- Date : 20/02/2022
- Read: 6 mins
Did you know that using NFTs, you can invest in a piece of real land in the real world as well as a piece of virtual land in the digital world? Similarly, using NFT marketplaces, you can sell your artwork to others or buy other’s artwork. In this article, we discuss all these various NFT investment strategies.
Until a few years back, investors transitioned from physical assets like gold and real estate to financial assets such as mutual funds, digital gold, etc. Currently, along with financial assets, digital assets are the new rage among investors. Within these digital assets, cryptocurrencies and non-fungible tokens (NFTs) have caught the attention of investors.
While investing in these digital assets, investors need to build a diversified portfolio - as with any other asset class. This article will serve as an investment guide on how to invest in NFT. It will discuss various NFT investment strategies for maximising profits.
What is NFT?
An NFT or non-fungible token is a unique digital asset. The uniqueness is certified by a unit of data stored on a blockchain. For example, let’s assume you own an NFT poster of one of Amitabh Bachchan’s movies. Even if other people own a similar poster, yours will be unique because your poster is an NFT that represents a unique asset that only you own. The poster's authenticity and your ownership can be proved or verified through the NFT.
As seen in the above image, two Amitabh Bachchan posters are similar. But each poster is a unique NFT. You can authenticate its uniqueness and verify the ownership with blockchain data. An NFT represents a digital asset linked to ownership of digital goods (for example, a game) or physical goods (for example, real estate). NFTs are also known as collectables.
Now that we understand the NFT meaning, let us understand the various NFT investment strategies. You can invest in NFTs in various ways. Some of these include:
1) NFT artwork
You can invest in NFT artwork in the form of posters, movies, music, paintings, newspaper articles, etc. These are quite popular among Indians. Some sports stars and Bollywood celebrities have auctioned their NFT artwork. Since sports stars and Bollywood celebrities have a huge fan following, NFT artwork has been a huge hit among Indians.
The above image shows how the Hindustan Times newspaper has created NFTs with its popular news articles. We have already seen Amitabh Bachchan's NFT posters in the earlier section. Amitabh Bachchan also auctioned Madhushala, in which he recited his father's famous poetry in his own voice.
As an investor, you can invest in NFT artwork and later sell it to other investors for a profit through an NFT marketplace like BeyondLife.club. Bollycoin is another platform where Salman Khan has listed his NFT artwork collection. As an investor, you can participate in the auctions, purchase an NFT, and add them to your long-term NFT portfolio.
Other celebrities that have launched their NFT collections on various platforms include Kamal Haasan, Yuvraj Singh, Manish Malhotra, and Rohit Sharma.
2) Real estate NFT
You can invest in real estate through NFTs in two ways. You can own a piece of real land in the real world, or you can own a piece of virtual land in the digital world through NFTs.
First, let us talk about owning a piece of real land in the real world. Platforms like Aqarchain.io and Realx.in are using blockchain technology to give digital ownership of real land to investors. They rely on the fractionalisation model to distribute land ownership among investors.
For example, Aqarchain.io will digitise a real estate asset such as commercial property by minting an NFT. It will be further fractionalised into small, fractional tokens. Each token will represent a certain share of the property. The company will then sell the NFT tokens to investors. An investor buying NFTs will get fractional ownership of the property.
An investor can buy an NFT token and hold it, enjoying the property's returns (share in profits or rent). They can also trade NFTs (sell tokens to another investor for a profit).
Buying fractional units in a property makes it affordable to retail investors. NFT marketplaces also provide liquidity to investors for selling their fractional ownership to other investors.
The Decentraland platform is selling virtual land in the digital world to investors. Investors can get ownership of virtual land in the form of NFTs. They can hold the virtual land ownership and later sell it to another investor for a profit.
3) Creating NFTs on your own artwork
In the first section of this article, we saw how investors could invest in the artwork of sports stars and Bollywood celebrities. Now, let us examine how individuals can create NFTs on their own artwork and sell it to others. The WazirX NFT market or marketplace allows individuals (creators) to create their own artwork, mint NFTs, and sell it to other investors (collectors).
You can join an NFT marketplace like WazirX NFT marketplace as a creator or a collector. A creator is someone who can create original artwork and sell it to others (collectors) as an NFT. So, if you are interested in creating original artwork, you can join the marketplace as a creator. You will be able to mint an NFT on each of your original artwork and sell it to collectors. Apart from getting paid on the first sale of the original artwork, you will also earn for every resale by a collector to another collector.
If you don't wish to create original artwork but just invest in it, you can join as a collector. A collector can invest in a creator's original artwork (first sale) or purchase an NFT from another collector (resale). A collector can hold the NFT and sell it later to another collector for a profit. Whenever there is a resale of an NFT (any number of times), the original creator will also get a share of the profit along with the collector. Thus, the marketplace serves as a platform to buy and sell NFTs.
The above image has been taken from the WazirX NFT marketplace. The first line represents creators, the second line represents the artwork, and the last line represents the collectors.
4) NFT games: Play-to-Earn (P2E)
An NFT investment strategy can be playing certain games and earning rewards. In the Axie Infinity game, for instance, you need to buy Axies to play the game. An Axie is an NFT that can be bought from an NFT marketplace. Using the Axie, you can play the game and earn rewards. You get rewarded for your time and efforts in the form of SLP (Smooth Love Potion). The SLPs can be exchanged on crypto exchanges for Ethereum tokens. Similarly, you can consider other NFT games based on the play-to-earn (P2E) model, such as The Sandbox, Aliens World, Mobox, etc.
In our NFT guide, we discussed just four NFT investment strategies. But there are others as well. Some are emerging, and newer strategies will emerge in the future. While the NFT investment space can seem exciting, you should not get carried away. As a prudent investor, you should practise asset allocation and allocate only a small percentage of your overall investment portfolio to NFTs.