How to Invest in NFTs – A New Way to Profit
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Claude Monet must be rolling in his proverbial grave.
A digital work of art was sold at auction last year for 60% more than a Monet painting, which is one of the most well-known pieces of art in the world.
One of Monet’s famous water lily paintings sold for $43 million in 2012. A non-fungible token, or NTF, called “Everydays — The First 5000 Days” by the digital artist known as Beeple, sold for $69 million in 2021.
There are less expensive ways to view those multi-million dollar pieces of art in your home. Fans of the French artist, who died in 1926, can buy a Monet water lilies poster for $12 online. A poster of Beeple’s NFT sells for $15.
But buying a poster isn’t the same as owning an original Monet painting or a digital asset; it’s just a copy.
A key to owning an original artwork is proving it’s original. The buyer of the NFT made by Beeple, whose real name is Mike Winkelmann, knows it’s an original because it is documented through the NFT. It’s like having Monet’s signature on his paintings.
Art fans may find it outrageous that an NFT, which you can’t even hold in your hands, is worth millions more than a physical painting. But fans of digital art may be just as happy that the NFT marketplace has taken off, with cryptocurrency and blockchain technology allowing a new form of collectibles and a new way to profit from them.
In this article
How to invest in NFTs
If NFTs have piqued your interest, you may want to buy one for fun or as an investment. Not every NFT costs millions of dollars, so you don’t have to be a millionaire to start investing.
The marketplace for non-fungible tokens fell quite a bit in early 2022, with the average selling price under $2,000 in March 2022, compared to the all-time high of almost $6,900 on January 2, 2022, according to industry data tracker NonFungible.
We’ll go over how to invest in them, including describing what they are, how to find a brokerage or buy cryptocurrency to buy NFTs, and how to find a marketplace to buy an NFT. We’ll also go over how digital art and other digital assets gain value and the costs and fees of buying and selling NFTs.
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What is an NFT?
A non-fungible token is a unique digital identifier that can’t be copied, substituted, or subdivided. It is recorded in a blockchain, which is used to certify authenticity and ownership.
As we explained earlier, NFTs are like a signature for digital items. They include art, collectibles, music, videos, in-game assets, and more as digital representations of real-world things.
The digital signature includes information such as who created it and when, who bought it and when, the prices it has sold for, and who owns it now. All of this information can be viewed by the public on a blockchain as a way to trace an NFT from its creator to your digital wallet.
NFTs are the original version of something digital. The pixelated CryptoPunks character portraits are one example. CryptoPunks is a non-fungible token collection on the Ethereum blockchain. Of the 10,000 uniquely generated characters, no two CyrptoPunks are exactly alike, and each can be officially owned by a single person on the blockchain.
Memes and gifs are also sold as NFTs. The fist-pumping toddler called “Success Kid” sold for 15 Ethereum, which was worth $51,123 as of late March 2022.
How to find NFTs
Finding non-fungible tokens to buy isn’t as easy as walking into a store and picking one off the shelf, or buying them on the stock market. We’ll soon go into the steps on how to buy NFTs, but first, you should look at the NFT marketplace and find something you may want to buy.
You can search for NFTs online, or go to sites such as OpenSea and Rarible to buy, sell and auction NFTs. OpenSea says it operates the largest NFT marketplace. Some sites list upcoming sales.
Reasons to buy an NFT range from using one as your profile photo to finding art that you hope will increase in value so you can sell it for a profit. Check a project’s social media and official website to get an idea of the founder’s goals. A reputable team behind an NFT can help drive the value up.
Also, look at how many of the NFTs are being sold. Having more owners can make it easier to sell later, hopefully at a higher price.
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How to invest in NFTs
1. Pick a crypto exchange
The next step is to buy cryptocurrency through a brokerage or crypto exchange.
Most NFTs are bought with Ethereum, the second-biggest cryptocurrency by market cap after Bitcoin. Ethereum and other cryptocurrencies can be bought at a crypto exchange such as Coinbase.
A crypto brokerage is a firm or middleman acting as the middleman between buyers and sellers of cryptocurrencies.
2. Choose an NFT marketplace
Once you have some crypto in your crypto wallet or have found a brokerage, you can look for an NFT marketplace that processes NFT sales.
