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Gold vs NFTs: Safe haven or a celebrity play thing?

iStock 1307760390 - Global Banking | Finance

By Daniel Fisher, Managing Director Physical Gold

Non-fungible tokens (NFTs) have taken the financial world by storm, and over the last 18 months there’s been a digital gold rush happening in the NFT space.

The latest phenomenon allows someone to buy or sell a unique piece of digital art, and the buyer is the only one in the world to own that original piece.

A little over a year ago, NFTs weren’t really considered an investment, they were just fun collectibles that utilised new, exciting blockchain technology. Status symbols for celebrities and sports stars to flex their investment muscles. Today though, NFTs are the most popular crypto trend of the last 12 months.

Daniel Fisher, Managing Director, Physical Gold – the UK’s leading provider of gold and silver coins and bars – believes that unlike previous fads, NFTs are not just rebranded altcoins – they have a unique use case, and they might stay here for longer.

He says: “From a certain point of view, the value of NFTs is in the eye of the collector. After all, owning a totally unique object – the ultimate criterion for every true collector – may be worth nearly any expense if you want it badly enough.

“For investment advisors like myself, it’s very challenging to differentiate between fool’s gold and the real deal, especially when the NFT market is in the throes of a massive bubble. As the popularity of non-fungible tokens continues to boom, their relative scarcity helps them appear quite valuable. But like the podcast craze before them, just about everyone is coming out with NFTs now. That’s making it much more difficult to separate a good investment with a disastrous one.”

Gold’s role in your portfolio 

For hundreds of years, gold has dominated the safe-haven asset arena. Some investors like to think of gold as insurance for their money. If there is a concern about a nation’s currency, or if there’s an economic collapse, people usually turn to gold because it benefits in times of crisis.

But for those seeking the possibility of mega gains, NFT is tempting many new investors. Gold’s main limitation as an investment category has been that its ownership costs money to transfer, and so, some investors are asking the question: can investment in gold work in unison with NFTs?

Daniel continues: “We have seen some brokers begin to offer their take on selling gold as an NFT. This consists of crafted asset passports that bind gold bars to NFTs and collectible digital art, creating a new class of ‘super collectibles’.”

Each NFT represents an underlying bar of gold, with both the token and the physical bar of gold sharing a unique serial number. The tokens are also sold with a warranty ensuring NFT’s owner has full legal rights to redeem the physical gold bar.

NFT gold owners are then able to sell their gold anywhere and to anyone in any blockchain marketplace. This is a huge benefit for gold investors providing them better liquidity and higher sales margin.

Daniel advises: “The pandemic has altered the way we save and invest. The household savings ratio increased some 26% in April-July 2020 and increased again in 2021 during lockdowns. As faith in the pound fluctuates, NFTs are certainly another way for people to invest.

“Diversification of your portfolio is key no matter which route you take. Adding NFTs to physical bullion can offer security and speculation to your portfolio. So maybe, as we move into our new-normal, now is the time to stock up on both and join the many investors who are looking into this dual investment.”

The NFT boom has been accelerated by the pandemic, but its rise was ultimately inevitable – a product of the tech boom that younger investors would have eventually driven anyway.

Daniel warns: “The NFT market is in part being driven by speculation. Many collectors regard cryptoart as a potentially lucrative investment and on some level it facilitates celebrity spending and conspicuous consumption for a crypto age.

“Given the high level of uncertainty about NFTs valuations, it might be more prudent to take a venture capitalist approach: don’t buy the flavour of the month; rather hedge your bets and invest in a portfolio of assets.

“The NFT boom may usher in a new wave of digital-physical ownership for investors. However, because NFTs are a relatively new investment, there’s still a lot to learn about them. It can be tough to put a price on digital art which will make NFTs an incredibly risky investment.”

Combining physical gold and NFTs

While traditional investment leans towards physical gold and other cash-equivalent savings, digitally-driven investment options are becoming the preferred choice – certainly among younger investors. Physical Gold is on hand to help you build a portfolio of precious metals in addition to your cryptocurrency and NFT investment.

Daniel says: “Although some cryptocurrencies have experienced meteoric rises fueled by speculators, having exposure to both gold and NFT’s makes sense as our idea of money moves into the 21st century.

“Undeniably, there has been clear evidence of a shift in the market. As this new crypto-sector evolves, Physical Gold has seen incredible growth in the “pair trade” between gold and cryptos – investors who swap their digital coins for physical gold and silver, and sometimes back again.”

Rather than NFTs replacing the value of owning physical assets such as gold bullion, Physical Gold sees the two working in unison.

Daniel predicts: “There will always be a demand and comfort value of owning a physical asset with intrinsic value such as bullion. I think an area currently being overlooked with NFTs is the possibility of smart contract benefits underpinning the NFT itself. I think companies like Physical Gold could look to offer NFTs to bullion holders, which have community benefits attached – providing intrinsic value to the digital asset, over and above its collectability. These benefits may be free storage of gold and silver, reduced prices on certain products, or exclusive access to new coin releases before the general public. Watch this space!”

Throughout 2022, investors everywhere will be asking themselves whether owning the digital rights to street art, viral memes or Jack Dorsey’s first tweet can be worth the valuations they’re fetching in the market, but perhaps your safest bet to a stable portfolio remains with bars of gold, to ensure a true safe haven investment.

Daniel concludes: “Physical Gold believes that diversifying a portfolio can help mitigate risk and potential loss. Today, most investors are embedding this tactic into their investment strategy, with many arguing that NFTs and gold could become a perfect match for your portfolio of the future.”

Global Banking & Finance Review


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