NFT investments have become a buzzword not only within the crypto community but also among collectors and artists, leading many to wonder what an NFT is and how to invest in NFTs. Discover how to buy, sell, and trade in NFTs and NFT-related assets.
There’s quite a bit you should know before you dive in. If you want to invest in NFTs right away, here is a quick guide that can help.
Getting Started with NFTs - Quick Guide
- Research available NFT assets – You’ll want to choose an NFT that you feel has upside potential. However, as any NFT could become effectively worthless, you might choose to invest in NFT-linked assets.
- Select a brokerage or an exchange – you can speculate on the rise and fall of NFT-linked cryptocurrency, stocks, and ETF; buy and sell underlying assets; purchase crypto with fiat currency.
- Take your position – connect your wallet to a marketplace to buy an NFT or create an account to trade and invest in NFT-linked assets: coins, stocks, and funds.
Let's explore the NFT space and the most popular investing options available for retail investors.
What is an NFT?
Non-fungible tokens, also known as NFTs, are cryptographic assets that have been registered to a blockchain. They have unique identification codes and metadata that can be used to distinguish them from one another. NFTs can be used to authenticate digital ownership of any asset attached to the token. The Ethereum blockchain is the most popular network for trading NFTs.
They cannot be traded or exchanged the same way you would trade cryptocurrencies. Non-fungible tokens are unique assets, and no two NFTs are the same or can replace each other. Cryptocurrency is a fungible asset, and all units are the same (e.g., if you sell one BTC now and buy another BTC, tomorrow is the same thing, although it might not be the exact same BTC). The innovation is that NFTs can be used to prove ownership of a particular asset. The process of creating an NFT is called NFT minting, and it effectively refers to the process of registering digital assets onto the blockchain.
What can become an NFT? Basically, it can be anything that we own or have access to in the digital world. Or it can be any real-world item that we wish to tokenize and register to the blockchain to ensure trading efficiency and reduce fraud. For instance, NFTs can be a tweet, digital artwork, someone’s ID or private data, in-game assets, or even a music track. However, the NFT art collections were the most popular when the NFT market exploded in 2021. Artists from all over the globe started using blockchain technology to reach art collectors and then sell their work. Digital creators can now sell their work to potential buyers all over the globe through the NFT revolution. By investing in an NFT, art collectors can support digital artists such as musicians, graphic designers, or painters who may create such NFTs.
How NFT works?
It’s important to understand that NFTs are different than cryptocurrencies, as each NFT is unique (as the name implies) and cannot be divided. They can only belong to a single owner at a given time to assign ownership over any digital asset or to represent the tokenized version of a real-world asset. All this information is submitted to the NFT’s blockchain and can be used to track it at any given moment by anyone with an online connection. While NFTs are not limited in any way, most of them represent digital art that comes in the form of collectibles, music, or videos. NFTs that represent real-world items can be tickets to a real-world event, any type of legal document, signatures, or a certificate of authenticity, but it can be almost anything.
NFTs can only exist on blockchains that support smart contract capabilities, such as Ethereum, Polygon, or Solana. There are many such chains today, but these are the most popular now. The ownership of an NFT is proved through a unique ID and metadata. To set all these details, NFTs are “minted” on the blockchain. The process can be done through many NFTs marketplaces and incurs a small fee, as do all blockchain transactions. During the NFT minting event, the provided information, including the representation of the NFT, is validated and recorded on the blockchain.
NFT owners can:
Easily prove their ownership
An NFT is a secure, blockchain-based certificate that confirms ownership of a digital or physical object. Each NFT is linked to a crypto wallet.
Trade it
Just like any other digital or real-world asset, these NFTs can be bought and sold on the special NFT marketplace. Note that each token is non-fungible; each NFT has a price in crypto and can’t be interchanged for another NFT.
Hold it in a crypto wallet
Just like you would hold a traditional artwork. A popular trend is to display it on social media.
What makes NFTs valuable?
NFTs have no intrinsic value, but their value can be determined by the artist or company that created them. As with decentralized digital currencies and non-fungible tokens, their value is determined by what people will pay.
In 2021, the market of NFT digital art exploded. Some of the most sought-after ones have been bought for millions of dollars. The most expensive NFT ever sold is Pak's “The Merge” for $91.8 million on Nifty Gateway, a leading NFT marketplace.
