domain names that are used in the metaverse.
While you may think that investing in NFTs by buying and selling NFT tokens will minimize the likelihood of fraud, this method of how to invest in NFT has some potential risks. It is easy to get scammed when investing in NFT. It is difficult to tell whether what is being sold is a copy or the original item. Also, after buying an item on the blockchain, the transaction cannot be reversed. People can also use fake accounts to buy NFTs and inflate their prices with each transaction. This can cause the price of the asset to hike. Thus, one should be keen when looking for how to invest in NFT.
It is also worth noting that just like cryptocurrencies, NFTs are very volatile and their prices are prone to fluctuations.
#2: Trading or Investing in NFT-Linked ETFs
Investing or trading in exchange-traded funds (ETFs) linked to NFTs is another way how to invest in NFT. It provides people who believe in non-fungible tokens with increased access to owning some at a reduced risk.
By investing in or trading ETFs, you will be able to diversify your portfolio since your risk will be spread across many companies. Thus, if you are looking for how to invest in NFT but at a reduced risk, investing or trading NFT-linked ETFs is a good alternative.
NFT-linked ETFs are instruments that work by tracking the performance of investments in a group of companies dealing with NFTs. When the NFT companies being tracked by the instrument increase in value, the share price of the ETF will also rise.
#3: Trading or Investing in NFT Stocks
Investing in NFT stocks allows you to choose the NFT-linked shares that you want to get exposed to. However, before embarking on this approach of how to invest in NFT, you need to do a fundamental and technical analysis. Some of the stocks that have been exposed to the NFT industry, providing a way how to invest in NFT include Atari, Funko, Shopify, Mattel, NVIDIA, and Coinbase Global Inc.
How to Start Investing in NFTs
The following are the steps that will take you through the process of how to invest in NFT:
Step 1: Open an account to trade or invest in NFT
If you decide to trade NFTs as a way of how to invest in NFTs, you will need an account with an NFT marketplace such as OpenSea. Most NFT marketplaces accept cryptocurrency payments, especially via ETH.
If you choose to trade NFT-linked ETFs as a way of how to invest in NFTs, you will also need an account where you will deposit your funds.
Step 2: Choose whether to invest or trade
When you choose to buy NFTs directly, you will be investing in NFTs and owning the asset outright.
When taking a position on NFT-linked ETFS or shares, you will be allowed to choose whether to trade or invest. If the asset appreciates, you will make a profit. If the asset depreciates, you will lose money.
Trading NFTs as a way of how to invest in NFTs is risky and tends to be good for experienced traders.
Step 3: Choose your NFT asset and open your first position
At this step of how to invest in NFT, you should have decided on the NFT asset to trade or invest in. It is time to open a position on the platform of your choice. Most platforms will require you to set your position size. Also, set the stops and limits for the position. Once you confirm the position, the trade will be opened.
Buy and Sell NFTs for a Profit
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