TL;DR- CryptoPunks NFTs are great, but most people don’t have $70,000 lying around to throw at a JPEG. Thankfully there are several different ways you can experience NFT gains without buying a specific NFT. Below I’ll highlight NFT collection-specific indices, an NFT index, and cryptos that power NFTs.
A quick caution- think long and hard before you ape into anything NFT. It’s a jungle out here. This isn’t financial advice.
Not everyone is willing, has the money, or knows how to buy an NFT on a marketplace like OpenSea. Lucky for us there are other ways to get in on those insane NFT gains without directly buying.
- Investing in NFT collection-specific asset pools
- Buying an NFT index created by a third party
- Buying specific tokens that power NFT networks
Every time I bring up NFTs in conversations with friends and family there seems to be a ‘WTF?’ factor. So I want to take a step back and talk about Non-Fungible Tokens and give my take.
It’s not a secret that NFT gains have been absolutely insane in recent months. People half my age are making life-changing money on pixelated JPEGs. Celebrities from Tiger Woods to Katy Perry to Tom Brady are minting NFTs.
Many more celebrities have Ethereum-verified badge NFTs as their Twitter profile pictures. So what the fuck is going on?
It’s nothing new
Even the biggest NFT haters I’ve spoken to agree that humans have the ability to assign value to things that have no utility. Take gold for instance- it “does nothing but sit there and look at you” in the eyes of Warren Buffett.
Jackson Pollock paintings that look like nothing more than random paint spots on canvas sell for hundreds of millions. A quick Google search will show you that history is wrought with people paying obscene prices for otherwise useless shit.
Like real world art, NFTs have immutable proof that they are unique (on the blockchain with NFTs instead of physical copies like paintings). NFTs also have distinct owners. Like art, NFTs can have daily utility- as in both you and other people think it’s cool. It can be cool that you have a Bored Ape as your Twitter profile picture- or that you have a really neat, unique in-game item in World of Warcraft or Fortnite.
The point here is that things don’t need to exist in the physical universe for people to think them valuable. Younger generations like Millennials and Gen-Z already don’t make the distinction between the items in the Metaverse and the physical universe as much as Gen Xers and Boomers would.
Lower beta than the crypto market
If you’ve been in cryptocurrency investing for more than a little, you know that other coins tend to follow whatever Bitcoin is doing. The 4-year market cycle of an 18 month pump after a Bitcoin halving event followed by a 30-month crypto winter is dependent on Bitcoin’s halving.
When Bitcoin falls, they all fall. Someday the crypto market may be free of Bitcoin dominance but that day is still far away.
Investing in NFTs can be a way to ‘diversify’ your crypto investing at least a little. Many NFT pumps are completely independent of what crypto coins are doing. NFTs could gain adoption in gaming as in-game items like on the WAX network and have an explosion in value.
So how do we invest without buying?
The top 3 ways invest in NFTs without buying one
1. Invest in collection-specific tokens on Uniswap.
These collection-specific tokens attach to an asset pool of actual NFTs in that collection that the fund owns. If the price of the NFTs in the pool collectively appreciate, the token’s value will appreciate too. The appreciation may not be an exact 1:1 with the NFT value due to supply and demand dynamics with the token.
This gives you the choice to pick a collection that you like, believe in, or think will appreciate. Watch out though- there are an unsustainable amount of NFT collections out there and many will fail.
The good news here is that tokens only exist for the very biggest collections like CryptoPunks or The Bored Ape Yacht Club. This is good because these collections aren’t going anywhere anytime soon. Celebrities like Snoop Dogg, Jay-Z, Serena Williams, and Gary Vaynerchuk own Cryptopunks.
Here’s an example walkthrough to buy the PUNK token (shares of CryptoPunk NFTs)
2. Invest in an overall NFT index
Token Sets has funds that tracks different sorts of NFTs as a whole. Be careful and make sure the fund you’re investing in is legit.
The advantage here is that your money is spread out across several NFT collections and not just one. As my business school professors said- diversification is the only free lunch in investing. Diversification is going to be your body armor against the asteroid shower of FUD, greed, and anything else that can hurt NFTs.
Aside from purchasing Ethereum (see #3 below), this fund is my favorite option. One thing I’ll point out is that NFT are technically art, and art as an asset class has outperformed everything over the past 30 years.
3. Invest in specific tokens that power NFT networks
We’ll start with the largest and most obvious NFT-related cryptocurrency.
Just buy some Ethereum
This play is extremely simple, but it’s solid. Given 90%+ of the top selling NFTs exist on the Ethereum network, any increase in trading volume of NFTs will help boost ETH’s price.
70%+ of my personal cryptocurrency portfolio is either Ethereum or Bitcoin, and for good reason.
Another reason to buy Ethereum is that [like Bitcoin] it has staying power. I encourage you to look at what the top coins were at the peaks of the 2013 and 2017 crypto bull market runs. Chances are you won’t recognize many of them. This is because most crypto projects around today are not going to make it. There are too many coins competing for a limited number of real-world use cases.
Ethereum isn’t the only kid on the block that’s tied to NFTs. Some coins are much MORE tied to NFTs than Ethereum.
Other NFT coins to invest in:
1) The OMI token. ECOMI has secured solid partnerships with a multitude of franchises: Marvel, Star Trek, Universal Studios, James Bond, etc. Expect this marketplace to be one of the winners. OMI is the native token and currency that powers the marketplace and proof of ownership on ECOMI.
2) Decentraland (MANA). This one needs no introduction. Decentraland is technically a decentralized 3D virtual reality platform that consists of nearly 91,000 parcels of land. NFTs in Decentraland are these parcels of land and they can be bought with MANA.
3) The WAX token. The World Asset eXchange (WAX) is a platform that aims to bring NFTs to gaming. By ‘NFTs to gaming’, I mean specific assets like character skins and in-game items. Any game developer can build a marketplace with the WAX network for their game. Additionally, all NFT items/skins on the WAX network are interoperable, meaning they can be used across games, and thus have more resale value.
WAX is already in action with some neat NFTs like Street Fighter NFTs.
4) AXS – Axie Infinity. Currently the world’s most popular blockchain-based game, the AXS token has exploded in value in recent months. Axie doesn’t have NFT proper (check?), but it is blockchain-based gaming which I consider very close to art. I’m a big fan of tokens that already have real-world use case, and Axie already has Xx million players across the world, and a market cap that could make it its own Fortune 1000 company.
A final word
Wall Street investing guru Peter Lynch instructed his followers to invest in companies they liked and believed in. This sounds subjective, but it’s true. If you see an NFT collection that you think is neat and valuable, go with it. Your love for it will help carry you through the bad times and crypto winters. If you’re in the NFT space to make a quick buck, it isn’t going to make you happy.
Some other pieces I’ve written on NFTs: