Pros and Cons of NFT Investing in 2024

Non-fungible tokens (NFTs) have exploded in popularity, grabbing headlines and fetching millions for digital artwork and collectibles. But what exactly are NFTs, and are they a sound investment? Like any investment, NFT investing has its pros and cons. This guide will explore both sides to help you understand if NFTs are right for you.

Market on the Rise: According to CryptoSlam, the global NFT market reached a staggering $65.4 billion in total sales (at the time of writing), with analysts predicting continued growth.

Key Takeaways:

1. NFTs (Non-Fungible Tokens) are unique digital assets verified using blockchain technology with each NFT being distinct and digitally signed.
2. The pros of NFT investing are the potential for high returns, clear ownership records, accessibility, support for creators, and more.
3. The cons of NFT investing are market volatility, legal and regulatory uncertainties, technological risks, lower liquidity, and high transaction fees.

Pros and Cons of investing in NFTs

Pros of NFT Investing Explained

• Provable Ownership & Authenticity: Using blockchain technology, NFTs provide clear and indisputable ownership records. This helps in verifying the authenticity and ownership of digital assets. For instance, platforms like NBA Top Shot ensure that each highlight clip sold is original and cannot be duplicated, providing collectors with verifiable ownership of unique digital moments. This clear ownership record adds value and trust to the transaction, as buyers can be sure they purchase the real thing. This level of transparency and security is difficult to achieve with traditional digital assets, where copying and piracy are common issues.
• High Return Potential: NFTs can offer exceptionally high returns on investment. For example, a digital artwork by Beeple sold for an astounding $69 million in 2021, making headlines worldwide. Similarly, CryptoPunks, initially given away for free, have seen some of their individual NFTs sell for over $1 million each. Early investors in these NFTs saw massive gains, with returns many times their original investment. This potential for significant profit attracts many investors looking for substantial gains. Plus, the high demand for popular NFTs can drive up their value even more, creating opportunities for quick profits if you time your sales right.
• Exclusive Benefits & Community: Owning an NFT can be more than just possessing a digital asset. Some projects offer exclusive access to online communities, events, or even physical merchandise. This fosters a sense of belonging and adds value to the NFT ownership experience.
• Accessibility and Inclusion: The entire NFT ecosystem is accessible to anyone with an internet connection and a digital wallet. You don’t need to be a millionaire or live in a financial hub to participate. Platforms like OpenSea and Rarible allow users from all over the world to buy, sell, and trade NFTs, making it a more inclusive form of investment.
• Democratization of Ownership: NFTs make it possible for anyone to own a fractional piece of valuable digital assets, even with limited resources. Fractional ownership allows individuals to buy a portion of an NFT, making high-value collectibles more accessible.
• Diversity: NFTs cover a wide range of assets, from digital art and music to virtual real estate and in-game items. This diversity allows investors to diversify their portfolios and invest in various sectors of the digital economy. For example, you could own a piece of virtual land in Decentraland or a rare piece of digital art by a well-known artist. You can also play games with NFTs on the Axie Infinity marketplace.
• Supporting Creators: By NFT investing, you support artists and creators directly. Platforms like Foundation and SuperRare allow artists to sell their work directly to collectors, often with a royalty on secondary sales. This means that artists can earn more from their work compared to traditional methods, where middlemen like galleries and record labels take a significant cut of the profits.

Detailed Cons of NFT Investing

• Market Volatility: The NFT market is highly volatile, with prices capable of swinging dramatically in short periods. This can lead to significant losses if the market turns against you. For instance, the NFT market sales dropped by nearly 70% from 2021 to late 2022, illustrating just how unpredictable this market can be.

• Legal and Regulatory Issues: The rules of NFT investing are still being written, which leaves a lot of questions unanswered. This especially applies to things like who really owns the stuff (intellectual property rights), how much tax you gotta pay on it, and if it counts as an investment (securities regulations). These legal gray areas can be risky for investors because the regulations could change at times, messing with the value and even the legality of your NFTs. For example, if a government decides to classify certain NFTs as securities, they could become subject to stringent regulations, affecting their marketability and value.
• High Transaction Fees: Transaction fees, known as “gas fees” can be prohibitively high, especially for Ethereum NFT minting. These fees can fluctuate based on network demand, making transactions expensive. High fees can eat into profits, especially for smaller transactions. For instance, during periods of high demand, gas fees can reach hundreds of dollars per transaction, making it costly to buy, sell, or transfer NFTs. This can be a significant barrier for small investors or those looking to make frequent trades.
• Illiquidity: NFTs can be trickier to sell compared to traditional assets like stocks or bonds. The market for specific NFTs may be limited, making it challenging to find buyers at your desired price point when you’re ready to cash out.
• Technological Risks: At last, NFT investing involves technological risks, such as hacking and loss of access. For instance, if you lose access to your digital wallet, you could lose your NFTs permanently. Additionally, smart contract vulnerabilities can be exploited, leading to financial losses. During the NFT bull market in 2021, several high-profile hacks resulted in millions of dollars worth of NFTs being stolen. 

