Today, there are almost 2,000 different types of digital tokens available for purchase. Most of these tokens can be classified as either utility tokens or security tokens. Security tokens are similar to stocks, in that they give their owners rights to profits from a company.
These usually involve equity ownership and give the holder a voice in how the company is run. Utility tokens, on the other hand, offer access to products or services from a company. But what if you want to invest in crypto and NFTs? Would it still be a good idea to do so? Let’s find out here!
What Are NFTs?
As we mentioned earlier, NFT stands for “non-fungible token.” NFTs aren’t new, but they are increasingly becoming the go-to token type for investing in cryptocurrencies. NFTs are similar to cryptocurrencies in that they’re decentralized and traded on exchanges, but they differ from cryptocurrencies in two crucial ways.
First, NFTs don’t have an underlying blockchain, like most cryptocurrencies. They’re built on top of existing blockchain networks, like Ethereum. Second, NFTs can’t be mined. You can’t earn them by contributing your computer’s processing power to the network. Instead, you purchase them from other cryptocurrency users or use a special NFT marketplace.
Why Invest in Cryptocurrencies and NFTs?
As we’ve seen, there are several good reasons to invest in cryptocurrencies, especially if you’re looking for a long-term investment. Cryptocurrencies are decentralized, which means they’re not controlled by a government or a single organization. They’re also accessible to anyone with an internet connection, and they offer fairly low-cost and quick payment solutions. But why invest in NFTs, too? Let’s take a look!
- Easy to Buy and Sell – One of the best things about cryptocurrencies is that they’re easy to buy and sell. You can purchase tokens from cryptocurrency exchanges or other investors through peer-to-peer marketplaces. You can also sell your tokens whenever you want, although this does depend on the specific token type.
- Low-Fee Payment Solutions – Cryptocurrencies and NFTs also offer low-fee payment solutions. Unlike traditional payment solutions like PayPal or Venmo, there are no transaction or processing fees. This makes them attractive to merchants.
- Strong Security – Cryptocurrencies and NFTs are also secure. Cryptocurrency exchanges use various security measures to protect your tokens, like two-factor authentication and cold storage. NFTs have additional security features as well.
- Growing Markets – Cryptocurrency and NFT markets are growing quickly. There are more than 2,000 cryptocurrencies available for purchase, and this number grows monthly. Similarly, there are more than 30 NFT marketplaces.
Are There Any Good Reasons to Invest in Crypto and NFTs?
There are some good reasons to invest in cryptocurrencies and NFTs. However, there are also some drawbacks to investing in these types of tokens. For example, cryptocurrencies don’t offer regular payments as stocks might, and NFTs depend on the success of their marketplaces. But, at the same time, these tokens don’t carry the same level of risk as traditional stocks.
- No Regular Payments – One of the best things about investing in cryptocurrencies is that you don’t receive regular payments as you might with stocks. Instead, you hold onto your tokens until they become more valuable.
- No Shareholder Rights – Another great thing about owning cryptocurrencies is that you don’t have any rights as an investor. This means you don’t have to worry about being involved in company meetings or voting on different issues.
- Low Risk – Finally, cryptocurrencies and NFTs carry a low level of risk. Cryptocurrencies don’t depend on a single company’s success for growth, and NFTs exist outside of any one marketplace.
Short-Term Investment Risk for Crypto and NFTs
Investing in cryptocurrencies and NFTs in the short term carries a moderate level of risk. This is because these tokens are still fairly new and not as widely used as other types of digital tokens. Here are a few risks to keep in mind if you’re thinking about investing in these types of tokens.
- Lack of Regulation – Cryptocurrencies and NFTs are not regulated by any government or single organization. They’re also not backed by any physical asset. This means there’s no government agency to help you recover your investment if something goes wrong.
- Possible Market Manipulation – Cryptocurrencies and NFTs are traded on a wide range of exchanges. This means there’s a potential for market manipulation by bad actors, like hackers and scammers.
- Possible Lack of Growth – Cryptocurrencies and NFTs don’t offer dividends, which is something you get with equity tokens. This means they don’t have any guaranteed rate of return.
Long-Term Investment Risk for Crypto and NFTs
Investing in cryptocurrencies and NFTs is a long-term investment. This means you don’t expect to see any short-term profits or gains from your investment. Instead, you expect your tokens to grow in value over time as more people use them. Here are a few risks you need to keep in mind if you’re thinking about investing in these types of tokens for the long term.
- Unregulated Markets – As we mentioned earlier, cryptocurrencies and NFTs are not regulated. This means there’s no government agency to help you recover your investment if something goes wrong.
- Lagging Development – Cryptocurrencies and NFTs don’t offer guaranteed returns, which is something you expect with equity tokens. This means they might not grow at the rate you expect.
- Dependent on the Token Marketplace – Cryptocurrencies and NFTs are dependent on the success of their marketplaces. If the marketplace fails, your tokens will likely lose value and stop being used.
Cryptocurrencies and NFTs are good ways to invest for the long term, but they’re not necessarily the best options for short-term investors. That’s because these tokens don’t provide regular payments like equity tokens and might not have the same level of growth potential as utility tokens. Now, this doesn’t mean you shouldn’t invest in cryptocurrencies and NFTs. Instead, it means you need to understand the type of risk involved in your investment and plan accordingly.