Crypto enthusiasts might also buy NFTs just to display them and use them as status symbols. The buyer of the most valuable NFT sold is an example of this. Vignesh Sundaresan is a crypto programmer and investor who chose to exhibit his $69.3 million NFT at a digital art museum in the Metapurse metaverse.
The value is based on four primary factors:
Utility: how it is used such as a token used in gaming Ownership history: play a role if the token is created by a famous person or brand name Future value: involves the speculation of where the NFT will move over time Liquidity premium: how much demand there is for the art with NFTs with higher traffic yielding higher premiums
NFTs are seen as a way to make money, just like all investments. While some NFT investors have experienced astronomical returns, there’s no guarantee that your specific digital asset will gain or keep its value. Any NFT could become effectively worthless.
How to invest in NFTs
There are two routes to investing in NFTs: speculating on their linked assets using CFDs or buying the assets in the hope they increase in value.
Purchasing through NFT Marketplaces
One of the most straightforward ways to invest in NFTs is to purchase them from an NFT marketplace. Here are the simplified steps for purchasing an NFT through an NFT marketplace.
Step 1: Purchase Ethereum on a crypto exchange
Unlike regular trading platforms, NFT marketplaces list the prices of the assets in cryptocurrency. There are multiple blockchains that support NFTs (Ethereum, Polygon, Solana, and others). However, the most popular blockchain for creating and trading NFTs is the Ethereum blockchain.
To purchase any of these Ethereum NFTs, you will need to have a crypto wallet that is funded with enough Ether (ETH) to purchase the desired NFTs.
If you use ETH for the purchase of NFTs, you also need to pay a “gas” fee for the Ethereum network to process the transaction. The amount of this fee varies based on network congestion on the Ethereum platform and can be as high as hundreds of dollars.
Note that if your NFT is priced in Ether and the value of Ether falls by 50%, then the value of your NFT could also decrease by 50% or more.
Step 2: Transfer your crypto to a crypto wallet
After you purchase your Ether (ETH), you have to transfer the funds to a crypto wallet that will allow you to connect to the chosen NFT marketplace. MetaMask is the most popular wallet, and it is supported by most marketplaces. The first thing to do is to create a new crypto wallet, write down the details (seed phrase – needed to recuperate the wallet), and save them in a secure place. Then copy its blockchain address because you will need it to send the ETH funds to this wallet.
To transfer your ETH to your crypto wallet, you will have to log in to the crypto exchange and withdraw the ETH. In the withdrawal window, you will be asked to input the withdrawal address, which is the blockchain address of your crypto wallet. After you confirm the transaction, you should be able to see your fund in your crypto wallets in only a few moments.
Step 3: Connect your wallet to an NFT marketplace
After you’ve funded your crypto wallet, you can now use it to purchase the desired NFTs.
The first thing you’ll need to do is to go to the NFT marketplace (e.g., OpenSea, Rarible) and connect your wallet.
Then navigate to the page of your NFT and click to purchase it. Most crypto wallets support NFTs, and they will show up there. You may also check all transactions, including the ownership of your NFT, on the block explorer (Etherscan).
You can choose the NFT that you want to buy by exploring NFT marketplaces online. You are likely to encounter a variety of images, short videos, and original artwork. Many NFTs come in collections or sets, with individual NFTs ranging in price from free to millions of dollars each. Pick an NFT that you think is fun and likely to gain value.
Some of the most popular NFTs are collectibles and can be used to receive real-life perks, within a game or metaverse or are simply used to be displayed on social media to enforce the owner’s status. The most popular NFT collections are:
- Bored Ape Yacht Club (BAYC)
- Mutant Ape Yach Club
- CryptoPunks
- Otherdeed for Otherside
- Genuine Undead
- ENS: Ethereum Name Service
Let’s talk a bit about the Bored Ape Yach Club, which has been a hot topic for more than one year. This is a collection of 10,000 unique Bored Ape NFTs, on the Ethereum blockchain. They represent profile pictures of cartoon apes that are procedurally generated by an algorithm (this process is also called generative art). Each NFT grants special perks to its owner, such as entrance to real-life VIP parties. As of October 2022, the cheapest BAYC NFTs on OpenSea costs 73.5 ETH (≈ $96,280).
Having some understanding of cryptocurrencies and computers is necessary to buy NFTs. If you don’t manage your digital assets properly, then it’s possible to permanently lose access to an NFT.
