Welcome to the 20th issue of the NFT Humpday Report, a weekly column covering and providing embedded analysis on the NFT economy’s biggest topics du jour. Brought to you by WIP meetup collaborators and nft42 community hub TokenSmart.
Not everyone comes to NFTs by way of cryptocurrencies. In fact, people are discovering crypto through NFTs today more than ever before.
In any case, there’s a spectrum of stakeholders in the NFT ecosystem, and only some of them are crypto experts or veterans. This has led to many users who are grappling with how best to manage their crypto portfolios amid the ongoing cryptoeconomy bull run. In today’s post, then, we’ll examine how NFT users of all stripes can make their crypto work for them.
Chart your path: Crypto portfolio management is a subjective thing. There’s no end-all-be-all methodology that will work for everyone all the time. Instead, you’ll want to gauge your personal financial goals and then act accordingly. So your basic steps here will look like so:
Identify your goals
Do your research
Make and execute your plan
First, then, you’ll need to figure out your goals. Do you have real-life bills that trump other considerations right now? Then cashing out most of your crypto through centralized crypto exchanges like Coinbase or Gemini is likely your play, and there’s no shame in that.
On the flip side, are you looking to build up passive income streams and a portfolio for posterity? Then setting some assets aside for investment and for use in Ethereum’s blossoming decentralized finance (DeFi) ecosystem may be right for you.
What is DeFi, then? Mainly built on Ethereum today, DeFi’s an alternative financial system where you can put your assets to use permissionlessly and in automated fashion as opposed to mainstream financial apps that are permissioned and dominated by rent-seeking, middleman models.
Here’s where research comes into play. If managing your money via crypto sounds like something you’re interested in, you’ll want to do some basic due diligence on projects that could suit your needs. Once you’ve done your homework and feel comfortable moving forward, define your plan of attack and then execute it.
First, weighing investments: So you want to maintain some exposure to the cryptoeconomy’s upside, but you’re not sure where to start with your portfolio. Should you hold bitcoin (BTC)? Ether (ETH)? Other tokens? NFTs? And if so, in what proportions?
Again, the answer to these questions comes down to personal tastes and beliefs. Do you think BTC’s digital gold narrative may dominate the cryptoeconomy for years to come? 50% of your portfolio in BTC could make sense. Do you prefer to stay ETH-centric and think Ethereum will increasingly dominate? Then 50% in ETH is probably a starting point for you.
Whatever you decide, a helpful way to think about things is in terms of “big caps,” “mid caps,” and “small caps,” i.e. market capitalization.
Let’s say the top 10 to top 20 cryptos per market capitalization are your big caps (BTC @ $865B and ETH @ $203B are 1st and 2nd right now). These are the most liquid, most respected and known, and least risky cryptos to have investments in. Beyond that are your mid caps, which are smaller than the top projects but typically considered within the top 300 projects per capitalization. They have more upside potential but are riskier. Lastly, there’s small caps which are projects with ~$50 million market caps or less and are the riskiest projects to invest in because they haven’t proven themselves yet (i.e. will they ever amount to anything?)
If you’re fashioning your crypto portfolio, then you’ll want to maintain a balance between these assets and NFTs that works for you. If you’re younger and looking for a risk-on portfolio, then having more small caps — e.g. social tokens — is something to consider with regard to asymmetric bets. If you’re a person that prefers to stick with tried and true performers, then you’ll want to weigh much heavier toward big caps like BTC and ETH accordingly. There’s also index tokens like the DeFi Pulse Index (DPI) that makes it easy to invest in multiple promising DeFi projects at once.
Thinking through your DeFi options: You’ve set some money like ETH or fiat-pegged stablecoins aside for DeFi and now you’re looking to dive in.
The good news? You’ve got a handful of passive income possibilities to choose from. Some of DeFi’s reigning categories and projects include:
For instance, you can lend your stablecoins out through Aave for interest or save them through PoolTogether for chances to win weekly prizes. You can collateralize your ETH on Maker or collateralize your NFTs on NFTfi and draw out loans against them for whatever you need (even more ETH or more NFTs, right). You can take your tokens and provide them as liquidity to trading protocols like Uniswap and Sushiswap to passively earn trading fees on them, or deposit them into Yearn to automatically earn yields from around DeFi.
The point? NFT users have lots of alternative, censorship-resistant financial resources readily accessible now courtesy of DeFi. To easily manage your activities across multiple DeFi projects, consider using DeFi dashboards like Zapper or Zerion or smart wallets like Argent or Instadapp.
Safety first: With NFTs and DeFi, you have more money-making options at your fingertips than ever before. But that also means it’s time to start taking your financial security a lot more seriously if you have life-changing money flowing in.
If this is the case, consider splitting up your portfolio across multiple wallets so you don’t have a single failure point to worry about (i.e. one wallet). You can also upgrade your security by shifting to hardware wallets or social recovery wallets like Argent provides so you can rest easy knowing you can safely manage your crypto indefinitely.
Moreover, savviness also leads to safeness. Don’t try to chase every possible crypto or DeFi gain as far as yield goes. Have a general crypto strategy, be smart, and stay cautious where you have to.
Don’t be afraid to learn: A lot of crypto stuff can be really daunting at first, but I think anyone from any walk of life can handle the learning curves in short order. What’s important is to be curious and not afraid to ask questions. There are a lot of great educational resources out there and a lot of kindred spirits who are willing to point you in the right directions. You just have to reach out!
Thanks for reading the 20th NFT Humpday Report! Check back this time next week for more excellent NFT ecosystem coverage! Cheers🌠