How to Invest in NFTs

April 4, 20226 min read
How to Invest in NFTs
Share on facebookShare on TwitterShare on Linkedin

Key takeaways

  • NFTs or non-fungible tokens are digital assets that can be purchased as an alternative investment.
  • While these have been around since 2014, the market has boomed in 2021, with the total value of NFTs rising from USD 100 million in 2020 to more than USD 21 billion last year.
  • Yieldstreet offers its investors an opportunity to access crypto managers on its platform.

What is a non-fungible token (NFT)?

Essentially, NFTs are digital assets that represent physical objects – such as, for instance, art pieces – that are bought and sold online. They enable creators to sell unique objects that either are one of a kind or have a very limited run and give investors ownership of a unique digital file, with the potential to create digital scarcity. 

Indeed, the economic meaning of fungible is something that is – as the word suggests – interchangeable. Options, securities, and commodities are a few of the types of fungible assets. Financial instruments – such as cash, shares of a company, or bonds of a single issue – tend to be fungible. Other financial assets such as real estate are not – intuitively.  

“Tokens” are non-fungible as they are units of value housed on a blockchain. Each one is unique because it is tied to a series (a “chain”) of previous transactions, each one with a unique number.  Bitcoin and Ether, two widely used cryptocurrencies, are basically NFTs, which can be exchanged to buy digital art pieces or intangible goods such as access to space on a cloud server.

Why should you consider investing in NFTs?

The reasons NFTs are increasingly popular include:

  • Accessibility. Anyone can invest in non-fungible tokens; that’s part of their appeal. In fact, most NFTs can be bought for between $10 and $500.
  • Blockchain security. The blockchain technology that’s behind NFTs is usually considered the most secure. It records information in a way that prevents hacking, alteration, or deletion. In other words, blockchains are virtual transaction logs – digital databases — that are duplicated and allocated across a network. Because data added to the blockchain cannot be modified or erased, scarcity, authenticity, and proof of ownership are assured.
  • Promotion of marketplace efficiency. If you’re transforming a physical asset into a digital one, you’re simplifying processes, locking out intermediaries, bolstering supply chains, and heightening security. Look at what’s happening in art. Because of NFTs, artists can reach their audiences directly without the need for pricey agents and unwieldy transactions. What’s more, technology has improved authentication in art, helping to streamline transactions and further lowering costs.
  • Fractionalization. In real estate, for example, it’s much simpler to divide a digitized iteration of a property among owners than it is to fractionalize physical ownership. For some assets, digitization can expand markets, leading to increased liquidity as well as potential appreciation.
  • Portfolio diversification. Because of their distinct risk profile, NFTs as an investment can potentially improve your portfolio’s efficiency by increasing diversification. 

How can you invest in NFTs?

Now that you know what NFTs are and why you may want to consider investing in them, let’s consider how to enter the market. Although the NFT marketplace is steadily expanding, the most common forms of NFTs available now include:

  • Art. This is the most popular form of NFT for some of the reasons we discussed earlier . NFTs have increased transparency within the art world. They are also changing the ways art is bought and sold, as well as the kind of art and artists that are valued. 
  • Music. By selling music through the blockchain, artists can develop a direct relationship with their fanbase — without the need to use a music-streaming service or record label.
  • Video game items. In gaming, NFTs can be avatars, collectibles, and in-game items. 
  • Trading cards or similar collectibles. You can purchase and trade virtual iterations of trading cards or anything else on the market that is deemed to be a collectible.
  • Memorable sports moments. These are seconds-long clips of big moments in sports history, such as a game-changing touchdown or an extraordinary slam-dunk.
  • Memes. It is not uncommon for people depicted in them to sometimes sell their own memes.
  • Domain names. You can register a domain name and then sell it on the NFT market, with no “middleman” involved.
  • Virtual fashion. These NFTs are tokenized outfits, accessories, and other wearables produced for virtual environments.

Now, here are steps you should take to invest in NFTs:

Want to Invest in Crypto?

Get an easy and cost-effective exposure to the largest cryptocurrencies with Yieldstreet.

