Big global brands such as Starbucks have wholeheartedly embraced the NFT bandwagon, taking bold strides to introduce their very own non-fungible tokens (NFTs) into the digital landscape.
By doing so, these brands aim to not only bolster their brand awareness but also foster a deeper level of engagement with their loyal customers. With a touch of innovation and a dash of creativity, they are venturing into uncharted territory, capturing the attention of tech-savvy enthusiasts and art aficionados alike.
Even when enthusiasts and investors thought that the digital landscape had reached its lowest point, a Crypto Punk emerged to defy all expectations, commanding a price of 79 ETH recently.
In this article, we’ll take a closer look at the upsides and downsides of holding non-fungible tokens (NFTs) versus holding cryptocurrencies during this bear market.
We’ll explore which option might be a more favorable choice for you based on your investment approach
Also Read: Memecoins or Meme NFTs: Which are Better?
Liquidity in Crypto: Why It Matters, and Why NFTs Suffer From It
Liquidity is a key factor for any form of investment, this applies to traditional asset classes as well.
As liquidity varies across NFT collections, the top NFT collections could have significantly greater liquidity than the smaller and less popular ones.
According to the latest DappRadar report, the NFT trading volumes surged earlier in February and March this year. However, this trading activity was primarily driven by Blur’s NFT airdrop. The NFT sales count suggests that the number of NFT sales have fallen by around 50% since January.
When compared to crypto tokens which are fungible and generally more liquid, the non-fungible nature of NFTs make them riskier investments.
For example, if investors would like to sell their BTC or ETH, they could do so on an exchange with an order book of buyers at different price points.
NFTs, on the other hand, are unique and the matching of buyers and sellers can be an uphill task.
What makes The Valuation of NFTs so challenging?
Similar to art or antique pieces, the popular idiom “beauty is in the eye of the beholder” most aptly describes why NFTs are incredibly difficult to value.
While the value of a crypto token largely depends on its utility and tokenomics, it is less straightforward when attempting to value NFTs as there are more ways where NFTs can accrue value.
The need to have a sense of identity and belonging to a community is part of human nature and NFT ownership provides a platform to express this.
This associated value of one’s digital identity and social network through owning an NFT cannot be measured in dollars and cents, one will also be hard-pressed to find any form of quantifiable metrics.
For instance, holders of the Bored Ape Yacht Club NFT can gain access to a private discord, receive invitations to social events where they stand a chance to network with other holders that include celebrities such as Paris Hilton and Justin Bieber.
Most notably, Crypto Punk #6046 turned down an offer of 2,500 ETH ( $USD 9.5M at the time), for his NFT and argued that “online identities are as strong – if not more powerful – than our real-life personas.”
How Cryptocurrencies outshine NFTs with compelling narratives
Although there are strong and clear narratives that revolve around Artificial Intelligence (AI) and Gaming for crypto, the same cannot be said for NFTs.
One of the key narratives surrounding NFTs has been to support artists, musicians and creators alike with a sustainable income stream through royalties.
This became a point of contention when NFT marketplaces decided not to enforce royalties and led to a backlash, intensifying the rivalry between two of the largest NFT marketplaces OpenSea and Blur.
The potential for outsized gains with NFTs vs Crypto
Even though NFTs can be perceived as a leveraged bet on crypto, or rather ETH in particular, whether it is suitable as an investment largely depends on the level of sophistication and risk appetite of an investor.
There is definitely the possibility of making outsized gains if investors make it to the whitelist, mint the NFTs with a relatively small amount of ETH and then flip them for a tidy profit. However, this is not suitable for the uninitiated.
Hence, for conservative investors, consider building a portfolio by allocating ⅔ into BTC and the remaining ⅓ into ETH. Avoid NFT investments.
Investors with a moderate risk appetite can consider allocating 50% into both BTC and ETH, 40% to 45% into a mix of large cap cryptos ($SOL, $MATIC and $AVAX etc.) as well as cryptos backed by strong narratives. 5% to 10% in NFT investments does sound about right.
Sophisticated investors with a high risk appetite can consider reducing the combined BTC and ETH exposure to 20% while increasing the exposure to a mix of large cap cryptos and cryptos backed by strong narratives to between 60% and 70% instead. NFTs can perhaps make up 10% to 20% of their portfolios.
Closing Thoughts
The entry of big brands into the NFT space is overall bullish for both the crypto and NFT industry, driving mainstream acceptance and adoption of digital assets as a whole.
However, it is important to note that the NFT market is still a nascent one, even more so than the crypto market. Many of the innovative use cases and applications are still in the experimental stages. Hence, NFT investing is generally more speculative when compared to crypto investing.
As for many of the established NFT collections with staying power, they have become out of reach to the average investor.
If you do have the risk appetite and a strong conviction on some of the smaller NFT collections, Do Your Own Research (DYOR) and go for it!
Otherwise, identifying strong crypto narratives and tokens that have defied the bear market is likely to make a much better bet.
Also Read: Could The NVIDIA Rally Benefit These 6 Cryptocurrency Tokens?
[Editor’s Note: This article does not represent financial advice. Please do your research before investing.]
Featured Image Credit: ChainDebrief
This article was written by Clarence Leeand edited by Yusoff Kim
