Don’t Be fooled by the Hype: The Disadvantages of Investing in NFTS
New York City: If you’ve been keeping up with the latest trends in the financial world, you may have heard of something called Non-Fungible Tokens (or NFTs) mentioned in passing once or twice. But what are they? How are they different from cryptocurrency or stocks? And how can you invest in them, if they’re not even available on any exchanges yet? With NFTs still shrouded in mystery, it’s possible that some of the claims made about them aren’t entirely based on facts.
The Disadvantages of Investing in NFTS
Lack of Liquidity
Non-Fungible Tokens (NFTs) are unable to be traded on centralized exchanges. This means they cannot be easily sold and/or exchanged for another cryptocurrency or fiat money. Additionally, NFTs with a lower market value have a higher risk of never being traded, reducing their overall liquidity. Therefore, if you want to sell your NFTs you will most likely need to find someone who is willing to buy them at an agreed upon price. If you do not manage to find someone who is willing to buy your tokens there is always an option of selling them for a loss via a peer-to-peer exchange such as OpenSea. However, it should be noted that not all cryptocurrencies support peer-to-peer trading and therefore may not offer users any options at all when it comes to selling their tokens. It should also be noted that some P2P platforms charge transaction fees which can further decrease your profits from selling your tokens.
Longer lockup periods
Most NFTs require that you hold them for a certain amount of time before you can sell them. This means, if you want to cash out, you’ll have to sit tight until your lockup period is over. While there are some exceptions to longer lockup periods—like re-sale markets—this is common for most tokens. If you’re looking to sell sooner, these may not be a good investment for you. Further, think about your circumstances and how long a token with a longer lockup period would fit into your plans. You don’t want to be stuck with tokens that require holding and which might limit your ability to generate income from another investment option like stocks or bonds—both of which allow day trading on most exchanges.
More risky to hold
Because there is no centralized government, companies that issue non-fiat tokens are more vulnerable to hacks, scams, and poor management. As we’ve seen with a number of exchanges like Mt. Gox or Bitfinex, it’s easier for NFT developers to run away with their investors’ money. Users can also lose their tokens due to mistakes made through software failures or human error (like losing your private key). There have been several cases where hackers have stolen user data from popular exchange websites and then asked for a fee to return them back – usually paid in NFTs! This creates an extra incentive for companies or individuals to steal NFT tokens rather than purchasing them on an exchange.
Lower market cap compared to traditional equities
While some may view a lower market capitalization as an opportunity, it’s important to understand that with a reduced supply, demand will increase. As a result, each token’s market value could rise dramatically as there are fewer tokens to trade. With most traditional equities, you can buy at lower prices if you only want to invest a small amount. However, with NFTs each token is usually worth hundreds or thousands of dollars – which means that your decision to invest $50 today could prevent someone else from investing even more later on. And those who are late to join will have a much more difficult time finding comparable investment options.
Less adoption from mainstream users
This year has been really good for non-fungible tokens (NFTs). We’ve seen a lot of investors who are bullish on them, but why isn’t there more mainstream adoption? A big reason is that NFTs aren’t easy to use, especially if you want to spend them somewhere. If you want to buy a regular product or service, there are very few places that accept these types of tokens as payment. What do we make from these two examples? It means that people don’t trust NFTs and they think it’s pointless because they can’t spend them. It will be hard to get people onboard with something they can’t use right away.