Crypto

12 min read

October 08, 2021

NFT Stocks, Explained

Helping you understand the difference between NFTs and NFT stocks in order to make diversified and informed investment decisions.

If you’ve been immersing yourself in the cryptocurrency market, chances are that you’ve come across the term “NFT” before. In 2021 in particular, NFT sales have surged to more than $2.5bn in the first six months of the year alone. 

Celebrity attention has also helped fuel this hype, with athletes like Steph Curry owning popular NFTs. Regardless of how the explosion of NFTs came about, though, it is clear that they are here to stay and their recent craze makes them an essential component of the cryptocurrency world to understand.

What are NFT Stocks?

NFT stands for non-fungible token. And what is a ’fungible token’? Well, a fungible object or unit is one that is interchangeable — like a penny, for example. 

On the other hand, a non-fungible token is a unique piece that cannot be exchanged or traded. Because of this, there are a finite number of NFTs that exist and their value is driven by a demand for ownership rights of these limited NFTs.

More specifically, a NFT is a unique digital piece such as an image, video, GIF, tweet, or audio recording. The unique identity of these digital pieces are verified on the blockchain, which is the same technology that powers cryptocurrencies like Bitcoin or Ethereum. While the majority of NFTs use the Ethereum platform, the Cardano and Polkadot platforms are also used and becoming increasingly popular.

NFT clubs, like the Bored Ape Yacht Club, have grown increasingly popular as not only do you get to own one of 10,000 unique ape NFTs, but you also buy membership to an exclusive club of similar NFT owners. These techniques of making the ownership of a NFT about more than just an investment in a piece of digital art has allowed the NFT space to expand significantly.

But, if a NFT is a piece of digital artwork, what is a NFT stock? Well, companies that are looking to capitalize on NFTs, either by releasing NFTs themselves or betting on NFTs, have stocks that you can own without owning an actual NFT itself. 

So, by investing in companies that are working in the NFT space, whether by seeking to expand the growing infrastructure needs for NFTs or launching sites for NFT sales, you own a NFT stock. While NFT stocks have not been as popular as NFTs this past year, as companies seek to diversify themselves, an increasing number of innovative ideas to use NFTs or tap into the NFT market are coming to light, making NFT stocks an attractive investment option for many who are averse to the volatile nature of NFT investing.

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NFTs vs. NFT Stocks: What's the Difference?

Needless to say, the main difference between NFTs and NFT stocks is that NFTs are the digital asset itself, while NFT stocks are stocks you can buy and sell on typical stock platforms, like Robinhood, with the companies associated with the NFT space in some way. 

So, with a NFT you own a digital piece of art that could be a diversified asset in your portfolio, but with a NFT stock, you are investing in a specific company associated with the NFT space, similar to marijuana stocks (stocks of companies that support or are engaged in the research and distribution of medical and recreational marijuana, particularly as more and more U.S. states begin to legalize the product), for example. 

Investing in NFTs is a compelling opportunity as unique NFTs can be sold for an enormous profit. No fraud or theft is possible on the blockchain, unlike with physical art, and while others can make copies of a piece of digital art, only the person with the NFT owns the original. 

That being said, NFTs are a tricky investment as their value could drop over time. Moreover, since NFTs are bought using ETH, if the value of ETH plummets, so too would the value of a NFT. As such, investing in NFTs is just as volatile as investing in cryptocurrency.

Additionally, it should be noted that NFTs have specific tax consequences. While they are subject to capital gains tax, they are also classified as collectibles, unlike traditional stocks. What this means is that you may not receive the preferential long-term capital gains rates that apply to stocks and may even be taxed at a higher collectibles tax rate. 

None of these are considerations with traditional stocks, however, which is why NFT stocks are so popular right now. If you want to tap into the rise in popularity of NFTs without actually owning a product that is detrimental to the environment and subject to extreme volatility, you can buy a NFT stock instead. Similar to marijuana stocks, NFT stocks are a way to own a piece of the NFT market without shelling out hundreds and thousands of dollars to own a tweet, for example. 

