But it can be a little harder for mainstream investors like yourself to get involved when you don’t have the money to go straight for the most expensive assets or dozens of financial professionals helping you navigate these uncharted waters.
We put together this guide to help DIY investors decipher the details when it comes to NFTs. In it, we’ll cover:
- What do NFTs have to offer everyday investors?
- What are the upsides — and the downsides — of collecting them?
- And how would you even go about adding NFTs to your portfolio if you wanted to see what all the fuss was about for yourself?
Keep reading to learn everything you need to know to get started with investing in NFTs.
Defining Non-Fungible Tokens: The Next Big Thing in Cryptocurrency
NFT stands for “non-fungible token.”
When something is non-fungible, that means it is not interchangeable with anything else. This is the core feature of NFTs. They are unique tokens that represent wholly unique digital assets. These programmable, trackable tokens live on blockchain technology. Blockchains are distributed databases that record transactions, making it difficult to steal or cheat the system even without governmental or agency oversight. Today, the Ethereum blockchain specifically is home to most NFTs.
But back to those unique digital assets — what kind are we talkin’? Well, practically anything. The most common NFTs right now are digital art pieces that take the form of image files. Perhaps the most famous example of an NFT currently is Beeple’s Everydays: The First 5000 Days, which sold for $69 million through Christie’s in 2021.
Pretty much any digital entity that can be represented by a token can be turned into (in a process called “minting”) and sold as an NFT. These include digital illustrations, photos, memes, gifs, audio clips, video clips, and even tweets.
A Brief History of NFTs
NFTs aren’t as young as their recent explosion in popularity would lead many to believe.
From 2014 to 2016, experimentation in this new medium began. The Counterparty platform, built on Bitcoin 2.0, gave people the ability to create digital assets. In 2016, Rare Pepes NFTs hit the scene and kicked off the craze to collect.
2017 and 2018 saw the move from Bitcoin to Ethereum, where a series of 10,000 unique NFTs called CryptoPunks made a splash as the first of what we today call NFT collections. Next, NFTs spread to gaming with CryptoKitties, a blockchain game where players can create, trade, and collect — you guessed it — cat NFTs.
From 2019 through 2020, we continued to see the rise of NFTs in games, especially those like Decentraland, which takes place in a digital world where gamers can purchase land and other assets in the form of NFTs.
In 2021 and beyond, NFTs are mainstream. More blockchains have introduced NFT marketplaces and the buying frenzy has really taken off in earnest, with sales reaching over $10B in Q3 of 2021. Today, many believe that the popularity of NFTs will continue to grow as we expand our understanding of all the places where they can fit into our day-to-day lives.
What are the Benefits of Investing in NFTs?
NFTs are decently similar to other assets as far as what makes them a worthwhile investment to consider — diversification. Since this alternative asset class doesn’t correlate closely with the stock market, NFTs can be quite helpful for diversifying your portfolio.
For a refresher on why diverse investments are more important than ever, read A Modern Guide to Portfolio Diversification.
That said, there are some noteworthy benefits of investing in NFTs specifically for people who approach it with an artistic mindset.
Because the core value of NFTs is their uniqueness, collecting them is a lot like collecting art or sports memorabilia. Some of the value of the asset is in the joy it brings you and in the community that surrounds the asset. Plus, since these digital “collectables” are one of a kind, they can be sold for profit just like any physical piece of art or a baseball card could be.
Another interesting benefit of investing in NFTs is that in most cases they directly support the artists who make them. So you can support the creators you love all while strengthening your portfolio — which we think is pretty special.
What are the Risks of NFT Investment?
Again, similar to quite a few other assets in the digital space, there is one overarching downside of putting money into NFTs — they can be quite volatile. In another parallel to the art world, an NFT that’s worth thousands today might be worth tens tomorrow. NFTs are flooding the market and there are no reliable markers for determining which are, or will be, worth millions and which are worth nothing. Purchasing is highly speculative right now, and any investor who’s looking to get involved should only play with money they’re comfortable losing.
