22nd Mar 2022
Gold has long been seen as the most stable investment you could make. It is, literally, the “gold standard,” and it’s where investors tend to rush during times of instability and uncertainty.
But is it actually the highest-performing investment option during a volatile market?
There are signs that the best NFTs and their older siblings, cryptocurrencies, are overtaking gold as the best way to make a profit in adverse economic circumstances.
The blockchain universe is squaring up to gold
When we talk about gold and NFTs facing off, we’re really talking about a showdown between old-school assets, which could be gold or any fiat currency, and the new blockchain universe.
Blockchain assets include fungible crypto-currencies, where you can exchange any bitcoin for another one of the same value, and NFTs, or non-fungible tokens, where each NFT represents a unique digital asset. Cryptocurrencies and NFTs are built on the same blockchain ecosystem, operate according to the same principles of decentralization, and share many of the same players.
The showdown seems inevitable, given that, as Ryan Selkis wrote in his Crypto Theses 2022, “Bitcoin has eaten gold’s lunch for a decade.” If you had invested $100 in gold 10 years ago, you would have increased that to just $102 today, which is below the rate of inflation. But the same $100 in BTC over the same time period would have produced $1.7 million.1
Selkis points out that “This should have been a boom time for gold bugs – high inflation, low trust in government, commodities booming – but instead gold was outflanked by a faster, younger, wilder horse in bitcoin.2“
Many of the biggest hedge fund managers stick loyally to gold as the best hedge against inflation and volatility3, but blockchain enthusiasts argue that crypto finance will emerge triumphant in the end.
Talent is flooding to the blockchain ecosystem
As many software engineers will tell you, blockchain is attracting all the best engineering talent. The best builders are principled, passionate about driving innovation in code, and eager to be part of technology’s next big leap forward.
As a result, programmers and engineers are flocking away from FAANG (Facebook, Amazon, Apple, Netflix, and Google) companies and joining scrappy crypto startups and bootstrapped DeFi projects.4
Capital investment is keeping pace
Venture capital funds and private investors are pouring money into cryptocurrencies, NFT projects, and Web3 use cases. Hedge funds intend to deploy 7% of their assets into crypto within 5 years, pensions are beginning to follow suit, and some investment firms have put over $10 billion into crypto deals.5
Q3 2021 brought $8 billion of private investments in 423 crypto-related deals, bringing the year’s total to $17.8 billion since the start of the year and far exceeding the amount invested in the previous six years combined. Close to 90% of crypto’s biggest deals happened in 2021, and the momentum is not slowing down.6
Demand is surging higher and higher
The value of bitcoin, NFTs, and cryptocurrencies depends on demand, and blockchain demand just keeps growing. Young people are embracing DeFi (decentralized financed) not just because it’s new and exciting, but also because it’s disrupting the legacy institutions seen as blocking economic growth for younger generations.
NFTs jumped from around $10 million worth of total sales at the end of 2020 to over $8 billion in sales value by September 20217, and could end the year with a record $17.7 billion in sales8, while sales volumes grew by 38,060% YOY between 2020 and Q3 20219. There are currently 3 million people (and counting) on a waiting list for Coinbase’s upcoming NFT platform10.
The expansion of NFT use cases is helping fuel NFT adoption. To give just one example, Selkis mused about the ways that you could use an NFT title deed, including accessing home insurance, renting out the house through Airbnb, and pledging the NFT as collateral for a home equity line of credit on a peer to peer lending program.11
NFTs are more than just money
Unlike gold, the popularity of NFTs lies beyond their market value. They are becoming part of the ways that people identify themselves. Fred Ehrsam, founder of Coinbase, points out that NFT collectibles like Bored Apes or CryptoPunks are turning into membership cards for exclusive digital clubs. “Being a CryptoPunk owner as a crypto-native is the equivalent of being an Augusta National member as an old-school businessperson,” he says.12
As fan token, NFTs signal allegiance to a specific artist, musician, or even thought leader. Fans can buy an NFT music album, podcast episode, or meme to show support while their chosen icon is still little-known, and that token can grow into a channel for backstage passes, airdropped limited-edition merchandise, or even royalties from the album you helped to finance.13
NFTs are also the foundations for the metaverse. Because they are decentralized, verifiable, and authenticate ownership, they are the only way to build a truly equitable metaverse that isn’t a big tech dictatorship, benign or otherwise.
