How can I make money as a beginner with NFTs?
NFTs, or non-fungible tokens, are one of the hottest digital assets available. Those looking to invest should understand that there are serious risks with this investment.
Last week, a video from Tonight Show with Jimmy Fallon went viral when Paris Hilton and Fallon discussed their NFTs, non-fungible tokens. A few months back, Hilton had stopped by the show and the two celebrities discussed NFTs, which led Fallon to purchase a Bored Ape Yacht Club NFT.
In simple terms, non-fungible means non-replaceable. NFTs are marketed as a scarce good, like art, because you will own the digital good as if it were a physical item.
Fungible goods include any items where a buyer does not care what physical version they get. When you go to the store you do not care which loaf of bread you get or which can of soda you exit the store with. Something non-fungible would be a piece of art like the Mona Lisa or a copy of the Magna Carta.
NFTs are non-fungible because you own a digital asset that is the only one that exists in the world.
Since the NFT is digital, Fallon showed a photo version of the "ape" he purchased, which is "unique" in that it has a yacht hat and heart sunglasses. After Hilton heard that Fallon had bought an "ape" she also purchased one, and the two sent prices soaring for "ape" NFTs after the segment was posted online.
In late January, the media outlet Hype Art, reported that singer Justin Bieber may have gotten in on the Bored Ape craze, and purchased one for over $1.2 million. However, Bieber himself has yet to confirm the purchase.
But before you also get start investing your money in this market, there are a few risks you should be aware of.
How much did the market for Bored Ape Yacht Club NFTs increase?
One can purchase a Bored Ape Yacht Club NFT for anywhere between 100 and 4000 Ether (ETH), which is a different cryptocurrency. One Ether, currently, holds the same value as around $2,500. Before the interview with Hilton, the average Ape was selling for less than 100 ETH, or around $254,740, and since then that figure has grown to 131 ETH or $333,709.
While all people should be allowed to spend their money how they see fit, many are calling Fallon's segment irresponsible. Should the entire NFT market collapse, celebrities and wealthy investors who have spent millions of dollars on these digital assets, will likely still be able to hold onto most of their wealth. However, for smaller investors hoping to follow the trend and make some money, the consequences could be catastrophic. While the NFT market is largely unregulated, many have criticized Fallon's actions saying that him prompting an asset he holds is a clear conflict of interest. If Fallon had told his audience
Hilton plans to launch her own NFTs
During the interview, also Hilton spoke to her collaboration with SuperPlastic, to create a NFT series that features collages that she has created with photos of her and her husband. More details on Hilton's project are expected to be announced in the coming months, but as a part of her promotion tour, Hilton pulled an Oprah and gifted an NFT to Fallon as well as all those that were in the audience.
The dangers of NFTs
The increase the market value of the Bored Ape Yacht Club NFTs shows the sensitivity in price that exists in the digital currency space.
How do NFTs differ from works of art?
Many compare NFTs to pieces of art because they follow the same economic principles relating to scarcity. There is only one Mona Lisa in the world and therefore it would be very expensive to buy. But with NFTs, you may own one "ape" but there are more than ten thousand of very similar apes that you could buy.
While there is clearly hype in the NFT market, what the assets value depends on is continued belief in the product. Should many wealthier holders begin to sell of their NFTs, or the trend begin to dwindle, the prices of these assets could fall sharply. This is very different from physical art, that holds an inherit value which is what makes it so expensive. The price of the Mona Lisa, or an original manuscript written by a famous author holds inherit value because it is the only one like it. Yes, Jimmy Fallon owns an NFT of a monkey, but you can buy a very similar one.
How are NFTs different from other assets like stocks?
Some proponents argue that the same goes for people who invest early in company stocks. For example, people who invested early in Apple or Amazon, and waited even decades saw incredible returns.
But there is a key difference. Apple and Amazon had to make money and show that the products or services they were offering were profitable.
Should they stop being able to generate profits, the stock value would decrease. The value of Apple as a company does not come from the fact that it is "Apple," it is that it has a consumer base that prefers their products and will spend their money on them. If that were to change, and threaten the businesses, the value of the stock would fall and investors would lose out.
It is important to note, however, that those who had invested less and had thus not been able to spread the risk out as much as others, would be disproportionately impacted by the fall in price.
But when looking at the NFT market, it is easier to see the risk because what sustains it is an idea in the NFT. What drivers the price up, is interest in the concept. If investors believe that they can begin to make money in this market, they should be aware that it might be a trend, that could leave them empty handed.
For a recent example, look at Bitcoin.
When major leaders in the financial world like Elon Musk through their support behind the coin, the value shot up, and when he began to withdrawal his support, the price dropped... quickly. Bitcoin hit historic highs in 2021, and over the past few weeks has seen its value cut in half.