4 Tips for ‘Extreme Alpha’ Gains in Crypto and NFTs: EToro Director

• Guy Hirsch says right now, “extreme alpha” growth is happening at the edges of crypto.
• This includes NFTs that can be considered part of an investment strategy. 
• But investors need to get educated about the space and consider the risks before starting.

Traditionally, a diversified portfolio would include a mix of stocks, bonds, commodities, and even real estate.

But more recently, fund managers are recommending digital assets as a new class to add. No one should be at “zero” when it comes to digital assets, said Mark Yusko, CEO and chief investment officer of the asset management firm Morgan Creek Capital, in an interview with Insider.

Indeed, cryptos like bitcoin and ethereum have been around long enough to grab the attention of traditional investors. Veterans like Alan Howard, Paul Tudor Jones, and Michael Novogratz have all taken the dip by investing in the asset class, according to The Wall Street Journal. 

Guy Hirsch, the US managing director of eToro, a multi-asset broker, says it’s time to consider NFTs as well. In 2019, eToro acquired a company called Delta, an investment portfolio tracker, and just added NFTs.

“Traditional art has been part of many high net worth individuals’ investment strategy for the better part of the last century,” Hirsch said. “This is how people were, in part, accumulating wealth, they were acquiring art. Traditional art is an asset class that appreciates in value over time. And it actually beats the S&P and other leading indices.”

Hirsch is referring to art like Monets or Picassos, collections that have drastically appreciated in value over time, both of which are cost-prohibitive to the average investor, he added. But now that there’s a growing market for digital art on a blockchain, it opens up access to retail investors. And since these works can be released by traditional and new artists, as well as other types of content creators, retail investors have options. 

While he admits that traditional art is time-tested and NFTs remain a high-risk investment, he noted that the returns are quite substantial and abnormal in relation to traditional art. You just have to be ready for the risk associated with buying NFTs. 

In the traditional art space, appraisals from a third-party can help assess the value of a piece. There isn’t something like that in NFTs yet. But there are projects working on solutions that could help determine the value of digital art pieces so that they aren’t reliant on market hype, he noted. Hirsch estimates it may be another couple of years before we see these tools become available. 

Until then, the upside to NFT art is that it transacts on a blockchain so historical prices and bids are transparent, he said. 

High-risk, high reward investing

Investors often add gold and commodities to their portfolios for wealth preservation, value stocks for steady growth, and tech stocks for higher growth. 

But right now, “extreme alpha” growth is happening at the edges of crypto, he said. 

What this means is that if you want to have a more aggressive approach to building wealth and less about preserving your wealth, you should probably have some exposure to crypto, he noted. But know that it obviously comes with a high level of risk.

Extreme alpha means thousands of percent in returns within two to three years, he explained. For example, ethereum and solana both traded below $1 when they first launched. As of Tuesday, ether is trading at around $3,450 and SOL at $130, up several thousand percent, according to CoinMarketCap. 

Hirsch added that NFTs like the Bored Ape Yacht Club (BAYC), which was minted on April 30th, 2021 at 0.08 ETH, now has a floor (minimum) price of 110.9 ETH. Another NFT project, World of Women, was minted on July 21st at 0.08 ETH. Its current floor price is 9 ETH.

He added that investors also need to consider that ETH, the crypto with which most NFTs are purchased, has appreciated as well, which also adds to the value. 

While gains like these are rare, they are happening at “the edge of crypto”, he said. This means they are new, experimental projects. So they wouldn’t include cryptos like bitcoin and ethereum or projects that have already spiked in value. 

“Bitcoin has been around now for more than a decade. Bitcoin is less likely to have thousands of percent of a return over the course of the next three to five years,” Hirsch said. “It’s a very established protocol with tens of millions of transactions that already happen on top of this protocol. It’s a known quantity. We are still very bullish about bitcoin. We still believe it will appreciate in value, but not in the thousands of percent over the next three to five years.”

He continued, “The edge of crypto are those new projects, all sorts of decentralized finance projects that are offering investors the ability to stake their crypto in some sort of a

liquidity

pool, or that someone is creating a game where you have to have an NFT in order to play and you actually make money.”

Top 4 investing tips for ‘extreme alpha’ gains 

First and foremost is education, he emphasized. Hirsch said you need to understand what’s happening in the space and why. Learn from others who are risking their own money and figure out how and why they are investing in a project. 

You can find these investors on YouTube, Twitter, and podcasts. Some of these influencers release regular newsletters. On eToro, investors’ portfolios are publicly shared, so you can see how successful investors are trading and what they are buying. 

You’ll want to go for the deep-dive discussions. And you should spend hours educating yourself before any attempt to begin investing. Follow at least 10 to 15 of the leading influencers in the space that are putting themselves out there, sharing information. Take note of who has been consistently talking about new trends before they become mainstream. 

Second, start small. Open an account and start buying bits of crypto and NFTs to test your skills. Use money you can easily afford to lose, he said. This active process will help you digest the level of risk associated with these asset classes. 

It will also get you familiar with things like gas fees, which can be higher at certain times, and how to swap various types of tokens to access both NFTs and DeFi protocols. 

Another thing this process will help you realize is that you are fully responsible for your transactions and the security of your crypto. Many of these new projects are accessed on decentralized protocols, so customer service isn’t exactly a thing. This means something as simple as opening an account on MetaMask, a non-custodial wallet that stores your crypto, will require a multilayer setup that isn’t as simple as keying in your email address and a password. 

Third, teach yourself everything about security and privacy, he said. Since you are responsible for managing your own assets on a non-custodial wallet; something as simple as forgetting your key phrase, a multi-word passcode, could lock you out of your account for good. 

“When you deposit dollars into a bank, you basically defer the security and privacy to the bank,” Hirsch said. “The bank is responsible for your money, and if you live in the US, you have FDIC insurance. You have a lot of layers of protection that you defer to the bank. The government is also involved in making sure that your money to some degree is protected. That is not the case with crypto.” 

Fourth, Hirsch said to take into consideration the speed of adoption digital assets are seeing. It’s very different from previous bull runs, like the one in 2017, for example. And that’s because of NFTs.  

Traditional brands from various verticals are entering this space. Nike, Adidas, and Budweiser along with many other manufacturers are adding NFTs to their strategies as a way to engage their audiences and give their customers a sense of ownership, he noted. Because of this movement, there’s a faster inflection point for mass adoption of all digital assets, he said. 

“It means that even if you’re still on the fence about NFTs as an investment, as part of your portfolio, you might very quickly be owning one because you’re a fan of a basketball team or of a football team that dropped an NFT collection and you really want to own it because it’s the new digital kind of collectibles,” Hirsch said. “It’s kind of replacing physical baseball cards.” 

Without noticing, you may end up as the proud owner of an NFT because of your affinity to a brand, he said.