A New, Easier Way to Profit From NFTs

Stupid question of the day: If you could earn a 2,000% return even as a bear market is growling, would you make that trade? 

Since mid-summer, I’ve been engaged in a unique side of the crypto business: offering loans to NFT owners through a specialized website. If they pay me back, I rake in nice interest payments. If they default, I take possession of their high-quality NFT, then turn around and sell it for big profits.  

In fact, for one of my most recent loans, I’m expecting to make a more than 2,000% annualized return! 

I’ll explain how in a minute, but first some context. 

An NFT, or non-fungible token, is a form of cryptocurrency fronted by some form of digital art but which often represents a very real business offering services or even real-world products to consumers. Think of it like owning a physical share of stock: a piece of paper that represents partial ownership of an underlying business. 

I have been involved in the NFT space for well over a year. I’m deeply invested in specific projects. I talk to NFT teams weekly. I’m the CEO of the NFT division for a European crypto firm. And I have lived the highs and lows of the NFT and crypto markets. I know the frustration of seeing my cryptocurrency slide in value amid the current downturn, but I also know the thrill of seeing an NFT for which I paid about $340 rise in value to about $56,000…in just two months. 

Gains like these are possible because NFTs are rapidly changing a host of different industries, from music and television production to technology and finance. In the finance space, in particular, borrowing and lending based on NFT projects has really taken off in recent months. 

Here’s how it works: NFT owners looking to scratch up a bit of cash, but who don’t want to part with their assets, are putting up their NFTs as collateral for loans. Then lenders (i.e., me) offer short-term loans against that collateral. 

The NFT owner either repays the loan by adding on a bit of interest, or the owner defaults and the lender collects the collateral (the NFT) that they can then sell to recoup their investment. It’s a pretty nifty way to profit from NFTs…without ever actually having to buy an NFT. 

As noted, I’ve been lending since mid-summer. I’ve made about 60 loans and have earned nearly 160 Solana on a starting balance of just under 455 Solana—a 35% return so far, or a bit more than 70% on an annualized basis. (Solana is the cryptocurrency I use to make these loans.) 

Part of the reason is as simple as ABC. 

By that, I mean an NFT collection known as ABC, which emerged in late summer and quickly became a hugely popular project. These NFTs look like cute, childlike drawings, but they represent an underlying business tied to decentralized NFT trading (basically peer-to-peer NFT trading). 

Well, I made a loan against a particular style of ABC NFT—a mermaid. Only 303 exist in a collection of 10,000 ABC NFTs, the upshot of which means mermaids carry a higher minimum value than typical ABC NFTs. The mermaids look like this: 

The loan I made was for 40.2 Solana at a moment when the lowest-priced mermaid was selling on the secondary market for about 55 Solana. I was expecting to collect my original loan plus another 1.62 Solana as an interest payment for the 20-day loan. 

Well, the owner of that particular mermaid NFT defaulted on the loan. 

The mermaid immediately swam into my crypto wallet, where it’s now for sale at 88.88—a price I know it will collect because the market for ABC NFTs is robust (mermaids have sold for well above 100). When that sale finalizes, my profit won’t be 1.62 Solana. It will be nearly 47 Solana, meaning a gain of nearly 117% on my loan, or more than 2,000% on an annualized basis. 

I know right now seems a particularly strange moment to think about investing in crypto. I get that, especially given the tempest of crypto negativity swirling about in the mainstream media.  

However, I was once part of the mainstream media. I wrote for The Wall Street Journal for 17 years. I can assure you that the bulk of reporters writing these articles do not trade crypto or NFTs and thus, do not understand the nuances of what they are writing about.  

Instead, they’re framing their stories to fit a narrative their news organizations want to tell. 

But as I tell those who are willing to listen, wealth is not made at the heights of a bull market, when risk is highest. Wealth is made in a bear market, when the risk is lowest and when savvy investors wade into the bloody streets and happily snap up bargains that the fearful are throwing away because they’re scared. 

When the market turn comes—and the turn always comes—today’s cheap assets (high-quality cryptocurrencies and high-quality NFTs) are going to see new all-time highs. 

As I’m awaiting that, I’m fattening my crypto wallet without even having to buy NFTs. I’m just lending against NFTs, grabbing some nice interest payments and occasionally selling off the defaults for additional gains. 

Kinda feels like I’m walking on sunshine while others are desperate to find umbrellas.