Is it a good idea to invest in NFTs?

Over the past couple of years, market participants have heard about a new concept of owning digital assets. NFT or Non-Fungible tokens, refers to a digital asset which is unique and one-of-a-kind. The NFT can represent any kind of asset such as a digital artwork, a digital photo, a painting that exists in the real world and a lot more. 

Investors are always seeking new opportunities to diversify their investment portfolio and NFT sounds like a breakthrough to the digital economy. 

However, like all other investment opportunities, investing in NFTs has its own pros and cons.

NFT investment; Pros and Cons

Pros

New way of owning tangible and intangible assets

NFT is a new way to own and keep either digital or real-world assets. A digital artwork can be tokenized and stored in a blockchain ledger under the owner’s name. A tokenized asset and its ownership will be unique across the whole blockchain networks. It can not be stolen, hacked or deteriorated.

Market volatility proof

The price of an NFT relies only on the value that a potential buyer is willing to pay ,so market fluctuation doesn’t affect the price. However, it is worth mentioning that the value of the underlying asset is subject to significant growth or dramatic loss due to possible changes in the market value of the underlying asset.

Tokenized tangible assets can be stored anywhere across the world

Any real-world asset such as a piece of diamond, a valuable painting, a unique photo and a lot more can be tokenized and sold to interested people with no need to pay for shipping, logistics and storage. The ownership and authenticity, like mentioned earlier, is securely stored in the blockchain and can not be mishandled or stolen.

Fractionalized ownership is possible with NFT

Expensive assets such as an artwork, diamond or a luxurious villa in Palm Jumeirah are not affordable to purchase by the majority of people. Thanks to the blockchain technology, now it is possible to fractionalize a tangible asset and tokenize it. By doing so, more people are able to invest in different markets by buying a share of a property or an expensive artwork.    

Cons

NFT market is not deep enough yet

The market is fairly new, so the market is weak. What it means for a potential investor is that even though the price of an NFT is not affected by the market movements like other blockchain investment opportunities such as Bitcoin or Ethereum, it still needs a buyer to purchase your NFT at a reasonable price. As such, an NFT is subject to liquidity issues and more importantly losing value significantly, if not many buyers in the market.

NFT is not regulated

So far, no regulation is in place for NFTs across the globe. Hence, there will not be legal support for you as an investor, in case of falling in the trap of fraudulent deals set up by cyber criminals. However, there are some NFT projects like real-world asset backed NFTs that are approved by local governments. If you are interested in investing in NFT, make sure to invest in the projects that are regulated and approved by local governments.

NFT doesn’t generate income

In most cases, no income stream is expected from a NFT project. Unlike other assets like real estate, share or bond, NFT income generation depends only on appreciation in price of the underlying asset. As such, purchasing a NFT might be resulting in an investment with no income and no appreciation in price for years.

Shall we invest or not ?

To invest or not is a personal decision and depends on your risk tolerance. For a risk taker individual, it might be a good idea to invest in NFTs. However ,if you are a risk averse type of person and at the same time looking for an investment opportunity in the digital world with a reasonable income generation potential, you may invest in tokenized properties or a real estate NFT.

Tokenized properties and the benefits associated with

NFT has made more people capable of owning a luxurious property by purchasing a fraction of the property. As a simple explanation, a property will be divided into affordable shares, and each share is tokenized and converted into an NFT.

Tokenized real estate, if regulated and approved by the local government and authorities, comes with many benefits for investors.

By buying a real estate NFT, you are the proud owner of a fraction of the underlying asset which can be a villa in Palm Jumeirah, an apartment in Dubai marina or a commercial property in Dubai. As it is backed by a tangible asset, the risk of losing value is mitigated. In addition, you are entitled to not only the capital growth of the property, but also an income stream generated from renting out the property on a pro rata basis. 

Conclusion

Investing in NFT comes with risks and rewards. We have outlined the risks associated with such an investment. However, the NFT market is now offering an exciting and low-risk investment opportunity. Tokenized property makes you capable of purchasing a share of a property. Your ownership and authenticity will be stored in a blockchain ledger which is quite safe and secure and you can be a proud owner of a fraction of a multi-million dollar property. The NFT you have purchased, if approved and regulated by the local government, is almost risk-proof in terms of value depreciation, as it is backed by a real-world asset ( unless the property loses value in the  market). You will be enjoying an income stream from renting the property out on a pro rata basis and are able to sell your NFT, when you are willing to, at the market price of the underlying asset.