Did you buy into the NFT hype?
After the crash around the start of the pandemic in 2020, a bull run ensued in most risk-on markets worldwide. And a remarkable one at that. Many markets went to their respective all-time highs. The boost in these assets’ prices was primarily due to the increased liquidity that came into the markets, due to central banks around the world cutting interest rates in order to boost spending in their economies.
The crash in assets was remarkable as well. Stock indexes around the world fell at least 30 to 40% in a matter of weeks. But this time around, there was another asset class that had gained enough traction to be talked about everywhere: cryptocurrencies.
The world’s biggest cryptocurrency, Bitcoin, fell from around $10k to $5k in Q1 of 2020 and then rose to about $65k (April 2021). But obviously, such impressive returns are almost always followed by violent crashes, due to a combination of profit booking, panic, and many other things.
Crypto as an asset class is fairly new to the world, and as such, frauds and scams are very prevalent, due to the low level of knowledge that the common man has on the tech and less than perfect regulation in most countries. And so the crash after the highs in 2021 was much more devastating than the drops in the stock markets. But we’ll talk about cryptocurrencies some other day.
Let’s talk about a sub-industry/sister industry, not sure what to call it: NFTs. NFTs or Non-Fungible Tokens are blockchain-based tokens that are used to certify ownership and authenticity of assets. They cannot be copied or substituted, and is there for all to see on the ledger of the blockchain the NFTs are based on.
Due to a mix of FOMO during the bull run and intelligent marketing tactics, the NFT market swelled up way past it should have, in my opinion at least, and that led to the inevitable crash in NFT prices later. Mind you, some projects did have potential or promise and some did provide value to the holders of those NFTs but most had neither of those two qualities.
To give an example of the good ones, Bored Ape Yacht Club allows token holders to participate in exclusive events such as ApeFest, which is an annual event organized by the Bored Ape Yacht Club, where token holders can come and participate in various activities like live music, auctions, and games. The members of the community get many other benefits too, such as early access to new features, discounts on merchandise, and access to new opportunities. But at the peak, the minimum price/floor price that these NFTs were selling at was more than $420k, with some NFTs priced into the millions. Now utility or not, I’m not sure spending hundreds of thousands of dollars on these NFTs was wise. Oh and also, right now, the floor price of this group of NFTs is around $63k.
Coming to an example of a rather bad investment (or should we call it a simple purchase?), the NFT of Twitter co-founder Jack Dorsey’s first tweet sold for a staggering $2.9 million in 2021. The guy who bought it has since been trying to sell it since then but bids did not reach his reported asking price of $48 million.
In fact, the highest amount offered was apparently only $6800. Since then, the NFT market has come down manifold and the guy may never be able to sell the NFT at even his buying price. Right now, there are no offers for this NFT on OpenSea, as in the picture below.
So when it comes to investments, please don’t blindly follow what everyone seems to be doing. Most people don’t have access to the complete information, or at least haven’t researched well enough to be able to have the complete information. Given this fact, it is easy to understand why most people don’t make money when they trade in and out of securities over the long term.
While some NFTs and cryptocurrencies may have inherent value or utility in the world and would therefore be much more valuable 20 years down the line, most would die off over time and it would be prudent to find out how this industry works so that you’re in a position to make safe bets with your money. Again, please remember, there are no free lunches. You have to work for everything you want, and in the context of this field, work means researching completely.
So, stay safe, and read more from me here. And do let me know if you want a specific topic covered! Subscribe for free to receive more posts like this every day!