Hey friends,
Over the last 2 months, I’ve been digging deep into the NFT Rabbit hole.
It’s an exciting one nonetheless and the more I read, the more intellectually stimulated I get.
I’ll explain the reasons why below (so read patiently).
But to give you a little backstory on why I decided to study NFTs… lemme share a brief story with you.
You see, just like most of the 80% of the people out there… I used to think that NFTs is ridiculous.
Like why pay so much money for a piece of art?
In fact, I find it much better to buy and hold cryptocurrencies – Ethereum, Solana, Polkadot, Luna, Avalanche, Polygon.
These coins have tangible utility and hence they make much better long term investments.
However, everything changed when I met a friend, Brad for dinner at a porridge shop.
Brad used to be a hustler at a traditional “9-5” job.
Then when we met up that night, Brad told me that he quit his job… and managed to make a living out of flipping NFTs.
I told him…
“Bro… are you really gonna make a living out of such volatile markets? It’s crazy y’know?”
He smiled at me and he didn’t argue.
Back then, I still held strongly to my own opinion that NFTs are probably a fad and it’s gonna die off once the hype disappears.
Then that night, Brad and I went to chill together at a friend’s home.
He was showing us all his different NFTs on his Opensea account.
It honestly looked like a collector’s shop or a museum where he listed dozens of NFTs for sale.
And then there was one that caught my eye…
VEEFRIENDS.
TRAITS:
Rarity: Spectacular
Spectacular: Diamond
Animal: Angel
“Man”… I thought. This feels like an online version of buying trading cards.
It sounds fun to me… considering I’ve bought cards like Yu Gi Oh or DuelMasters when I was younger.
Then when I was looking at that Veefriend NFT… Brad told me that he took a leap of faith to buy that.
He took all his savings from his day job and went all-in on that one and only Veefriends Mint. (The Mint price was 3 eth for that collection.)
Today the floor price of Veefriends is 12 eth.
My friend 4Xed on that one investment.
And after Brad’s brief sharing, I started to question my presuppositions about NFTs.
I did a whole bunch of research on that topic and today I wanna share my findings with you.
As usual, this is not financial advice but I think it’d really be helpful for you to tap into whatever I’ve learned in the last 1 or 2 months about NFTs.
I’ll just lay out whatever I’ve learned in a Q&A style so it’s easier for you to understand.
Here goes:
Question 1: Are NFTs a scam, bubble or both?
Answer:
The simple answer is NFTs are in a bubble right now, but they are not a scam.
Of course, this doesn’t apply to all NFTs.
It depends on which projects you invest in.
If the founders want to make a quick buck, they might decide to cash out whenever their project turns profitable. And that’s effectively a scam.
This is why there are so many rugpulls in the Crypto and NFT space. (Rugpull: Founders running away with all the money they raised).
These are the people giving this industry a bad name.
It’s a result of too much money entering this space, combined with people’s greed.
Hence, you’ve got to be super careful of what you buy.
I feel there are some NFTs which are awesome and they’re definitely not scams – Bored Ape, Mutant Ape, Neo Tokyo, Veefriends and World of Women.
These are blue chips which will stay in the ecosystem for the long term.
However, I do admit that the short term value of NFTs is extremely difficult to evaluate.
These instruments do not function like stocks and they do not have balance sheets or cash flow statements for you to analyze.
Right now, I’d say that the NFT market is probably in a bubble because there are many overly-hyped projects at crazy prices.
Question 2: Should I buy Crypto or NFTs? Or both?
This is a great question.
In fact, this is one of the questions I asked when I was first exposed to NFTs.
From my perspective, here’s how I see it:
Buying crypto gives you lower returns but higher liquidity (You can easily exit if things go wrong).
On the contrary, buying NFTs gives you higher returns but lower liquidity (You are screwed when one of the following happens: 1) You’re rugged 2) Your project doesn’t do well. 3) The market crashes).
That’s in a nutshell the difference between buying Crypto and NFTs.
Personally, it comes down to 2 factors:
- Risk Tolerance: Do you have a family to feed? If you do, you probably can’t afford to take a lot of risks. If you don’t, you can make riskier bets and eat ramen in the worst-case scenario when everything goes downhill.
- Time Horizon: How long are you gonna be investing or trading crypto. This is really important because it’d determine your eventual strategy – whether you flip or hodl for the long term.
Question 3: What do I get out of an NFT?
Prove it to me that it’s something more and it’s not just a piece of art.
Answer:
The simple answer to this question is that NFTs have other functions apart from it being collectables or art.
With blockchain technology, it’s feasible for NFTs to behave like securities (stocks and shares) where you as the hodler get benefits whenever the project makes money.
Moreover, having the right NFTs give you access to exclusive communities so you can network and rub shoulders with the coolest kids in town.
For example, if you own a Bored Ape… you can network with people like Neymar, Eminem and even Stephen Curry.
You can think of it like a digital country club.
I think this picture below from Twitter speaks a thousand words:
I’ll share a longer answer to this question if you’d like more data and the actual thought process behind NFT investing.
Meanwhile, you can read Ben Yu’s NFT article titled “Why NFTs are a Generational Innovation” here.
If you find the article too long and you like a TLDR… then stay tuned for my next issue where I’ll explain why the technology behind NFTs can be revolutionary and how it would affect our next 20 years moving forward.
That’s all for this issue!
Cheers,
Zachary Tan