Trading and Investing in NFT-linked assets
Trading and investing in NFT-linked assets allow you to reduce risk through portfolio diversification using traditional income vehicles or even cryptocurrencies.
When buying NFTs-linked assets directly, you would be investing and owning the asset outright with the intention of holding it with a brokerage and profiting if it increases in value. When investing, you would be expected to pay the full value of the assets bought upfront.
When trading NFT-linked assets, you would be speculating on the underlying asset's price movements without taking direct ownership. To speculate the price of NFT-linked assets, you can use derivates, such as CFDs. In CFD trading, you agree to exchange the difference in the price of an NFT-linked asset from when you first open your position to when you close it. If you open a long position and the asset increases in value, you’ll make a profit, but if it falls in price, you’ll lose – the opposite is true for a short position.
When trading you use leverage to increase your exposure to the total value of your position size by paying only a 20-25% deposit. Leverage means both profit and loss will still be magnified to the value of the full trade, meaning your gains and losses may be faster than anticipated.
Each investor should research the available ways to invest in NFTs before deciding what’s the best option for their situation.
NFT stocks
If you want to be exposed to the NFT space, but you don’t want to invest in NFTs directly, then you may consider investing in stocks or trading stocks that are indirectly involved in the NFT space.
An NFT stock is a share of a company that’s involved in the NFT market in one way or another. It’s a popular way to gain indirect exposure to the NFT market. NFT company stocks are still relatively few and far between, but more and more companies are expanding into the sector. The best NFT shares may come from companies offering their own NFT collections, or by supplying the technology required to power the NFT ecosystem.
The tech behind the NFT industry is growing every day, and it is the same technology that maintains the ETH blockchain, which means that any NFT stock list will be closely correlated with the crypto markets. You don't have the time to do all that they do. Here are some of the most popular NFT stocks:
NFT-linked funds
If you want to diversify your portfolio with a bunch of NFT stocks, then consider NFT ETFs (exchange-traded funds). When trading ETFs, your investment risk will be spread across many companies and might be less impacted by high volatility. The main reason why investors choose to invest in NFT-linked ETFs instead of NFT stocks is that it can provide greater exposure to a basket of shares and diversification.
NFT funds track the performance of investments in NFT sector companies. This will result in an increase in the share price of the ETF. Some of the top NFT funds are:
Defiance Digital Revolution ETF (NFTZ) is the go-to NFT ETF. The NFTZ tracks the evolution of the BITA NFT and Blockchain Select Index, and it is a collection of securities from public companies that have exposure to NFTs, crypto, or blockchain. The NFTZ fund offers exposure to around 30 stocks, such as Robinhood (HOOD), Coinbase (COIN), Funko (FNKO), Riot Blockchain (RIOT), and International Business Machines Corp (IBM).
Another NFT-linked fund is ProShares Bitcoin Strategy ETF, the first U.S. bitcoin-linked ETF offering investors an opportunity to gain exposure to bitcoin returns in a convenient way.
With us, you can get exposure to NFT-linked ETFs by trading via a CFD account or buying via Invest account. This means you can either speculate on the price movement or own the shares in funds.
NFT coins
NFTs stand for non-fungible tokens, which means that these digital assets are not transferable or swappable, as each one has unique features. Many people may confuse NFT tokens and in-game tokens. For instance, the most popular spaces that offer plenty of NFTs is the Decentraland metaverse. Within Decentraland, any user can create digital assets and then sell them as NFTs. However, the coin used for the economy of the space, which is a metaverse in this example, is different. For Decentraland, it’s MANA coin.
If you want to support one of these metaverses or platforms that offer NFTs, then you might want to invest in these coins, which some call NFT coins. Here are a few examples of the most popular NFT coins available for investors today:
- Decentraland (MANA)
- The Sandbox (SAND)
- Enjin Coin (ENJ)
- Chiliz (CHZ)
- Tezos (XTZ)
- Flow (FLOW)
- ApeCoin (APE)
- Axie Infinity (AXS)
- Star Atlas (ATLAS)
With us, you can only take a position on cryptocurrencies by trading via CFDs. Please, bear in mind that cryptocurrency trading tends to be risky and is best suited to experienced traders.
