Are Digital Collectibles the Next Big Investment Opportunity?

Can you imagine spending $150,000 on a race car? If you did, you might assume that you’re getting your hands on a previously enjoyed Ferrari. You know, one that you can actually drive at a high speed with the windows down and the wind flowing through your hair. Now imagine that you indeed spend $150,000 on that car, but you can’t drive it. It’s not an electric vehicle, and you won’t be able to convince the average person that it has any value at all because it only exists on the blockchain.

What you’re being asked to imagine might sound like a fairy tale, but it’s not. On May 27 of 2019, somebody actually paid 415.9 Ethereum tokens for a digital race car called the F1 Digital Apex Car, which represents a whopping valuation of approximately $150,000 Canadian on the date of the purchase.

Since the birth of CryptoKitties, a platform for collecting digital cats that launched on the Ethereum blockchain in November 2017, it’s been proven over and over again that digital collectibles have real monetary value. This raises the question. With Bitcoin’s price continuing to skyrocket and the world of decentralized finance providing new and innovative ways for investors to earn interest on their capital, are digital collectibles the next big investment opportunity?

In this special post for you, the progressive investor, we aim to answer that question.

What Are Digital Collectibles and Why Are People Investing in Them?

It’s easy to explain what a digital collectible is in layman’s terms. Imagine owning a rare LeBron James rookie card worth $1.5 million, or a Picasso painting worth $150 million. Now consider that instead of owning those actual physical objects, having to go through an auction house or a vetting company to verify its authenticity, and having to display these rare collectibles while taking on the inherent risk of potentially having the items stolen from your possession by a thief, you own those collectibles in a digital format.

The collectibles are registered on the blockchain and associated with your private keys. You don’t necessarily have to share your name and let the world know you own it (but you can if you want to), and as long as you don’t share your private keys, you don’t have to worry about those multimillion-dollar items being stolen from you.

Security and privacy are two of the reasons more and more investors are considering digital collectibles as stores of value with viable profit potential (much like they view holding cryptocurrencies like Bitcoin or Ethereum).

That said, in the blockchain technology world, owning a digital collectible is not exactly the same as owning a cryptocurrency like Bitcoin or Ethereum. After all, in order to obtain a digital collectible that lives on a blockchain, you’ve got to trade cryptocurrency in exchange for ownership of that digital collectible.

Digital Collectibles as Non-fungible Tokens

In order to understand digital collectibles and how they fit into the broader idea of cryptocurrencies and blockchains, it’s important to understand what exactly they are. A digital collectible is a non-fungible token. In a previous Progressive Investor post, we learned that the fungibility of an asset refers to how easily one unit of that asset can be exchanged for another.

An example of an asset that is very much fungible would be the Canadian dollar. One dollar can be easily exchanged for another dollar of equal value. Now of course if you bought a special collectible loonie from the Royal Canadian Mint, it could technically be worth a lot more than a regular loonie that might be sandwiched between your couch cushions. That said, for the sake of this argument, we’re talking about the loonies you would exchange for goods and services on a regular basis, not a rare collectible.

The best way to put it is that something with a high degree of fungibility is easily replaceable by something that is very similar in value and characteristics, if not exactly the same. Something that is not easily replaceable is non-fungible.

That means a non-fungible token represents an asset that is not easily replaceable, such as a digital collectible.

Inside the Explosive Growth of Digital Collectibles

CryptoKitties stands as the hallmark example for how valuable digital collectibles can be. Part of the reason for that is simply because the project maintained a sort of first mover advantage in the digital collectible sphere of cryptocurrency. That said, CryptoKitties also represents the first iteration of what a digital collectible looks like and how it comes to be.

Today, major sports teams and leagues have digital collectible tokens and entire marketplaces like OpenSea exist, where a progressive investor like you can sell those digital collectibles for a profit. And of course, these marketplaces aren’t limited to sports collectibles. Anyone can create and sell a digital collectible, just like anybody with technical skills can create a decentralized finance project.

That’s why if you look at a website like juicyNFTs.com, which tracks the overall value of non-fungible tokens on a day-to-day basis, you can see that those valuations are going on quite a wild ride right now.

Keep this in mind. Cryptocurrencies were considered a novelty a decade ago. Initial coin offerings cooled off three years ago. Now, decentralized finance projects are the talk of the town. It appears that digital collectibles and nonfungible tokens are what’s next. But that doesn’t mean that there won’t be bumps in the road.

