Why I’d Never buy NFTs

NFTs are very illiquid but stocks like HIVE Blockchain Technologies (TSXV:HIVE) are easy to invest in.

| More on:
New virtual money concept, Gold Bitcoins

Image source: Getty Images

Non-Fungible Tokens (NFTs) are all the rage these days.

Getting endless mentions on Twitter and other social platforms, they have taken the world by storm.

For the uninitiated:

NFTs are the latest product of the blockchain universe. They are digital assets bought and sold on blockchains just like cryptocurrencies. They signify ownership in digital assets like images and Tweets. Ownership of an NFT doesn’t give you exclusive access to the asset the NFT signifies ownership of. However, it does give you a unique claim on the asset’s digital signature that nobody else in the world has.

Over the past year, we have seen NFTs sell for some extreme prices. Jack Dorsey’s NFT of his first-ever Tweet sold for $2.5 million; since then, other million-dollar NFTs have been sold, including one that went for $69.3 million.

These extreme prices being paid for NFTs have predictably set off a speculative frenzy. People on Twitter and other social platforms are creating and selling NFTs at a furious pace, trying to net one of the big million-dollar paydays. Some are also buying up NFTs trying to sell them to others at higher prices. It’s an interesting idea, but I’d never personally buy into this trend. Here’s why.

NFTs are illiquid

The big problem with NFTs is that they aren’t liquid. You can’t just go on Coinbase and click “sell” and expect your NFT to sell. You have to actually find another individual who wants to buy it. Sure, there are platforms like OpenSea that allow you to buy and sell NFTs. But you have to hope that your auction goes well in order to turn a profit on an NFT. If nobody wants to buy it, your NFT will net you no profit.

Most big sales are from people with clout

Another problem with NFTs is that you realistically need a large social media following to make big money selling them. Most NFTs that fetched huge sums of money have been associated with famous people like:

  • Jack Dorsey
  • Grimes.
  • CryptoPunks
  • Mike “Beepel” Winklemann.

All of these individuals and organizations are very well known with large social media followings. So it shouldn’t come as a surprise that they were able to sell NFTs for millions. They have audiences of millions to sell to, and some of the richest among their audience members are billionaires. This isn’t an advantage that just anybody has. If you aren’t a celebrity yourself, it would be unreasonable to think that you can replicate it.

What about crypto?

Having established that I would never invest in NFTs, it’s time to talk about the closest asset that I would invest in:

Cryptocurrency.

I don’t own any crypto, but I’m not opposed to owning it in principle. If you look at the uses crypto is seeing in real- world businesses, in countries experiencing severe inflation, and elsewhere, it’s pretty clear that crypto is legit. So I’d probably buy some if I didn’t have stocks I was more interested in.

Another investment to consider is crypto mining stocks like HIVE Blockchain Technologies (TSXV:HIVE)(NASDAQ:HVBT). These are stocks that let you play crypto on the stock market. They mine and sell crypto for profit, rendering them effectively crypto pure-plays. In HIVE’s case, the currencies it mines are BTC and ETH, so its stock is like a bet on those coins. HIVE reportedly uses cold-climate data centres to reduce the cost of mining crypto.

Normally, crypto uses a lot of electricity. Part of that electricity cost is the cost of cooling the physical servers crypto is mined on. By housing its servers in places like Iceland and Sweden, HIVE aims to keep those costs to a minimum. Perhaps it’s one stock market play that crypto aficionados could consider if they wanted something more novel than crypto that’s less of a longshot than NFTs.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twitter.

More on Tech Stocks

TFSA and coins
Tech Stocks

TFSA: Invest in These 2 Stocks for a Legit Chance at $1 Million

Are you interested in building a $1 million portfolio? Invest $20,000 in these two stocks!

Read more »

top TSX stocks to buy
Tech Stocks

2 Top Stocks That Could Turn $10,000 Into $50,000 by 2030

TSX investors can buy shares of quality growth stocks, such as Snowflake, allowing them to generate exponential gains in 2023…

Read more »

TIMER SAYING TIME FOR ACTION
Tech Stocks

Don’t Wait for a Market Bottom: These 2 Stocks Are on Sale

Two of the best Canadian growth stocks could keep soaring in 2023 and beyond.

Read more »

clock time
Tech Stocks

3 Top ‘Future’ Stocks to Hold for the Rest of This Decade

Canadian growth stocks like Constellation Software are starting to look appealing.

Read more »

Credit card, online shopping, retail
Tech Stocks

Nuvei stock: Can This Gainer Keep on Running?

Despite a 40% increase in its stock price, I expect the uptrend in Nuvei to continue, given its higher growth…

Read more »

value for money
Tech Stocks

3 Growth Stocks You Can Buy Now With Less Than $100

Thanks to the recent bear market, you can now buy growth stocks like Shopify at bargain prices.

Read more »

Upwards momentum
Tech Stocks

The 1 Canadian Stock I Think Could Double in 3 Years

Here’s why this top Canadian stock has the potential to double in three years or sooner.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

Why Open Text Stock Rose 11% Last Month

Not all tech stocks are performing poorly. In fact, Open Text stock (TSX:OTEX) continues to rise higher, though it's still…

Read more »