6 ways your investments in NFTs are dangerously exposed
Non-fungible assets are ones that aren’t interchangeable with each other.
Through tokenizing non-fungible assets like digital collectibles, art, and in-game items on the blockchain, a legitimate ownership deed (Non-fungible token, NFT) gets embedded deep into the technology, allowing users to verify the authenticity of the asset they’re buying. Once the records are sealed, they cannot be altered in any way.
This is an easy to get into business, a massive trend that’s making ordinary people extraordinary revenues. And where there is money, there are also villains. But it’s not just rogue elements that can endanger or wipe away your NFT investments.
Top NFT projects
Celebrities like Jimmy Fallon, Jay-Z, and Justin Bieber have bought NFTs and are showing them off on their Twitter profiles, increasing the demand for limited-edition tokenized art. Here’s a look at the most sought-after NFTs.
CryptoPunks – Larva Labs
CryptoPunks was created in 2017 and the algorithmic collectibles were limited to 10,000 Punks or Avatars. Of these, Alien Punks have fetched over $8 million dollars on auction.
Bored Ape yacht club- Yuga Labs
Bored Ape Yacht Club (BAYC) are NFTs commonly used as online avatars showcasing cartoon apes with different rarities. The cheapest Apes cost about 100 ETH ($286,200) whereas a few months ago you could get your hands on an Ape for around 1 ETH ($2862).
Over 30,000 Bored Ape Yacht Club holders were granted early access to Adidas “Into the Metaverse” NFT project which currently resells for over 3x the original retail price.
A top-tier Alien or Ape Punk costs around 2000 ETH (about $5.7 million).
There are a total of 20,000 Mutants, including a handful of “Mega Mutants” with price tags reaching 3,000 ETH ($8.5 million).
Meebits – Larva Labs
Meebits was also launched by Larva Labs and are intended to be used in the metaverse as 3D characters. At the time of release on March 11, 2022, Meebits sold for around 2.4 ETH ($6,868). Today, prices range from 5 ETH (14309) up to 100s of ETH, depending on their rarity.
Businesses and players on the metaverse can monetize their digital lands, allowing for play-to-earn transactions within the game.
Axie Infinity’s still low entry fees
Axies are the creatures people used to play the popular blockchain-based game Axie Infinity. Axies vary in price depending on their demand and attributes, but they are still cheap, as one today goes for around $200.
Flipping NFTs for profit
NFTs are some of the hottest investment trends right now.
In fact, in 2021 alone – more than $25 billion worth of NFT sales were generated – and 2022 is expected to smash through this figure by a considerable amount.
Flipping means making a profit by purchasing a unique token and reselling it through a secondary marketplace.
The first thing to do is search for an NFT that you believe is undervalued and thus making it perfect for flipping.
Next, you go to the marketplace where the token is listed. You then connect your wallet to the respective marketplace tokens. After that, you buy the NFT and confirm your purchase. Finally, you flip it for a profit by setting your own listing price on your favorite NFT marketplace. Next, you wait for a buyer. Ok, now here are the risks.
6 NFT risks that can expose your investments
From artwork, music, videos, photos, trading cards, autographs, or other collectibles, NFTs are sold on marketplaces like Coinbase, Binance NFT, and OpenSea.
You can create your own NFT and sell it for a few dollars to a few million dollars. Sultan Gustaf Al Gozali, a student, made $1 million dollars selling an NFT containing 1,000 selfies.
Analytics firm Chainalysis reports that NFT investments grew from $106 million in 2020 to $44.2 billion in 2021.
And like every digital enterprise or trend experiencing meteoric adoption, even before a regulatory environment can be set, risks abound.
Crypto expert Nik Horniacek, himself a victim of an NFT scam last December, is today the co-founder of Rug Pull Finder, a private intelligence company that investigates NFT projects. To date, the organization says it exposed nearly 200 scams totaling over $1.3 billion.
Here are six ways your NFT investments could be dangerously exposed:
1- Money Laundering
NFTs are now creatively being peddled as a way to hide assets or launder money.
2- Wash trading
Wash trading or buying shares of a company through one broker while selling shares through a different broker to artificially increase NFTs’ values, is also becoming common practice.
Chainalysis revealed that in 2021 sellers made $8.9 million from the sale of NFTs “to unsuspecting buyers who believe the NFT they’re purchasing has been growing in value.”
Scams like the one involving a million-dollar NFT fraud scheme for a collection called Frosties, saw the rogue NFT creators shut down the website, and transfer away all the money they received from the sale of the NFT tokens.
Also, when an individual invests in an NFT, they may be looking at a fake or a copy of artwork from an unverified seller, who may not be the legitimate owner or owner-representative. If the deal goes through, the irreversible nature of the blockchain means the invested money is gone.
4- Volatility and illiquidity
The NFT market is highly volatile with prices changing up or down every minute. The illiquidity of an NFT means there needs to be a buyer ready to purchase it when you feel it’s important to sell but that’s not always the case
5- Regulatory issues
Different countries have different legal policies regarding NFTs, and no unified standard has yet been adopted.
6- Crashing to zero
When a Formula 1 (F1) game shut down having sold the most expensive NFT of 2019, a car that went for over $100,000, followed by other players splashing nearly $300,000 on a single transaction, it showed the risk of buying digital NFTs in the first place.
When owners, Animoca, were simply unable to renew the F1 license, the NFT game died and with it, the tokens had no actual value left.
Similarly, many NFT projects will fail, leaving investors with a worthless JPEG.