Cryptocurrency Financial Advisors

Diversifying Your Portfolio: How NFTs May Fit Into Your Financial Strategy

NFTs in Your Portfolio

Crypto markets have been moving sideways since late May 2021. As the market cools off, Investors are actively searching for new outlets to find booming rewards in the crypto space. Many investors have been increasing allocations drastically into the non-fungible token (NFT) markets. NFTs are digital assets that are stored on-chain that show a unique ownership of that specific asset.

Let’s break it down a bit.

On March 11th, digital artist named Beeple sold a piece of digital art titled, Everydays: The First 500 Days, for a whopping $69 million. The owner of this piece now has total custody over this artwork the same way Lillie P. Bliss owns van Gogh’s “The Starry Night.” Of course, anyone has the ability to google an image of the painting, download it, and then print it out and hang it on their wall, but its not the same as owning the original.

The same goes for NFTs. Typically, NFTs are minted by the ERC-721 standard on the Ethereum blockchain. The tokenized aspect of NFTs allows for transparent ownership verification on a blockchain, which records the entire transactional history of an asset all the way back to its creator. It is easy to distinguish authentic and inauthentic ownership. Since NFTs use the Etheruem blockchain, they interoperable with marketplaces such as Opensea or Rarible. Most NFTs have speculative value and are only worth what others will pay, but some NFTs hold different value propositions. Their value may be linked to a classic movie scene that may be highly demanded in the future as an NFT, or an up and coming artist that users believe will rise in popularity.

If you’re familiar with NFTs, you may have heard about the recent price boom happening throughout the Axie Infinity community. Axie Infinity is a blockchain based role-playing game (RPG) that revolves around the use of digital characters called Axies. Axies are represented as NFTs and feature similar gameplay to Pokemon, but are more immersive. Players have the ability to buy, sell, trade, breed, and battle their Axies. Breeding and battling your Axies ultimately makes them more valuable as they gain powers from their unique histories, thus, the more you play the further your character advances. This exemplifies the concept of a play-to-earn” game design, whereby players can create economic value simply by advancing the stories of the limited in-game Axies. Players are economically incentivized to play these games as they can transact with their NFT outside of the game in which it originated. Axie has gained so much traction as a transmittance network for NFTs across games and platforms that we have seen Axie Infinity (AXS) price increases of greater than 500% from June 15 to July 15th, 2021, with a year-to-date price increase of 14,000%.

Axie is not alone in the trending price jumps in the NFT markets. Bored Ape Yacht Club (BAYC) is a limited collection of NFTs that are individually represented by uniquely designed Apes. Many artists structure these types of collections by assigning attributes with varying rarities to different features of the Ape. When BAYC was first released, users would purchase the opportunity to be randomly given a selected Ape. Depending on the rarity of the attributes, prices of these NFTs vary based on how rare these features may be. Features to consider include different furs, facial expressions, headwear, clothing and many other accessories. Being an owner of these NFTs opens the door for endless opportunities within the BAYC world. Owners are granted a membership that allows them to interact in metaverses and gain access to exclusive airdrops of other tokens and NFTs built by the BAYC developers.  The resale value of a BAYC will currently run you around a minimum of 3 Eth, which is a ridiculous price increase given they initially were being sold for .08 Eth upon release. That is a minimum return on investment of 3700% in just a few months from their sell out date of April 31st, 2021. Prices of Bored Apes have reached incredible heights of close to 50 Eth, roughly $132,000 at the time of sale.

NFTs have even begun to emerge in the decentralized finance (DeFi) world of crypto as well. DeFi City is a new project that uses NFTs to interact with your active yield farming and staking pool positions. In Defi City users have the ability to purchase a scroll which contains an NFT representing a city that acts as a one stop shop for all your DeFi activity. DeFi Citys goal is to create an in-game dashboard that allows its users to visualize and manage their farms and keep track of key proponents of their performance across multiple decentralized exchanges. This will lower the entry barrier for new users in the crypto and DeFi spaces.

Investing in NFTs during a sideways drifting market so far appears to be beneficial as a financial professional. The non-fungible token market has seen staggering volume increases year to year as they have only been an emerging crypto asset class for a few years now. Total market volume is up from the first half of 2020 to the first half of 2021; from $13.7 million to $2.5 billion, respectively. Its not too late to consider NFTs as another way to diversify your portfolio by potentially getting involved in these investable assets to either add or subtract risk to your holdings. There are endless use cases for NFTs and tokenization potential for both tangible and intangible assets. From battling avatars to timeless works of art, the future of NFTs relies on the boundless creativity of the free market.

By Zachary Profeta

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