Related to the last point is another risk, the fact that NFTs aren’t supremely liquid. Right now, many buyers are treating these assets more like collectables and less like cryptocurrency that can be readily spent. The uniqueness of NFTs can actually make them harder to sell for the price you want compared to something interchangeable such as gold.
Finally, since NFTs are something we’re all still learning about, it may be easier to get pulled into scams or well-meaning projects that simply never deliver on their promises.
The Beginner’s Guide to Getting Started with Investing in NFTs
Getting started with NFTs comes down to a few key steps: choosing your preferred platforms, finding your favorite NFT, and then using an all-in-one wealth tracker to ensure you’re monitoring the performance of your new asset.
1. Choose Your Marketplace
The first thing you need to know is that NFTs are minted, bought, and sold on digital marketplaces, which you can think of like Amazon. We recommend visiting several marketplaces before choosing the one with which you want to engage. Remember, if you have a certain NFT in mind, you might have to visit a specific marketplace to purchase it.
Here are just some of the most common NFT marketplaces right now:
- OpenSea sells more NFTs than anyone else
- Nifty Gateway is a more curated shop for art-specific NFTs
- Axie Marketplace allows Axie Infinity video game players to trade Axies NFTs
- NBA Top Shot sells NFTs of NBA and WNBA player and sports moments
2. Connect a Crypto Wallet
For most of these marketplaces, you’ll need to connect a crypto wallet to purchase a NFT. This is similar to connecting a credit card to Amazon. If you don’t have a crypto wallet yet and aren’t sure where to get started, read our guide Managing Multiple Crypto Wallets: Everything You Need to Know.
Some marketplaces only deal in their own custom coin, so you’ll have to add that to your wallet before you can begin purchasing NFTs.
3. Purchase an NFT
You’re ready to make a purchase! Depending on the marketplace, your NFT of choice may be fixed price or sold in an auction.
Now, it’s time to add your new NFT to your portfolio alongside the rest of your investments!
4. Get a Wealth Tracker to Monitor NFTs, Crypto, DeFi, and Beyond
Kubera’s personal balance sheet platform is the only wealth tracker that provides a complete view of your portfolio — NFTs and other digital assets included! — and how they work together to contribute to your overall net worth.
Just add the credentials for your account-based assets (bank accounts, crypto wallets, stock accounts, NFT profiles, etc.) and you’ll be able to see the value of these accounts right inside Kubera every time they update.
For those assets without digital accounts (physical artwork, cash, jewelry, etc.), just use Kubera’s intuitive spreadsheet-like interface to add the details and see them displayed right alongside all the rest of your investments.
In addition, stock and crypto tickers and integrations with value estimating platforms like Zillow and EstiBot add another resource for finding and tracking the value of your assets.
Kubera’s charts and one of our new favorite features — recap — give investors a more clear view than ever of portfolio and asset performance on a granular basis, ranging from daily to yearly.
And because we know that return on investment (ROI) for assets like NFTs that were acquired using cryptocurrency can be hard to understand alongside other assets purchased in Fiat currency, we automated the process.
Kubera can automatically find the internal rate of return (IRR) — a version of ROI that takes holding time into account — for assets in your preferred Fiat currency!
All you have to do is make sure the details of an asset’s purchase price, value, and cash flow are up to date. Kubera will add in the holding time and automatically show you the IRR for any asset. And not only will it display in your preferred currency, it will also provide details on the returns of popular indices and cryptocurrencies to give you something against which to compare performance and decide if you’re happy with your investments or ready to make a trade.
For more on Kubera’s IRR calculator, our help center article will tell you everything you need to know.
If you work with a financial advisor, wealth manager, or other financial professional, be sure to show them Kubera. With our white-label solution, they can create the best platform for sharing your entire portfolio — empowering them to provide even better recommendations when it comes to you financial future.