Top 5 NFT Stocks to Buy Right Now

So, you want to invest in NFT stocks. You read the paragraphs above and while NFTs can be attractive investments, you are perhaps a little too risk-averse to take the plunge. 

But, where to begin with NFT stocks? Which company should you invest in? If NFT stocks sound more up your alley than NFTs, below is a short list of recommendations to invest in. 

  1. DraftKings: DraftKings, the popular sports betting company, recently launched a NFT marketplace. This is a space for athlete-related NFTs so that people can buy, sell, and hold sports-related digital collectible items. So, if sports NFTs take off, DraftKings would be a huge winner in the market.  
  1. eBay: eBay now allows the sale of NFTs on its platform. However, eBay currently transacts in traditional currency, not cryptocurrency. If eBay began accepting cryptocurrency on their platforms, it would likely become a more popular site for NFTs. Moreover, if the NFT market were to somehow turn wildly volatile, with NFT platforms shutting down, eBay could be a more stabilizing force, which makes it an attractive NFT stock for many.
  1. Cloudflare: Cloudflare is a cloud services provider that allows creators on their Cloud Stream platform to create NFTs from their videos. Right now, video NFTs are limited, with GIFS, tweets, and other artistic images taking off in a bigger way within the NFT space. However, video NFTs could be the future and Cloudflare, a company with a history of innovation, is uniquely positioned to take advantage of future changes in the NFT market.
  1. Dolphin Entertainment: Dolphin Entertainment provides digital entertainment content and recently launched Dolphin Digital Studios, a NFT division. Dolphin Digital Studios produces NFTs both for itself and for clients. The company recently forged a partnership with Hall of Fame Resort and Entertainment. Their initial NFT offerings revolve around the space of professional football, and are also working with West Realm Shire Services to create a NFT marketplace for major sports and entertainment brands.    
  1. Funko: Funko is one of the leading creators and innovators of licensed pop culture products, such as vinyl figures, action toys, plush, apparel, houseware, and accessories. Funko recently acquired a majority ownership stake in TokenWave, a developer of TokenHead, a mobile app and website for tracking NFT holdings. Funko also plans to launch a new NFT fairly regularly which will be sold on the WAX platform, a decentralized wallet on the blockchain. The company hopes to make Funko NFTs broadly accessible to fans by providing affordable entry pricing. 

Honorable Mention: PLBY Group: The PLBY Group is a pleasure and leisure company that owns Playboy, an iconic lifestyle brand. Playboy has partnered with Nifty Gateway to create a series of NFTs on Nifty’s digital marketplace.  

While this is by no means a comprehensive list of NFT stocks, it goes to show that common names, like eBay, are swiftly falling into the category of NFT stocks as they seek to innovate and modernize. 

Soon, the list of NFT stocks will include other household names and finding the best ones will become much more difficult. For now, the list of companies working in the NFT space isn’t an enormous universe, so it’s easy to find the ones that are positioned for success. However, this niche is definitely expanding as more and more companies find ways to join the NFT bandwagon. 

In fact, Nike, another household name, secured a patent for CryptoKicks, a digital token that will be generated with each purchase of a shoe. NFT sneakers are already a trend, with some selling for over $10K, so the number of companies in the NFT space will undoubtedly grow — and rapidly, too.

Another excellent reason to buy NFT stocks, beyond just the scope for growth in this industry, is that they provide a great deal of diversification. By owning a stock like eBay, for example, you are not just owning stock in a company that deals with NFTs. You are also owning stock in a company that is an online marketplace for many. 

So, a threat to the NFT market won’t take down the entire company as it might if you owned an actual NFT and its price plummeted. As such, NFT stocks are becoming increasingly popular investment options for traders interested in the crypto market but a little too risk-adverse to dive in head-first.

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Keertana Anandraj
Keertana Anandraj is a recent college grad living in San Francisco. When she isn’t conducting international macroeconomic research at her day job, you can find her in the spin room or planning her next adventure.

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