Are NFTs a safe alternative investment? - 15/07/22

With the rising popularity of the Metaverse and cryptocurrency, it is only sensible to wonder whether your next investment should lie with NFTs.

With the newly announced digital economy ‘Metaverse’ taking centre stage recently, the interest in virtual currency and tokens is skyrocketing due to the asset’s potential in the upcoming digital universe.

However, this potential hasn’t appeared from nowhere. This digital economy has been publicly backed by large companies such as Meta- previously Facebook- who are heavily investing into this endeavor. So, it is understandable why you might question whether your next investment should be in the realm of NFTs(non-fungible tokens).

How are they related?

The digital resources used in the metaverse, cryptocurrencies and NFTs, are digital assets whose ownership is recorded online via a public ledger called a blockchain.

These virtual economics found within the digital universe work similarly to real-life marketplaces, where people can buy, create, and sell, which in turn funds the digital economy- of which, all transactions are recorded on the blockchain alongside details of ownership.

The metaverse features its own cryptocurrencies and marketplaces filled with items such as digital clothing, avatars, and the ability to advertise on, buy and rent property. So, there are plenty of opportunities for people to invest, especially in products that may be too expensive in the physical world.

NFTs as a safe alternative investment

In recent news, Meta’s Instagram has announced support for NFT integration on the social platform. The support will allow users to showcase their NFT assets as profile pictures and posts through providing proof of ownership by linking crypto wallets such as MetaMask.

Unfortunately, whilst the use cases for NFTs represent exciting opportunities regarding the merging of the physical and virtual, like crypto, they are founded on volatility.

Recently, as of May 2022, NFTs have dived by 30%. The dramatic fall has seen large NFT players such as Bored Ape Yacht Club (BAYC) decline by 25%, whilst Otherdeed has declined by just over 50%.

In conjunction to this, NFTs are purchased with compatible coins built using Ethereum. So, all purchases come with an additional gas fee. These gas fees are an extra payment by users to compensate for the computing power required to validate the transaction on the blockchain.

So, whilst the industry use cases for NFTs are significant, the asset valuations are highly volatile for investors looking stable high returns.

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