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The Risks Of Investing in NFTs

Big gains, big risks

Twitter recently announced the addition of verified NFT profile pictures to their platform. Facebook and Instagram are working on a feature that will let users display NFTs as part of their profiles. Not to mention that museums, art galleries, and art events all around the world are fighting for the right to display the most popular NFT pictures. It seems like NFTs are here to stay, thus it’s a solid investment. However, it’s not always the

case.

NFTs can bring you money but it’s a dangerous game to play. While there are numerous ways to tell if the project is worth your time and money, there are always some risks involved.

So before you press on that magic buy button, take a few minutes to read this article. It might save you from a lot of potential losses in a long run.

Everyone is buying it so I’m going to buy it too

This is a dangerous mentality but I see it a lot now. People massively spend money without properly researching NFTs and communities around them. Some of them are not even sure what an NFT is. If you are trying to make money blindfolded, chances of success are pretty low. Just like with any investment, you have to know what you get yourself into. Otherwise, you are risking it all.

Volatility

The NFT market suffers from massive uncertainty. What this technology currently lacks is an effective mechanism to price assets correctly. And until this is in place, no one can tell for sure if the price of the asset is justified. What costs thousands of dollars one day can go almost to zero in a few days. This is probably the biggest risk associated with this type of investment. As for now, investing in NFTs is more like gambling, but it might change overnight.

Liquidity

Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.

When it comes to liquidity, NFTs are more like collectible items than cryptocurrency. Since all NFTs are one-of-a-kind, sellers need to find an individual who is willing to pay this amount for this particular piece. This makes the process of selling an item way harder than just selling bitcoin or, say, stocks.

However, according to Business Insider, liquidity can be also a good thing:

But illiquidity can also be a good thing, since it prevents people from making rash decisions, Andrew Steinwold, a crypto investor who started an NFT investment fund in September 2019, told Insider. If people don’t have the option to panic and offload their NFTs, the market could avoid the kind of plummeting values that would spark such a selloff in the first place, he said.

New and unknown

The technology is still pretty new, thus there are a lot of grey areas and uncertainties. Until there are rules and regulations in place, scams, as well as projects that do not deliver on their promises, are inevitable.

Fake NFT experts

I always say that I’m by no means an NFT expert. I just spent a substantial amount of time researching it and wanted to share my finding with the world. That’s all. And while I’m trying to be extra careful and never give financial advice, some people proclaimed themself to be NFTs experts and charge tons of money for their help. Every time you see an NFT course, marathon, webinar, ebook, etc. that promises big earnings, try to remind yourself that nobody really knows what’s going on. Even if they say they do. The more confident someone sounds, the more careful you should be.


Source: https://medium.com/dare-to-be-better/the-risks-of-investing-in-nfts-5b68542cab55

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