NFT investing is suddenly all the rage in certain circles. What is it, how does it work, and should you invest in them yourself?
We say it all the time here at Cabot: we’re stock investors. Sure, we’ll dabble in ETFs and the occasional bond, but stocks are our bread and butter. Lately, however, two other asset classes have become hard to ignore. One of them is bitcoin, which I’ve written about several times in recent months. The other is non-fungible tokens, or NFTs for short. What are NFTs, and is NFT investing worth your attention as a self-directed investor?
What is an NFT?
Let’s start with what NFTs are. If you’ve never heard of them or are confused by what they are, you’re not alone. Three weeks ago, I’d never heard of them either. And after reading myriad articles about NFT, I still can’t say that I fully grasp the concept or the appeal of them. That said, here’s my admittedly basic understanding of them …
Non-fungible tokens are digital assets that are unique, and can be any digital property—digital artwork, a video clip, even a song or album. NFTs are backed by blockchain, and thus any transaction of an NFT from one party to another gets recorded in that digital currency, and gets imprinted with a digital signature, making ownership both permanent and very hard to falsify.
And because they’re backed by blockchain, skyrocketing prices of bitcoin, ethereum and other cryptocurrencies have helped fuel the popularity of NFTs, and NFT investing. Thus, as cryptocurrency prices have surged, so has the value in NFTs.
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Want some examples?
A collection of digital art by the popular digital artist “Beeple” sold for $777,777.77; a highlight clip of LeBron James went for $208,000 on NBA Top Shot; and Twitter CEO Jack Dorsey sold the first tweet he ever did, from March 2006, as an NFT for (brace yourselves) … $2.9 million! That’s just naming a few.
Some digital art purists may be buying these items as collectibles. But most people buy them as an investment, hoping that the price will go up so that they can sell them at a higher price down the road – a good bet of late, given how much NFT interest and prices have exploded.
Is NFT Investing Worth It?
You’re probably thinking a couple things right now: One, why would anyone want to pay nearly $3 million for a tweet or more than $200 grand for a highlight clip when they could easily find them on Google for free? And second, who exactly are these people who would pay such extravagant amounts for seemingly easily attainable digital assets?
The answer to both questions is essentially the same: NFT investing is for the super-rich, people with millions in disposable income who can afford to pay hundreds of thousands, even millions, of dollars for digital images, video clips or games. Most buy them for the same reason you buy a stock: you hope that the value of the asset increases, so you can sell it at a higher price.
Most people can’t play in the NFT investing sandbox. If you’re one of them, I’m impressed! If you have the money to spend on digital items I just viewed while researching this article, then by all means do so. I won’t judge you.
However, if you’re someone who has made money buying, holding and selling stocks, then I wouldn’t recommend going outside your comfort zone just to get in on the latest investing fad. Perhaps NFT investing will become more than a fad, and it will eventually be something that’s affordable to a wider audience; it is a relatively new concept, after all.
But to paraphrase something Tim Lutts, Cabot’s chief investing strategist, said about bitcoin recently: You can’t invest in everything. Right now, a lot of people are making money investing in bitcoin; a select few are making even more money buying and selling NFTs. But people have no doubt lost money investing in either of those volatile, little-known asset classes as well.
We prefer to stick with the known. No, you don’t know if a stock you buy is going to go up or down. But stocks as a group tend to go up over time; hundreds of years of stock market history prove it.
So for now, we’ll stick to stocks. We’ve made our subscribers a lot of money by sticking (mostly) to stocks – long-time readers have doubled their money more than 30 times! And it’s kept us in business for half a century.
Here’s betting that stocks will continue to rise exponentially in the next half-century. Who knows what will happen with non-fungible tokens in the next 50 years.
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