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Can NFTs be used to diversify a portfolio

Can NFTs be used to diversify a portfolio

As NFTs (Non-Fungible Tokens) become increasingly popular as a way of owning digital assets and joining tokenized communities, it is clear that this use case for the blockchain is driving more than just innovation in technology or asset ownership structures — it is fundamentally changing how people interact with each other.

 

Can NFTs be used to diversify a portfolio

 

Besides, the rise of alternative art institutions and spaces could lead to greater diversity, equity, and inclusion in traditionally inequitable art worlds. It is this ease and accessibility that makes many people look at NFTs as an opportunity, not only for investment but also for making a quick fortune.

 

However, the real question here is how effective NFTs are at mitigating risk for investors involved in the Web3 ecosystem?

 

But first, let us begin by defining the term “diversification.”

 

What is diversification and why it matters?

 

Diversification is protection against ignorance. It makes little sense if you know what you are doing.” – Warren Buffett

 

Diversifying your portfolio allows you to balance both your desire for growth and the need for stability — something traditional financial advisors would always recommend to their clients. Because the market is unpredictable, it is important to have assets that can be converted into cash when you need them.

 

Can NFTs be used to diversify a portfolio

 

When you diversify your investments, however, your risk can be offset by investing in different types of assets that react differently during various economic conditions.

 

But diversification does not just mean investing in companies working within the same field. Like in the stock market, it also means holding a wide array of investments across different sectors: finance and technology — or medicine or transportation.

 

Now that you know what benefits diversification can provide to your crypto investments, let us look at why NFTs are the best way to stabilize them in emergency situations — or any time there is volatility.

 

How effective are NFTs in stabilizing a portfolio?

 

Investing in NFTs during a sideways market seems to have been beneficial so far, as the non-fungible token market has seen staggering volume increases.

 

The NFT total market volume in the first half of 2020 was $13.7 million, but increased to $2.5 billion for that same time period in 2021 — a 400% increase from just one year prior!

 

Further, below is the chart comparison and analysis of BTC & Bored Ape Yacht Club, both are leaders in their respective fields:

 

Can NFTs be used to diversify a portfolio

 

Can NFTs be used to diversify a portfolio

 

From November 2021, BTC drops more than 70% from its previous all-time high. On the other hand, Bored Ape Yacht Club NFTs increase in value by more than 60%, trading above 70 ETH per one NFT (where it previously traded at under 46 ETH).

 

While most of the tokens are dropping, NFTs (not all) continues to surge and ignore the major move that other tokens are doing. Besides, these data show that investing in NFTs can really provide the same kind of diverse portfolio benefits that investing in traditional art does.

 

Things to consider

 

When it comes to investing in NFTs, each one can make a great investment. There is no guarantee of the future value — that depends on what price the next person who wants that particular asset is willing to pay for it.

 

Further, the advent of blockchain technology has presented modern-day artists with an entirely new way to not only create but also make a living from their art — and that’s revolutionary.

 

When you purchase an NFT, the artist is usually paid directly. Some blockchain platforms give artists a way to get their work in front of more people and make more money — which they may then invest back into their business or use to support themselves on a day-to-day basis.

 

A good investment is not just about getting more money than what you used to pay for it — sometimes it is just knowing how life-changing a simple purchase of NFT can be for the artist and that makes all the difference.

 

Can NFTs be used to diversify a portfolio

 

For those with an eye for the future, there is a lot of potential. The NFT space is still relatively niche, so it is still possible to find bargains when it comes to buying. But if you want to get in on the ground floor, now is definitely the time.

 

However, to get a sense of how the NFT market operates, you can read our guide to collecting during an NFT drop — these are digital events where an entire collection is released publicly for sale or promotion and sometimes provide participants with free NFTs and exclusive community access — who doesn’t want that?!

 

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