Crypto, Meme, NFTs Oh My

10/1/2021

There has been a new, and often confusing, era in investing over the past several years.  Investment options outside of the traditional investment options such as equities, fixed income, commodities, and others have become more and more in the news and focus of certain types of investors. Three of the most common newer types of investing options include cryptocurrencies, meme investing, and NFTs. Some individuals are investing large percentages of their wealth in these newer types of investments, while many investors have completely ignored these emerging investment options.

Cryptocurrencies have been around for the longest period of time of those three newer investment options, given that the concept of cryptocurrency began in 2008. Cryptocurrency in very basic terms is a currency that are not administered or managed by any individual entity or government, but it is public. Initial exchanges and investors holding cryptocurrencies were similar to the wild west, with very few if any rules that regulated the investment option. Eventually individuals started to be able to exchange cryptocurrency for products or services, creating a baseline of value. Bitcoin is the first of these cryptocurrencies that has been easily available for investment when investors could find it on exchanges starting just over ten years ago.

Given the relative maturity of cryptocurrencies, there are a wide variety of cryptocurrency options available for investment. Around two-thirds of Millennials are interested in all of the most common types of cryptocurrencies, with the most popular being Dogecoin, Ethereum, and Bitcoin, according to recent research from Spectrem Group regarding these newer types of investment options. Gen X investors are quite a bit more cautious regarding cryptocurrency investing, with only 43 percent of Gen X investors being interested in Bitcoin, and every other type of cryptocurrency having an even lower levels of interest among Gen Xers. It is interesting to note that as wealth increases, so does the likelihood of being interested in various cryptocurrency investment options. Over three-quarters of investors with a net worth between $5M-$25M, not including primary residence, are interested in investing in Ethereum, Litecoin, and Dogecoin. This is in stark comparison to those investors at lower levels of net worth, with fewer than a third of those investors being interested in any type of cryptocurrency investment.

 

Meme investing is an approach to investing rather than a specific investment. Individuals looking at Meme investing is an investment strategy that looks at stocks that has their value influenced significantly by online platforms or social media outlets. The changes in value that these stocks have does not connect to the value of the company at all, but rather based on social media “buzz”. One recent example of a Meme investment was with GameStop, which had huge price swings due to comments online being made regarding the stock. Investors at the highest levels of wealth are the most interested in this type of approach in their investing, with 78 percent of investors with a net worth between $5M-$25M in net worth being interested in Meme investments. Millennials feel very similarly to that ultra-wealthy investor segment, as 76 percent of Millennials are interested in Meme investments, yet only 39 percent of Gen X investors are interested in Meme investments.

NFTs is the most recent alternative investment option. NFT stands for Non-Fungible Tokens, which in many ways is similar to cryptocurrencies, yet with some important distinctions. Cryptocurrencies are fungible, which means they can be exchanged for something else or one another. Cryptocurrencies are also equal in value. If one person owns Ethereum, someone else owning the same number of shares in Ethereum will have the same value. NFTs have the opposite approach, which is the reason for the name, “non-fungible”. That means that NFTs do not have the ability to be equal to one another. NFTs are a digital investment that comes from something in the real world, like music, artwork, video clips, and many other things. The investment comes from being able to own the original. Many pieces of artwork or video clips can be widely found on the internet, however NFTs allow an individual to own the original. NFTs utilize the same technology platform as cryptocurrencies but allow collectors and creators the ability to buy and sell directly to one another. These investment options are not available on standard investment exchanges, as there is not a consistent valuation for them. They can be purchased on other types of online locations that operate in a manner similar to that of an auction. Investors at the highest levels of net worth are the most interested in investing in NFTs, as are Millennials, with both having more than three-quarters of those investors being interested in NFTs.

Investors need to ensure they fully understand that various investment options available before jumping into these newer investment vehicles and investing approaches. Working with a financial professional to understand these platforms and approaches will be helpful in understanding if these investments are a viable option within an overall investment portfolio.