Feel free to track the top 10 non-fungible crypto projects by 24 hour volume at juicyNFTs.com and you’ll see for yourself that while digital collectibles and non-fungible tokens are steadily growing in popularity, it’s certainly still a volatile market to get involved with. There are many cool projects out there right now, but a lot of them won’t survive the long run.

Which brings us to a word of caution.

Investing in Digital Collectibles Is a High-Risk High Reward Game

By now, you’ve probably heard of a decentralized finance project or two. Compound or Yearn Finance ring a bell? If you understood the power of leverage, lending and yield farming from the beginning, you’re probably doing very well financially. But perhaps you’re one of the people that arrived late to the party and also lost a lot of your capital.

The thing about trying to invest in digital collectibles is that collectibles are only as valuable as the connoisseurs that collect them. You may think the first edition of a LeBron James digital collectible is worth a lot, but you still need to be able to find buyers who have enough capital to pay you the price you desire.

A good tool to use to evaluate the price of different crypto collectibles is CryptoSlam.io. CryptoSlam.io allows you to see the sale prices of digital collectibles that occur between Ethereum addresses. Most transactions involving collectibles live on the Ethereum blockchain simply because it’s easy for developers to create these projects on Ethereum. That said, digital collectibles can exist on any blockchain that allows for the creation of decentralized applications. 

That aside, a look at CryptoSlam.io reveals that the most expensive digital collectible ever sold within the NBA TopShot ecosystem is a video highlight of LeBron James dunking a basketball. The highlight sold for $6,500 USD and came in a pack that cost the original buyer just $230 USD. It’s only available in a limited-edition format and it just happens to feature arguably the best player of a generation.

The Downside of Digital Collectibles

The inherent risk associated with investing in digital collectibles is that regardless of whether you’re talking about sports collectibles, artwork or anything else, beauty really is in the eye of the beholder. If you can’t sell a certain collectible to a connoisseur who really appreciates it, you may never realize the profit potential. Digital collectibles certainly function differently from decentralized finance projects or a traditional crypto investment like owning Bitcoin, but at the end of the day you’re still playing the same game. You’re acquiring an asset and in order to realize profit you eventually have to convince somebody to pay more for that asset than you did. That concept will never change regardless of what the investment is or how it functions.

A Few Things to Consider before Jumping into Digital Collectibles and Nonfungible Tokens as Investments

The first thing you want to consider before investing in digital collectibles is how well you know the market you are entering. Yes, it’s true that we just showed you a $230 pack of collectibles can yield one single item that is worth $6,500. But if you don’t know a lot about basketball and you’re not willing to hold onto your investment for a while, buying a LeBron James video highlight probably isn’t a good idea.

What you also want to consider is that the overall value of non-fungible tokens is currently just $145 million USD. That may sound like a lot of money but when you consider that more than $14 billion worth of crypto capital is tied up in decentralized finance projects at the moment, $145 million in daily trading volume isn’t that much.

Lastly, think about the fact that this newfound desire among crypto enthusiasts to collect digital keepsakes might partially be driven by an uptick in the broader collectibles market thanks to the coronavirus pandemic. People are spending more time at home than ever before and they need a way to pass the time. That’s why more traditional collectibles like Pokémon cards are going up in value tremendously. Who’s to say that the increasing value of digital collectibles is not all just thanks to a broader coronavirus related investing bubble?

How to Get into Digital Collectibles Using Bitcoin and Ethereum

In order to access any aspect of the broader cryptocurrency ecosystem, whether we’re talking digital collectibles, decentralized finance projects or otherwise, you need to register for a free account with a cryptocurrency exchange in Canada that you trust so that you can get your hands on some Bitcoin or Ethereum tokens and go from there. blog.netcoins.com is by far your best option for that.

Assuming you’re already well-versed in using crypto exchanges or you already have crypto in your wallet to exchange for collectibles, you can start with juicyNFTs.com, OpenSea and CryptoSlam.io. Take the time to do your research, aggregate what you learn from those three different resources and decide what kind of collectibles you think you might be interested in.

Remember that just like any other form of investing, it’s important to take the time to do your due diligence and only invest what you’re willing to lose.

Here’s to going beyond cryptocurrencies and decentralized finance projects. Its time to consider becoming a digital collector!

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