Are NFTs Still Alive in 2024?

Yes, NFTs are still alive with significant value. However, the market is currently in a bearish mode. According to CryptoSlam, NFT sales in June 2024 amounted to around $450 million, which is very low compared to the peak monthly sales in January 2022, which ranged around $6 billion per month. 

This decline indicates a slowdown in the market, but NFTs continue to be a relevant and active part of the digital asset space. Despite the reduced sales volume, the NFT market still attracts artists, collectors, and investors, maintaining its presence in the cryptocurrency ecosystem.

How to Invest in NFTs?

1. Set Up a Digital Wallet: To buy NFTs, you need a digital NFT wallet to store ETH or other digital assets. Popular wallets include MetaMask, Coinbase Wallet, and Trust Wallet. 
2. Buy Cryptocurrency: NFTs are typically purchased with cryptocurrencies like Ethereum (ETH). Use a crypto exchange like Bybit, Binance, or Coinbase to buy cryptocurrency. Transfer the cryptocurrency to your digital wallet.
3. Choose an NFT Marketplace: Several NFT marketplaces exist for buying and selling digital art. Some of the largest NFT marketplaces include OpenSea, Nifty Gateway, and Blur.io. Create and connect your digital wallet to the marketplace.
4. Explore and Choose NFTs: Browse the marketplace to find NFTs that interest you. Look at different NFT collections or categories like art, music, gaming, and virtual real estate. Research the creator, the rarity, and the community around the NFT.
5. Make a Purchase: Once you find an NFT you want, click on it to see the price and details. Follow the prompts to complete the purchase using your digital wallet. Ensure you have enough cryptocurrency to cover the price and gas fees.
6. Store Your NFT Safely: After purchase, your NFT will be stored in your digital wallet. Keep your wallet secure with strong passwords and enable two-factor authentication. You can sell it later.

The Future of NFT Investing

The future of NFT investing looks promising despite recent market downturns. Innovations in blockchain technology continue to expand the potential uses and applications of NFTs. For example, the integration of NFTs in gaming, digital art, and virtual real estate has shown considerable growth. 

According to a report by Statista, the NFT market is projected to grow by 9.10% by 2028, driven by increased adoption and new use cases. Plus, brands and celebrities are increasingly entering the NFT space, they create digital assets and experiences for their audiences. This trend is likely to continue, adding value and interest to the market.

Conclusion

NFT investments offer exciting opportunities and high potential returns, but it also comes with significant risks. From market volatility and lower liquidity to legal uncertainties and high transaction fees, it’s essential to weigh the pros and cons carefully. 

By understanding these factors, you can make a more informed decision about whether NFT investing aligns with your financial goals and risk tolerance.

FAQs

What is the risk of NFT investing?

The risk of NFT investing includes market volatility, where prices can fluctuate widely. Unlike stocks or bonds, NFTs do not have high liquidity and rely heavily on market demand. There is also the risk of fraud or scams, as the NFT market is relatively new and less regulated. Lastly, technological risks exist, such as losing access to your digital wallet or issues with the digital art smart contract itself.

Is it profitable to invest in NFTs?

Investing in NFTs can be profitable, but it is not guaranteed. Some NFTs have sold for millions of dollars, like Beeple’s digital artwork which sold for $69 million. However, the market is highly speculative, and many NFTs do not increase in value. Success depends on choosing the right NFTs, timing, and market trends. According to Statista, the average return on investment for NFTs is around US$138.8 in 2024, but this varies widely.

What is the best NFT investment strategy?

The best NFT investment strategy involves thorough research and diversification. Start by studying different types of NFTs and understanding their value propositions. Diversify your investments across various NFT categories like art, gaming, and virtual real estate to spread risk. Keep an eye on market trends and join NFT communities to stay updated. Invest in NFTs from reputable creators or platforms to reduce the risk of fraud.