Crypto

Crypto

NFTs Compare

Summary
Quick DescriptionNFTs are digital assets like art, real estate, music, in-game items, videos/gifs, etc.
CategoryCrypto
Returns *Depends on the individual digital asset
Risk LevelVery High
LiquidityLiquid
Tax Implications
  • Taxed at a flat rate of 30%.

Quick Description

Cryptocurrency is a form of digital currency. Unlike normal physical currency, that is stored in a bank, cryptocurrency is stored on the computer in Crypto Wallets. These wallets contain private keys that keep the cryptocurrency safe.

Cryptocurrency is protected by encryption algorithms, keeping them safe. Cryptocurrency is typically unregulated. The concept of blockchain is used here wherein several thousand computers scattered all around the world keep a track and record of every cryptocurrency transaction. This is a public record that cannot be modified by anyone. It is also called a peer-to-peer network. As a result, every user on the network has access to see every transaction that occurs as well as other users' balances.

Non-Fungible Tokens (NFTs) are a type of cryptocurrency. They are unique tokens that represent real assets such as art, real estate, music, in-game items, videos/gifs, etc. Holding NFTs makes the purchasing and selling of these real-world assets more convenient, efficient, and safe. In simpler words, NFTs represent ownership of assets. NFT prices fluctuate because of the volatility of the price of the cryptocurrency used to purchase it and also because of the changing demand. However, the holder has the liberty to sell it at the price she chooses irrespective of the quoted price. Every token is unique, in that they cannot be exchanged with any other token as no two tokens are considered to be equal.

Additional Useful Information

  • NFTs can be fully or partially purchased. Most NFTs have a singular owner.
  • The investor can sell these units anytime. There are two methods of selling an NFT. The first one includes the NFT owner setting up an auction, wherein bidders will bid for the NFT and push prices higher. The second one is where the NFT owner sets a fixed price for the NFT.
  • Total Purchase Amount   =  Number of Units X Price per Unit
    Total Sale Amount =  Number of Units X Price per Unit
    Total Gain  =  Total Sale Amount – Total Purchase Amount
  • NFTs can be purchased through cryptocurrency or credit cards offered by a few companies. The investor will need a crypto wallet which is available online and offline both. After buying or minting the NFT it will appear on the crypto wallet.
  • No personal information needs to be disclosed to third parties for cryptocurrency transactions. Personal data protection is high as not a lot of information needs to be provided to purchase cryptocurrency.

Returns *

  • NFTs do not guarantee any returns.
  • NFTs are very volatile and therefore, every NFT has a unique return over a certain period.
  • Since cryptocurrency is a new age investment, there is not a lot of historical return data available, since a lot of NFTs are recently issued
  • NFTs are typically high risk, high reward investments.
  • The returns of the NFTs depends on the artwork and the creator of the NFT.

Risk Level

  • NFTs are very high-risk investments.
  • Due diligence and research of NFTs under consideration should be extensively carried out.

Liquidity

  • NFTs have varying liquidity. It depends on the type of NFT. A popular NFT will have high liquidity. However, newly issued NFTs, or other NFTs may have lower liquidity.
  • There is no lock in period for NFTs. Investors can buy and sell them as they please on the exchange.
  • To gauge the liquidity, investors should look at the trade volume of the NFT as well as the bid ask spread of the NFT. A higher trade volume, and lower bid ask spread would indicate high liquidity. A lower trade volume and higher bid ask spread would indicate a lower liquidity.
  • At any time, investors can sell their NFTs. Investors will get their money based on the price at the time of sale.

Interesting Facts

  • Crypto markets are worldwide. Transactions can occur with any potential investor around the world. For this reason, cryptocurrencies trade 24/7.
  • NFT holders have the liberty to list their NFTs up for sale at any price they choose. The average NFT price could change, but the holder decides the selling price of the NFT.
  • The use of blockchain secures almost all cryptocurrencies. All transactions are kept a tab on and verified by this technology. This means that there is no scope for alteration of records of the transactions and the chances of fraud drop.
  • NFTS are a good way to diversify an investment portfolio. This is because the correlation of cryptocurrencies with traditional investments is not perfect. This means they do not always move in similar directions.

Tax Implications

  • NFTs are classified as “digital asset” or “work of art”.
  • NFTs are taxed at a flat rate of 30% in India.
  • Short term capital gains and long-term capital gains are taxed similarly. There is no tax differentiation based on the gains.
  • Long term capital losses can be offset with long term capital gains. This avoids any tax on the gains.

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