You’ll need to register at the NFT marketplace and connect your crypto wallet, such as through MetaMask, a software cryptocurrency wallet used with the Ethereum blockchain. The NFT will either be sold for a flat rate or an auction will be held. Marketplaces include OpenSea, Rarible, Binance, and NBA Top Shot.
3. Know what the blockchain is
A term that gets used a lot in the world of NFTs and crypto is “blockchain.”
It’s worth knowing because the blockchain network is where tokens are built and managed in a way that makes them unique and easy to trace. Blockchain technology is also used by Bitcoin, Ethereum, and other types of cryptocurrencies.
NFT sales are made through smart contracts on the blockchain. Smart contracts are programs stored on a blockchain that run when predetermined conditions are met. Typically they’re used to automate the execution of an agreement so that all participants can immediately be certain of the outcome, without any intermediary being involved or loss of time.
Should you invest in NFTs?
NFT investing and NFTs received a lot of hype during the pandemic and were very popular. The NFT marketplace craze has slowed in the past year, though their prices can still be volatile. Part of this volatility comes from auction sales, where high demand can drive up prices.
The NFT marketplace is still new and growing, and an NFT purchase should be considered a speculative investment.
Identifying an NFT trend can pay off big later on, but it’s a skill that may take a while to master. As part of a diversified portfolio, they may be a good type of investment to try, along with crypto and stocks of companies developing blockchain technology.
Another way to think about NFT investing is to have fun with it like you would a hobby or collecting art, music, or anything else you enjoy.
An Ethereum-based game such as Decentraland is a metaverse game experience where users buy plots of land that are sold as NFT assets. This shared world is a real-world video game that can be built upon, such as with NFT artwork galleries.
Another option is to make your own NFT, which is called minting. You can take an existing digital online project and convert it into something completely new. Who knows, you might end up wanting to sell NFTs.
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- Get up to a $0.18 rebate
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- Earn 5.1% APY*
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- 6% Yield or more
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Fees
One of the first fees you may encounter when buying digital assets is buying cryptocurrency to put in your crypto wallet.
The crypto exchange Coinbase, for example, charges 99 cents for a trade of $10 or less. SoFi Active Invest charges as much as 1.25%. Binance charges a 0.5% fee to buy and sell crypto.
Fees may be a flat fee or a percentage of the 30-day trading volume of an account. The more crypto you buy, the higher the fees will likely be.
When buying with crypto, make sure you have enough crypto in your account to cover any fees. These can include the cost of purchasing and transferring cryptos, converting one crypto to another, and gas fees.
Gas fees are paid to miners for the computing power they use while recording transactions on the blockchain, which can add up to a few hundred dollars and can end up costing more than an NFT.
Pros and cons
Pros
- Collectibles such as art have a record of gaining value, and digital art could have the same path.
- Building an NFT collection can be a fun way to invest, as many collectibles are.
- Buying an NFT means you own a unique digital asset.
- Coded commands built into the blockchain of NFTs ensure that creators are paid based on the use and resale of their work in the future.
Cons
- Buyer demand and other subjective metrics largely determine the prices of NFTs, which can mean a short time period to get a higher price than you paid for one, leading to a volatile and speculative investment.
- Fees for buying NFTs, particularly gas fees, can be more than the price of an NFT.
- Blockchain technology and NFTs require a lot of energy to create and verify transactions, creating an environmental impact.
The bottom line
Investing in NFTs shouldn’t be rushed. Though affordable NFTs are sold for $15 or so, many cost $2,000 or more and should be researched to see if they can rise in value. Buying one from a popular artist can be a good way to start investing in NFTs.
After getting through the learning curve, investing in NFTs should still be considered a highly speculative investment that may not hold its value. The NFT marketplace got a lot of hype in 2021, but in early 2022 it started falling. This doesn’t mean they’re not good investments but should be researched just as much as you would any other investment.
If you find a deal on a Beeple or Monet, it could be the investment of a lifetime.
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Writer
Aaron Crowe is a freelance journalist who specializes in personal finance writing and editing. He has worked at newspapers, where he won a Pulitzer Prize, and has written for numerous online publications. These include AOL, US News & World Report, WiseBread, Bankrate, AARP, and many websites focusing on housing, credit and insurance. He lives in California with his wife and daughter.
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