Pros and cons of investing in NFTs

Oluwatosin Jegede

The world of NFTs is growing and evolving rapidly. The number of NFTs on the market is increasing. New platforms and dApps are being created to facilitate the trade and exchange of NFTs.

However, some potential investors may be hesitant to invest in NFTs because they are unsure if they are a good investment or not. For example, you might wonder if you should invest in an NFT because it might not appreciate in value like a physical asset such as gold or real estate would.

To help you decide whether investing in NFTs is right for you, here are some pros and cons of investing in non-fungible tokens:

The pros of investing in NFTs

NFTs are easy to buy and sell

You don’t have to go through a middleman like stocks or bonds. Instead, you can buy and sell NFTs directly from the issuer using their exchange platform or other exchanges.

NFTs are liquid assets

Unlike traditional investments like real estate and gold, NFTs can be converted into cash quickly and easily without selling them on an exchange or waiting for someone else to show interest in buying them from you. This makes NFT investing an attractive option for investors who want to make short-term investments with little risk of losing money on those investments if they need cash quickly.

NFTs can be used for social impact investing

The lack of regulation means anyone can create an NFT for any purpose, including social impact investments (SII). SII refers to using capital markets to achieve specific social objectives like poverty alleviation or environmental protection. Many startups today use blockchain technology to create tokens for these types of projects, giving investors access to high-risk-high-reward opportunities that might not otherwise be available in traditional markets like stock exchanges.

The potential for returns is huge

NFTs are digital assets that can be used in various ways. The value of NFTs is determined by the demand for them and their utility to users. The more people want to use a particular NFT, the higher its value becomes.

You can invest in any NFT you like

NFTs are not tied to specific projects or companies, so you can invest in any NFT you like — even those not yet listed on exchanges. This gives you the freedom to make investment decisions and pick what you think will perform best over time.

NFTs allow investors to diversify their portfolios easily and effectively

There are many different types of NFTs available for purchase on the market today. This makes it easy for individuals to diversify their investment portfolio by purchasing multiple different assets instead of just one, like buying stocks or bonds through traditional investing methods like mutual funds or ETFs.

No need to worry about taxes or regulations

Unlike stocks and other traditional investment vehicles, you don’t have to worry about capital gains taxes or governmental regulations when investing in NFTs because they are not considered securities under current law (although this could change). However, if you sell your NFTs for cash, the IRS treats it as income and is taxed accordingly.

NFTs can serve as collateral for loans

Some platforms allow users to borrow against their NFT holdings by pledging them as collateral against loans they take from the platform itself. This allows users who don’t have enough funds available in their bank account or cryptocurrency wallet to borrow additional funds to purchase more NFTs if they want to. This can be a good way to get additional funding if you want to make a big investment in NFTs but don’t have the cash on hand to do so.

The cons of investing in NFTs

The market is still nascent

While many innovative startups are working on NFTs, they are still relatively young and untested. As a result, it’s not clear how big the market will be or whether it will be able to grow fast enough to support everyone who wants to build a business around it.

Security

Another obvious disadvantage is the lack of security. NFTs can be stolen or lost through hacking, just like any other cryptocurrency. So if you own an NFT, ensure it’s stored in an offline wallet and keep backups of your private keys. Similarly, if you’re buying NFTs from an online marketplace, ensure that the platform is secure and reputable before transferring your funds to them.

Volatility

The value of NFTs can fluctuate significantly based on market demand and supply factors, just like any other asset class like stocks or bonds do today. However, unlike traditional assets, which have built-in mechanisms such as futures contracts and options to help mitigate this volatility, NFTs do not have an equivalent. This means that if the value of your game’s NFT drops significantly and users cannot trade out of their position immediately, they will be stuck with a worthless asset (and therefore lose money) until it recovers.

Why do people invest in NFTs

There are hundreds of reasons why people invest in NFTs. The first reason is that they are unique. There is no other art like it, and there will never be another one like it again.

Another reason why people invest in NFTs is that they appreciate over time, which means that if you purchase a piece of artwork, you can sell it at a higher price to make money from your investment. In addition, you don’t have to worry about losing money on an NFT because there are no other collectors who can compete with you for ownership of the artwork.

Read also: How to start investing in cryptocurrency

Is NFT a good investment?

Yes, it is. NFTs are a potential game-changer in the world of digital assets. They are a revolutionary technology that will change how we think about owning digital assets and how we can use them in our lives.

The main advantage of NFTs is that they are not limited by physical restrictions like a traditional asset. As a result, you can create millions of copies of any digital asset without incurring major costs. This is because there is zero need for storage space, unlike physical assets like real estate or gold, where you need significant space to store them.

Today, there are hundreds of investment tools available to the average investor. While it’s unclear which NFTs will prevail as the most lucrative in the future, one thing is clear: NFTs will likely not go away soon and will continue to entice investors with their unique advantages and disadvantages.

What about you? Considering the pros and cons of investing in NFTs, do you think NFTs will be a part of your portfolio in the future? Let us know in the comments!

Read also: Top 2 cryptocurrencies to buy and hold forever

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