Non-Fungible tokens and Cryptocurrencies are the most popular products of the Blockchain. Sometimes, investors, especially newbies, are usually confused about which of the two tokens is suitable for investment. In this blog, we are going to look at the two and see reasons that can help us make better decisions between them.
Non-Fungible Tokens ( NFTs )
Just like their name, NFTs are non-fungible, which means they are unique. This unique nature makes them have varying prices. This is why we see the same NFT having various prices judged by their rarity and mint number. The lower the mint number, the higher the price, and the more rare an NFT, the higher its price as well.
Furthermore, being Non-fungible, NFTS can't have an Automated Market Maker ( AMM ). This feature makes selling NFTs difficult because there is no liquidity to swap from.
Cryptocurrencies
Contrary, Cryptocurrencies are fungible and as such share the same price. This is why, all things being equal, if 1 BTC is 10$, 10 BTC will be worth 100$. This is not possible with NFTs. For example, Bored Ape Mint 1 NFT, CAN'T have the same price as Bored Ape Mint 2 NFT.
This fungible nature of Cryptocurrencies makes it possible for them to have an Automated marketplace.
How do these Features of NFTs and Cryptocurrencies Play out when making investment decisions?
We invest money with the hope of getting profits from the investment. We also want a situation where we can be able to take out our funds during an emergency.
NFTs don't have the above feature and as such it is not safe to invest in NFTs, especially when we are aiming for profits, or with intentions of pulling out the funds at some point. This is because selling an NFT follows a process that is not automated. One needs to list the NFT and then hope for an investor to buy it. If there is no buyer, the money will be stuck there.
Cryptocurrencies on their part allow us to pull out from it at any point in time, provided that the token has not been rugged. This is an edge against NFTs.
Again, When we are seeing the price of a crypto asset dropping drastically, probably due to issues within the project, we can cut our loss by selling the token due to available Liquidity in AMM. For NFTs, this won't be possible. No one will buy NFTs from a project that is already collapsing. So, cutting loss from NFTs is almost impossible. If the project is falling, you are probably going to lose the whole money, except in situations when you discovered the trend early and sold the NFT.
It is also good to point out that NFTs weren't created for investment purposes just like Cryptocurrencies. One of the main reasons behind NFTs is for them to serve as a means of supporting favorite artists and creators in a decentralized way.
This doesn't mean that there aren't NFTs out there that are for investment purposes, but a message that will remind us about the real idea behind NFTs.
In the end, you should invest what you can afford to lose, be it crypto or NFTs. Investing in Blockchain products is risky and we should be careful.
Until I come your way again, stay safe, and trade with caution. Know when to cut loss and take profit. Make research and update yourself with information.
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