Determine what is available

When researching options, it is preferable to be thorough, rather than rely on word of mouth. For NFT sources, you can search Google or Twitter or check out sites such as NFTcatcher.io or Rarity.tools for upcoming new launches.  For the latter, look at the sale’s timing and cryptocurrency requirements, so you get an idea of the scarcity involved, along with the number of NFTs  that are scheduled to be sold.

Make sure there’s a reputable team behind the NFT in which you are interested. That will help increase value. You also want to determine whether the NFT is on- or off-chain, since the latter utilizes centralized servers that can result in lost images if they go down. There are also Discord and Telegram groups that you can join to see what the buzz is about your chosen NFT.

Buy cryptocurrency

To buy an NFT , you must choose a brokerage or exchange through which to purchase crypto. Brokerages facilitate the buying and selling of cryptocurrencies, while an exchange is an online platform on which buyers and sellers trade based on existing market conditions. 

You can buy Ethereum, with which most NFTs are bought, as well as other cryptocurrencies at a brokerage or exchange such as Kraken, Gemini, Binance.US, or Coinbase.

Note that there are fees associated with the purchase of cryptocurrency that start at around .99 for trades of USD 10 or less. Generally speaking, the larger the trade size, the higher the fee, but there may be different fee structures depending on the brokerage or exchange you select.  

Choose your marketplace

A marketplace is an online location where NFTs are bought and sold. Some of the most popular markets are Larva Labs, Axie Marketplace, Rarible, and OpenSea. After you’ve determined where you would like to purchase your NFT, register and connect your “crypto wallet” where, upon purchase, your NFT will be stored, to the marketplace. Note that each marketplace has its own wallet requirements.

The item can either be sold at a flat rate or can be auctioned.  An NFT price or latest bid does not include additional fees such as those paid to miners for computing power. 

Pros and cons of NFTs

We’ve gone over some of the reasons why NFT investments have gained popularity, including accessibility, security, marketplace efficiency, fractionalization, and diversification. Other pros include an opportunity for capital appreciation, driven by demand and scarcity, the ownership of a unique item as well as the thrill of being at the forefront of a potential major shift in consumer behavior.  

On the flipside, NFTs cannot replace physical art. They can also be hard to value – they often reflect market demand but that can be an extremely volatile measure. NFTs are also energy-intensive just like cryptocurrencies – another feature that may be unwelcome for investors in the days of ESG-focus. In addition, this a new and largely unregulated asset class, and investors have little or no form of protection against potential total loss.  

Is NFT the right investment for your portfolio?

NFTs can be an attractive form of investing for certain individuals, and can be considered too risky by others. Before adding tokens to your portfolio, you should consider your investment goals, potential returns, and current market conditions. 

NFTs in the alts space

NFTs is an exotic form of alternative investment that is recently gaining traction. Price drivers are being identified and trends are slowly emerging despite it being a very niche market for the time being. Rather than investing in the space, Yieldstreet offers access to crypto managers on its platform, as it believes that offering access to multiple forms of private market investments can help investors diversify their portfolios.   

Take a look at Yieldstreet, you might just find the alternative opportunity you’ve been seeking.

1. For more information on the concept of blockchain – see Satoshi Nakamoto’s Bitcoin White Paper https://bitcoin.org/bitcoin.pdf

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022

844-943-5378

No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Synapse Financial Technologies, Inc. and its affiliates (collectively, “Synapse”) as well as certain third-party financial services partners. Synapse is not a bank and is not affiliated with Yieldstreet. Bank accounts are established by Evolve Bank & Trust. Brokerage accounts and cash management programs are provided through Synapse Brokerage LLC (“Synapse Brokerage”), an SEC-registered broker-dealer and member of FINRA and SIPC. Additional information about Synapse Brokerage can be found on FINRA’s BrokerCheck. By participating in a Synapse cash management program, you acknowledge receipt of and accept Synapse’s Terms of Service, Privacy Policy, and the applicable disclosures and agreements available in Synapse’s Disclosure Library.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure