Can NFTs Help You Save for Retirement?
When it comes to saving for retirement, financial services giant Fidelity Investments may be getting ready to disrupt the market in a big way. On December 21, Fidelity filed a number of trademark applications related to non-fungible tokens (NFTs) and the metaverse, including an application for a new NFT marketplace and another to offer financial advice within the metaverse.
Put another way, Fidelity can prepare to make NFTs part of the way you save for retirement. This will likely sound crazy to many investors given the cratering NFT market this year and popular metaverse cryptos like Decentralized country and The sandbox is down over 90% by 2022. While we don’t know exactly what Fidelity will do with these trademark applications, we can speculate on possible future use cases.
NFTs as collectibles
The most obvious use case is buying NFTs as collectibles. One reason NFTs took off in the first place was the assumption that you could buy an expensive asset and flip it in the future for a much higher price. The expectation is of course that digital art from a top artist or creator will appreciate over time. Ten, 20 or 30 years from now, you may have the equivalent of a digital Picasso or van Gogh.
Image source: Getty Images.
While it may be hard to imagine keeping a Bored Ape or CryptoPunk in your digital wallet for a decade or longer, there is clearly a scenario where digital art could become part of your long-term retirement portfolio. The only caveat here, of course, is that the IRS has made it very clear that collectibles are prohibited from being included in individual IRAs and 401(K) plans.
NFTs as investment instruments
Betting crypto has become an increasingly popular form of generating passive income for crypto investors. Go to any top cryptocurrency exchange and it is possible to find ways to earn anywhere from 1% to 10% on your crypto holdings. Staking NFTs works the same way, only you use an NFT, not a cryptocurrency, as the underlying asset. This option may become more popular over time, especially since many assets in the metaverse (including virtual lands) are actually NFTs. When you are not actively using these NFTs, you may want to convert them into income.
Conceptually, this option is much harder to wrap your head around, but think of it this way: You agree to lend your very valuable NFT for an agreed period of time, during which you will earn rewards. At the end of this period, your NFT will be returned to you. In the real world, wealthy art collectors lend their valuable works of art to museums and galleries for exhibitions, so why not in the crypto world? At the beginning of December, e.g. ApeCoin (CRYPTO: APE) introduced new stake pools for holders of Bored Ape NFT.
NFTs as a completely new asset class for a diversified portfolio
Things get really interesting when you start considering NFTs as a whole new kind of asset class. Commonly referred to as “digital assets” or “tokenized assets”, this class encompasses just about any crypto-related investment, but the cryptocurrency itself. The long-term trend is towards tokenization of the world, and this involves a digital representation of physical assets in the real world.
Once an asset has been tokenized, it can be traded, shared and transferred just about anywhere. And best of all, it can be fractionated, much like buying just a single satoshi of Bitcoin. For example, let’s say you want to invest in very expensive watches but can’t afford a Rolex. Well, now you can buy a fraction of one via a crypto token traded on a decentralized exchange.
Where does Fidelity fit into the picture?
In a basic scenario, Fidelity will simply provide investment advice on these different options. Maybe you can book some time with a digital avatar in the metaverse and discuss your retirement in a digital office built on digital land. Between slaying dragons and earning valuable treasures in your favorite metaverse world, stop by for a quick 30-minute pension check. Back in April, Fidelity set up shop in the metaverse via a multi-story digital building, complete with dance floor and rooftop garden, so this is definitely within the realm of possibility.
In a more advanced scenario, Fidelity would start offering more and more ways to invest in digital assets such as NFTs. In December, for example, Fidelity launched its new Crypto platform for retail investors, which enables ordinary people to buy and sell cryptos like Bitcoin in a safe, zero-commission environment built by Fidelity. So imagine this platform transforming into a new platform where you can buy and sell a variety of NFTs in addition to crypto.
Of course, this is all speculative, given we don’t know what Fidelity will do. But certainly, Fidelity taking such an innovative approach is fascinating. What if NFTs could really help you save for retirement?