“If a big part of our future lives are spent living in global, virtual, interconnected worlds (the metaverse), then NFTs are some of the primary building blocks for everything in that world. You don’t want to live in a virtual world where your entire identity is at the mercy of a Big Tech cancellation tribunal,” Selkis writes.14
In the gold vs blockchain shakedown, much depends on the choices you make
There’s no way to be sure whether gold or crypto or NFTs will prove to be the best investment in the future. Traditional investors are likely to continue to prefer the reassuring familiarity of gold, but for others, cryptocurrencies and NFTs are an appealing alternative.
If you’re considering blockchain in the form of an NFT collection, Selkis advises NFT infrastructure rather than an individual NFT. “I’m not sure how much longer the market for individual NFTs can bubble up, but I do know that reliable and ubiquitous NFT tooling is still largely missing,” he points out.15
As he explains, NFT infrastructure is likely to continue bearing fruit over the long term, making it a closer rival to gold for stable, long-term returns. “Marketplaces, financialization primitives, creator tools, community-oriented business models, and decentralized identity management / reputation management systems are all in their infancy. That core infrastructure will be one of the hottest areas of investment in 2022.”16
This advice makes investing in an ETF which invests in companies with exposure to the NFT ecosystem an attractive option for many investors who want to try to outdo the gold market without generally taking on too much risk. Defiance’s NFTZ ETF allows you to allocate your investment capital across a number of promising companies involved in the underlying blockchain technology, crypto and NFT marketplaces, and cryptocurrencies, helping mitigate exposure to risk.
1 “Crypto Theses for 2022” December 2021 https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf
2 “Crypto Theses for 2022” December 2021 https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf
3 “Bitcoin vs. gold: Two leading authorities on the precious metal unpack the inflation hedge battle” November 9, 2021 https://www.cnbc.com/2021/11/09/bitcoin-vs-gold-leading-gold-authorities-on-inflation-hedge-battle.html and “Bitcoin vs. Gold: 10 experts told us which asset they’d rather hold for the next 10 years, and why” February 20, 2021 https://markets.businessinsider.com/news/currencies/bitcoin-vs-gold-experts-cryptocurrency-precious-metals-analysis-2021-2
4 “The Community Garden: The Case for Leaving FAANG Companies for Crypto” September 1, 2021 https://www.paradigm.xyz/2021/09/the-community-garden-the-case-for-leaving-faang-companies-for-crypto/ “Blockchains are the new app stores” September 21, 2021 https://cdixon.mirror.xyz/brEszs7HBGmEWouspL8QUm5g68Ppb7kRrkRjbD1T0Zg
5 “Crypto Theses for 2022” December 2021 https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf
6 “Crypto Theses for 2022” December 2021 https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf
8 “Should You Invest in NFTs or Cannabis Stocks in 2022?” December 26, 2021 https://www.nasdaq.com/articles/should-you-invest-in-nfts-or-cannabis-stocks-in-2022
9 “Activate Expects NFTs to Go Mainstream by 2022” November 9, 2021 https://cryptonews.com/news/activate-expects-nfts-to-go-mainstream-by-2022.htm
10 “Crypto Theses for 2022” December 2021 https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf
11 “Crypto Theses for 2022” December 2021 https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf
12 “IMAGINE IF THE MONA LISA WAS DIGITAL AND THEN AUCTIONED ON THE INTERNET”: THE ONLY NFT EXPLAINER YOU REALLY NEED, FROM A TRUE BELIEVER” September 16, 2021 https://www.vanityfair.com/news/2021/09/the-only-nft-explainer-you-really-need-from-a-true-believer
13 “Crypto Theses for 2022” December 2021 https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf
14 “Crypto Theses for 2022” December 2021 https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf
15 “Crypto Theses for 2022” December 2021 https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf
16 “Crypto Theses for 2022” December 2021 https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf