The high demand for NFTs has had an interesting effect on the rise in the value of cryptocurrencies. Whether holding the digital rights to digital artwork by Beeple street art or Jack Dorsey’s first tweet is worth the valuations they are on the market is a question that investors ask themselves.
In some ways, the collector determines the value of NFTs. Besides, owning a valid, one-of-a-kind object might be worth almost anything if you want it. After all, it’s the ultimate requirement for every true collector.
But what if you’re not a collector but a regular investor interested in the NFT’s growth and potential return on investment?
That’s where this guide comes in.
Why Have NFTs Suddenly Become Popular?
Before 2021, most people had no idea what non-fungible meant, but now celebrities like The Weeknd and Jimmy Fallon use it in everyday discourse. According to a DappRadar report, NFT sales are in the billions, up about 38,000 percent every year.
So, why are NFTs becoming increasingly popular?
Numerous factors led to the growth of NFTs in 2021. For example, NFT marketplaces like UCOLLEX made it easy for people to purchase, sell, and show off physical and digital collectibles, making NFTs more popular. And the increasing popularity of NFTs demonstrates the unpredictable acceptance curve of new technologies.
Many new investors rushed to crypto because of the Ethereum and Bitcoin bull runs in 2021. And once you have a small amount of crypto, it’s simple to branch out into other crypto ventures like NFTs, staking, etc.
NFTs also created a new way for artists and makers to show off and market their work while maintaining complete authenticity of ownership and transparency.
Why Would Anyone Buy NFTs?
There are several reasons why people would invest in NFTs. Let’s go through some of them:
Essentially, NFTs are trading cards for the rich, similar to how people swap baseball cards. The cards themselves have no intrinsic value. The only value they have is what the market assigns them. However, their shifting value makes trading and collecting them a risky gamble.
So it’s easy to draw comparisons between the art market and NFTs.
However, unlike the art market, NFTs provide artists more control over their work because they are no longer reliant on auction houses or galleries to sell their work. Instead, artists can sell their artworks directly to purchasers and keep more of the revenue by cutting out the middleman.
There’s nothing like a sense of uniqueness to pique someone’s curiosity about a specific item. And because NFTs can only have one owner, they instill a strong sense of scarcity. This drives potential buyers to get fixated on a particular piece, fearful that someone else will be the sole owner of an NFT they like.
Think of when you see something you want to buy, and the website informs you that only that product remains. This increases your sense of scarcity and drives you to make the purchase, even if it’s not financially viable.
Should You Invest In NFTs Right Now?
Think of NFTs as the equivalent of buying a historic mansion or classic cars like 1970 Chevrolet El Camino SS. Unfortunately, it’s difficult to tell if you’re purchasing a valuable rare item or something else that will make you regret your decision if you don’t conduct a comprehensive research.
In other words, distinguishing between an authentic deal and NFT scams can be difficult, especially when the NFT market is undergoing a massive bubble.
However, not all NFTs are overvalued bubble assets, and not all assets engulfed in a market bubble will inevitably fail. Take, for example, the dot-com era. There were massive flops, but some emerged victoriously with long-term value, like Amazon.
Another fact regarding the NFT market is that as the popularity of non-fungible tokens grew in early 2021, their relative scarcity aided their perceived value. However, NFTs are now available to almost everyone. This makes another dot-com flop much more difficult.
Don’t Look At The NFTs Present Value.
If the NFT bubble bursts, the value of most items will plummet. Some of the most valuable items will fall. However, they’ll be reclaimed over time. So don’t look to the present value of an NFT to determine its worth. Instead, learn about its applications and the potential for long-term growth.
The value of NFTs, like any other market, is determined by supply and demand. The lower the value, the more supply there is compared to demand. Due to the scarcity of NFTs, their value has increased. However, if more imitation ventures emerge, buyer weariness and a demand reduction may arise.
Lean To Mitigate The Risks – Final Thoughts
The returns on NFTs are uncertain because they are a novel type of asset. As a result, the best you can do is minimize the danger of losing money.
Don’t put your money into whatever is trending right now. Instead, seek out a diverse range of investments to spread your risks. While most of them are likely to fail, you might get lucky with a few.
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