Non-fungible tokens (NFT) have been all the rage in 2022 although of late, they have come under the spotlight because of crashing crypto prices and rising criticism. Amid the hype, how can investors pick winning projects?
Wealth speaks to Jason Kwong, an NFT investor and founder of blockchain marketing and advisory consulting firm Imperium Universe, to share his experience.
Kwong was a banker for almost a decade in Singapore before returning to Malaysia to join the media industry after the 2008 financial crisis. He became the managing editor of a lifestyle magazine and eventually, branched out to start Imperium Universe in 2020.
Wealth: How did you get into this space?
Kwong: In 2015, I first heard about cryptocurrencies and like everyone, I thought it was a scam. But then I read the white paper (for Bitcoin) and I felt that it made sense, so I began to do dollar cost averaging. My investments (in Bitcoin) grew and surpassed other forms of investments I had done.
Of course, I also endured the bear market, like what we are possibly going through now. For a few years, I just held all my investments.
Everything recovered by 2020. By then, there was a new theme every summer. In 2020, it was the decentralised finance (DeFi) summer, so people were yield farming (borrowing or lending cryptocurrencies on DeFi platforms and earning a return for this service).
In 2021, it was NFTs. I started buying cheap NFTs and saw the prices go up a lot, so I became more serious about it. I started the company (Imperium) with a few ex-colleagues and the founder of BitcoinMalaysia.com, Colbert Low.
Do you personally invest in NFTs?
Yes, with only moderate success. All of them are underwater now (because of the crashing cryptocurrency prices). At first, I thought the NFT market was decoupling from the cryptocurrency market. But I think in the grand scale of things, everything is down now, including equities. Even hot cryptocurrency projects like TerraUSD, which is a stablecoin, can be de-pegged from the dollar.
I own around 40 to 50 NFTs currently. So far, I’ve probably put up to US$30,000 into NFTs, and the return, on average, has been four to five times. But I’m still sitting on a few unprofitable NFTs. A market like now makes it even worse.
Why do you invest in NFTs?
I was just trying it out at first and eventually, it became addictive because there is a fun element to it, compared to just trading. The returns are also higher.
I often look at NFTs with my daughter. After I buy it, she will use it as her profile picture on her WhatsApp. When my mother sees the profile photo, she will ask my daughter, ‘Did your father buy NFTs again? How much is it?’ My daughter would tell her and I would get scolded.
My parents used to be real estate enthusiasts. So now (before the prices crashed), I show them how a little pixel on The Sandbox metaverse costs. A 3-by-3 plot (a 1x1 plot of land in The Sandbox is 96m in width and length) can go up to US$200,000, which is more expensive than mid-range properties in Kuala Lumpur. It’s funny to see their reactions.
I was eyeing land on The Sandbox for the longest time but we were priced out of it. So, we bought land in Aavegotchi (an open-source NFT gaming protocol) and a few others that aren’t doing so well at the moment.
Do you look at the aesthetic potential of NFTs or do you invest for the utility function — for instance, NFTs that allow you to access certain products and services? Does the utility function give these NFTs a premium?
A bit of both. I’ve always wanted to appreciate art, so investing in NFTs accelerated that process. I also wanted to support local artists through NFTs.
But even if a utility NFT is offered by a corporate, it also depends (whether it takes off or not). A lot of corporate-backed projects are sold for high prices but after a while, there is only so much utility they can give.
It could add a premium (to the NFT) but it has to be sustainable. You can determine that by doing more research into a company but sometimes, even established companies are not so mature in the NFT scene, so they struggle to build it up.
How do you choose the NFTs to invest in?
I don’t do too much research about the artists before buying their NFTs. Of course, it helps if they’re established artists on platforms like OpenSea and Pentas, and they are verified on Twitter. If their Twitter account is linked to the platforms, we know they are the original creators of the art.
There is usually a lot of buzz around the project if the artist is established, so we will roughly know which artist is doing what project. The hype is mostly on Twitter and Discord. Various marketplaces and NFT projects have their own Discord channels. It’s quite organic. If you follow the right people (on these platforms), you will get access to these projects.
I would say investors should go with the things that resonate with them. Some of the earliest NFTs I bought were from NBA Top Shot. I bought NBA Moments (collectible video NFTs of NBA plays and players). I’ve sold some of it already. I think this is more sustainable because it’s an official licensed product and NBA is trying different ways to promote it.
What are blue-chip NFTs?
Those that have big staying power, like CryptoPunks. But it’s about the community. You can have a big brand or lots of money but if nobody cares about you, it won’t work.
For instance, Azuki (a digital brand selling avatars created by Los Angeles-based artists) used to be a blue-chip NFT. But people found out that the founder used to rug pull (a cryptocurrency scam where developers of a project raise funds, then abandon the project suddenly). Everyone sold it off. It used to be one of the hottest NFT projects but now, it’s gone.
There must be strong trust within the community. Do what you say. If you cannot fulfil what you promise and you want to pivot to something else, communicate with the community properly. Don’t try to front run your own NFTs.
What do you intend to do with your NFTs?
I tried to trade NFTs like cryptocurrencies but it doesn’t work. So, whenever the prices reach a certain threshold, I will list them for sale.
I’m not an NFT flipper. There are too many gas wars (when too many people compete to buy a NFT, the demand causes transaction prices to spike due to network congestion) to do that. When a project is hot, you might spend more on gas fees than you do on the NFT.
The fees are determined by the network. If the Ethereum network is congested, for instance, the only way to make sure your transaction goes through faster is by paying more gas fees. I missed out on a lot of projects because I didn’t put up enough gas fees. There are scalpers who will load up the gas fees on all terminals. It’s ridiculous.
Do you think NFTs are a bubble?
Yes, and it will burst. But I think it’s a very potent tool for creators and brands for marketing, so I think it will be here to stay.
Will you stay invested?
It depends. I always say I have enough already but I won’t die from buying one more, right? Once you get in, you get a bit addicted.
What is your advice for those who still want to invest in NFTs?
Buy what you like and not the hype. By the time this goes to print, NFT prices should be quite down. There was an article yesterday (May 10) about how people are still buying blue-chip NFTs like Bored Ape and CryptoPunks. People with cash are still picking it up because it’s cheap. If you like something and you want to support an artist, you can still buy NFTs.
Some of the NFTs should [see their prices] go back up. But I think a lot of them will die off if this is a prolonged crash. If you want to sustain your projects, even if you don’t do much with the collectible itself, you still need to market it and run the community. Most of this is paid through Ethereum.
Unless the project [managers] were smart and cashed out earlier, they probably don’t have enough funds now to pay for those services. The worst case is if they used the funds to invest and leverage. They might have nothing left now.
Is there no chance to “bottom fish” or buy undervalued NFTs now?
It’s possible. I think some of the NFTs [created by artists] can be collected and held. You never know if it might still have value down the road [if the artist is consistent in producing content]. But if you’re trying to flip NFTs now, it would be a bad time, except for a few blue-chip NFTs like Bored Ape, CryptoPunks or land in The Sandbox. NFTs are more subjective [than stocks], being artworks and collectibles.