NFTs (non-fungible tokens) are digital assets based on blockchain to represent unique worldly products such as; music, art, videos, etc. Experts in the NFT investment field have been analyzing what causes inflation and how it can affect NFTs as a form of investment.
During inflation when prices are going up, and the value of a currency reduces, many people are likely to put their money in other investment portfolios, including real estate, commodities, and stocks. This ensures their cash retains value during the times of economic turbulence.
Because NFTs are representations of digital assets, you might be wondering whether investment within the NFT space is a wise choice during inflation. Are investors better placed to sell their NFTs now or hold them until the inflation is over?
Well, this article examines that subject in detail. But before we delve into that issue, let us first look into the causes of inflation and how it influences NFT investment.
What Causes Inflation?
Across the globe, various factors can affect drastic price changes, thus reducing the purchasing value of the existing currency. The two key determinants of inflation are; increasing costs for inputs and expanding demand.
Besides the two key drivers, other factors can also influence inflation, including the deliberate effort by the government to reduce the currency to lower the costs of export and issuance of loans through government bonds. Further, inflation can be categorized into two types; cost-push and demand-pull inflation.
Cost-Push Inflation
Ideally, the supply and demand levels determine the prices of goods and services in a free market economy. When either the demand or the supply changes, it results in inverse changes in prices. The cost-push inflation is determined by the production cost, which includes; entrepreneurship, labor, capital, and land.
As the production cost increases, the aggregate supply in the market decreases. Businesses tend to spend more money to deliver the same quantities while the aggregate demand remains constant. As a result, product suppliers will pass the extra production cost to the consumer, thereby increasing product prices.
Demand-Pull Inflation
As the name suggests, this type of inflation occurs when the demand for certain goods and services increases. When the supply of goods and services exceeds the demand, the prices will go down. Demand-pull inflation usually occurs when there is positive economic growth with a low unemployment rate.
Trading NFTs with Cryptocurrencies
The decentralized nature of cryptocurrency means it cannot be influenced by central authorities like the central banks. As a result, experts in the cryptocurrency space argue that crypto should be able to stand out from inflation. Nonetheless, cryptocurrencies such as Bitcoin can be unstable, sometimes oscillating from quarter to quarter. Due to their unstable nature, some crypto products may not be inflation-proof.
Trading NFTs with Art
When it comes to art, NFTs hold great value. During inflation, investors and other individuals keen on saving look for opportunities that are likely to preserve value for their investments. Art collections have been one of the greatest strategies to fight inflation. Several reports have demonstrated that art collections can produce significant returns, rivaling bonds. Thus art can be a tangible investment with a proven ability to pay good dividends.
Are NFTs a Good Option During Inflation?
The answer to this question can be both yes and no. As discussed earlier, it's evident that, for NFTs to be a good investment option, they must hold actual world value over an extended period that would counter the instability of cryptocurrencies and make such volatility irrelevant.
Consider the following options to ensure your NFTs are a good investment alternative.
1. Assent Backed NFT
These investments are supported by tangible assets, including; art, jewelry, wine, etc. They give you the confidence and security you need due to the fact that the assets are available regardless whether there are cryptocurrencies or not. In addition, the assets may have personalized benefits as investors may choose them based on individual tastes or emotional connections.
2. Blue Chip NFT Assets
The projects are managed by a team of project developers with financial backing and commercial collaborations to give investors great confidence regarding their future investments. Blue chip NFTs projects can withstand inflation levels while holding their value. That means, as an NFTs project holder, you can enjoy many benefits in the coming years once the project is cultivated successfully.
Final Word
In conclusion, NFTs can be a good investment alternative if it holds real-world value. As discussed in the article, there are various investment options open to you. Therefore, choose the one appropriate for your needs to widen your investment portfolio.