Getting started with CAPEX.com
To trade and/or invest in NFT ETFs or stocks, the process has been simplified. With us, you can open an account and deposit funds easily. We’re a fully regulated by the CySEC and many other regulators across the globe. You can buy or sell with milliseconds execution, deep liquidity, and withdrawals are always free and fast.
Once you’ve made your choice on the NFT asset you want to buy or trade in, you can use our award-winning platform to do this. Across CAPEX WebTrader there are over 5,000 shares and ETFs to choose from and over 2,000 CFDs on shares, funds, indices, or cryptocurrencies.
Here’s how to open you position with us:
- Open a CFD trading account or Invest account
- Access the trading platform and research your NFT-linked assets
- Select ‘Buy’ or ‘Sell’ on the deal ticket
- Set your position size, as well as your stops and limits
- Click ‘Place Order’ to confirm the position and open the trade
Pros and Cons of Investing in NFTs
NFT presents an extra layer of challenges on top of the combination of elements from investing in the cryptocurrency sector. Let’s take a look at the pros and cons of investing in NFTs.
Pros for investing in NFTs
There are many reasons why investors want to purchase assets tokenized into NFTs. NFTs offer several benefits, including:
Anyone can buy NFTs. Everyone can invest in tokenized assets. Tokenized assets can be more efficiently and easily transferred between people around the globe. Blockchain technology secures NFT ownership. Blockchain technology can digitally signify ownership, making it more secure for investors to own assets. Blockchain technology can make asset ownership more transparent. This is a chance to get to learn more about blockchain technology. Investors can diversify their portfolios by allocating small amounts to tokenized assets. Some NFTs may turn out to be profitable. NFT trading has increased significantly in recent years. Popular NFTs can fetch thousands, sometimes even millions of USD.
Cons of investing in NFTs
However, investing in NFT has its downsides. Here are some of the reasons to avoid investing in tokenized assets.
NFTs do not constitute an asset class. NFTs are commonly, but erroneously, regarded as an asset class rather than a technological way to indicate ownership. The hype and general misinformation surrounding NFTs can lead to volatile and exaggerated values for tokenized assets. Blockchain transaction fees are required. Since most popular NFTs exist on the Ethereum blockchain, you may need Ether (ETH). To purchase an NFT, you may need to own Ether (ETH), the native currency of the Ethereum blockchain. NFT investors who wish to purchase NFTs using fiat money, such as U.S. dollars, may be limited in their options. Volatility is a concern for stocks in the NFT or crypto sector. NFTs remains a highly risky investment. While there may be great potential for profit, there is also a greater chance of losing money. The NFTs marketplace suffers from a lack of regulation. If something goes wrong or you are the victim of fraud, there is no authority that may help you.
Should You Invest in NFTs?
While you may only receive a digital file in exchange for your money, you have to understand how NFTs work to see their true value. Remember that NFTs are the ultimate proof of ownership. As we’ve mentioned before, NFTs can be used to tokenize anything, including concert tickets, music albums, and digital assets stored in blockchain-based games. Virtually any real-world asset could be tokenized and stored in a virtual wallet.
As you see, NFTs are not without their pros and cons, and they are much different than your traditional assets. Retail investors can’t simply add NFTs to their portfolio unless they go the extra mile to learn how these special types of assets work and how to manage them.
Just because NFTs are a popular topic within crypto communities, this doesn’t mean you must invest in NFTs. As an investor, your best move is to find quality assets you want to own and to then take the necessary steps to acquire them.
You may even want to ask yourself some of the following questions to determine if you should invest in NFTs:
- “Are NFTs the right investment for me?”
- “Do I know how NFTs work?”
- “Why do I want to invest in NFTs?”
- “What’s my reasoning behind this investment? Is it sound reasoning?”
If you’re looking to save up funds for the long term or expecting that your NFT investment will grow over time, then we have some bad news. Nobody can say for sure that NFTs are a good investment for the long term because they tend to fluctuate in value a lot over time. In such cases, you may want to consider other assets to invest in, such as:
However, it is probably not a good idea to invest in any asset simply because it has been tokenized. The principles of investing remain the same regardless of whether an asset's ownership depends on blockchain technology.
Free resources
Before you start investing in NFT-linked assets, you should consider using the educational resources we offer like CAPEX Academy or a demo trading account. CAPEX Academy has lots of crypto courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader or make more informed investment decisions.
Our demo account is a suitable place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for stock investors who are looking to make a transition to leveraged trading.