NFT Bets Hammered by Crashing Crypto Prices

September 01, 2022

This year’s swoon in the price of bitcoin and other cryptocurrencies is laying waste to a similar nascent, ephemeral investment—so-called nonfungible tokens.  

The Defiance Digital Revolution ETF (NFTZ) slipped out of the gate on its first day of trading Dec. 1, 2021 when it opened at $24.10. It’s not recovered: NFTZ hit its all-time high of $24.44 that day and since has plummeted more than 70% to $6.83. 

Perhaps a textbook case for a volatile investment, NFTZ has been slammed by a confluence of factors that has crushed equity prices and portfolios, from rising interest rates to inflation.  

Investments in new, speculative technologies are particularly sensitive to market whims, with cryptocurrencies being particularly beaten down this year. Bitcoin has slid 65% since NFTZ’s inception. The Bitwise Crypto Industry Innovators ETF (BITQ) invests in some of the same companies as NFTZ and is down a similar 76% over the same period.

Not helping the matter is the fact that many, if not most, people don’t understand NFTs or the blockchain technology underlying them. Finance encyclopedia Investopedia defines them as “cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other.” The idea is that each is unique, and they have caught on among artists and those trading collectibles. Read more here

Risk Appetite

Defiance CEO Sylvia Jablonski is upfront about the risks of investing in new technology, writing in an emailed statement that “if investors simply do not have risk appetite in uncertain markets,” then staying in cash and waiting out market gyrations is reasonable. Still, waiting on the sidelines risks missing an upturn in digital investments like NFTZ, she said. 

“Scooping up NFTZ at these levels for a longer term (beyond 2023) return expectation is reasonable,” Jablonski wrote. “I do not expect a crypto recovery to come any time in the short term, but remain bullish on the growth, development, technological use case and interest in blockchain-related names. It would be reasonable to consider a short of the sector, for the coming months.” 

NFTZ’s assets, which include holdings in 34 companies, have dropped to $6.91 million, according to Defiance’s online description. Top holdings include Marathon Digital Holdings Inc., Draftkings Inc. and Hive Blockchain Technologies. The ETF’s expense ratio is 0.65%. 

Jablonski, who became CEO of Defiance in March and also serves as chief investment officer, remains upbeat, and sees NFTZ as a long-term investment “if an investor believes that the blockchain digital asset space has merit.” 

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