Investing in crypto has been an exciting prospect lately. One of the major trends has been the continued emergence of alternative crypto investments beyond the core cryptocurrency choices. NFTs and similar assets have generated some excitement and attention for the sector. Still, they have also led to scams, theft, and other adverse outcomes for people who jump on board without careful research. Although this is a big attractor in the crypto space, it is a good idea to be cautious about entering these assets without a clear idea of the outcome and the projected payoff.
The Waves of NFT Hype and Interest
NFTs, or non-fungible tokens, have faded into and out of public view in waves. Their initial emergence early this year was met with curiosity about how they would be implemented. Some major digital artists began selling customized NFTs, generating hype and interest. However, this also came with a wave of confusion about how NFTs worked and how they functioned as an investment, and the wave of interest died away.
The Initial Wave
More recently, the emergence of OpenSea and other formal NFT marketplaces has triggered another wave of NFT activity. However, the crypto public was more divided. Some eagerly jumped on board, while others were highly opposed. There were three trends that made this second wave controversial. The first was that the ability to easily create any image into an NFT and sell it on a marketplace meant that some actors began to steal copyrighted art and make it into NFTs, which they sold.
While NFTs had initially been pitched as a new way for artists to sell digital art, they quickly morphed into an easy way to violate copyright for quick cash. This undermined the appeal of NFTs to the public and also set much of the art community in deep opposition to crypto projects, turning allies into enemies.
Second Wave of NFT Projects
The second trend was the emergence of animal-themed NFT projects. The most famous of these is the Apes series. Some programmers and artists realized that they could mass-produce NFTs by iterating on a basic image, like a crudely drawn ape or other animals. The program could randomly add accessories like hats and sunglasses to the images, making each one unique. Then each one could be sold as an NFT. The Ape version and a few others gained massive hype, with NBA players and other significant influencers buying in. However, the low quality of the art and the lack of apparent value had others questioning the merit of the projects as anything other than a money-making scheme with no long-term value.
Third Wave of Scams and Corruption
The third trend was corruption and scams. Quite a few knockoff animal NFT projects tried to piggyback on the success of the Apes, and several of them wound up exit-scamming after some people had bought in. These kinds of scams are par for the course in crypto, and most investors and enthusiasts are good enough to avoid them. However, on a more serious note, executives at OpenSea admitted to using insider trading to profit from NFT sales on their platform, taking advantage of non-public information to swoop in on trades.
These incidents have further affected the reputation of NFTs. Now, there is a core of intense NFT fanatics and a broader, diffuse group of people who are opposed to them, making a volatile situation. These scams are also more likely to attract regulator scrutiny and red tape, which are never a good thing for crypto projects.
Smart Crypto Investments Alternative Assets
The fundamental problem with NFTs is that they were built on speculation of an asset with very little inherent value. This is also true for many altcoins in the crypto space. The NFT boom, like the dog coin booms, the porn coin booms, and the ICO boom, was based on the idea that people who got in early had a slim chance of getting rich if they sold out at the right time and didn’t fall victim to a rug pull. Very few people actually believed in the underlying projects.
When investing in a crypto project, it is essential to be realistic about the quality of the project. Think about how likely the project really is to succeed, how useful the end product would be, and how vital the crypto element of the project is.
You should also take a pragmatic approach to the investment process. Have a slow and steady section of your portfolio and calculate its future value using a compound interest calculator for crypto. Add in your starting amount, your rate of return as the interest rate, and then how much more you plan to invest over time. This can help you project how much that part of your portfolio will be worth, and you can then risk the rest on longer bets and speculation.
