The NFT craze has exploded in recent months.
Millionaires are being created daily with the sale of thousands of NFTs in a project.
All you need is 10,000 unique images, a rarity score and incredible marketing skills to create hype, and you can retire young and rich.
This may sound unrealistic, but this what is happening right now in the NFT space.
NFTs are worth it if an investment is made into a growing NFT project with continued and increasing demand with a reason to HODL (Hold On for Dear Life). As the business behind the NFT project increases in value, and market capital, the NFT for the holder is likely to increase in demand and value.
Aside from the incredibly challenging and time consuming task of creating your own NFTs, you may be wondering whether it is worth investing in NFTs.
In the NFT space there are many more pitfalls to avoid than rewards on offer, but if you can learn how to spot the rare diamonds in the rough, then buying NFTs could be worth it and very lucrative.
How to tell if an NFT is worth it
To know whether an NFT is worth it you need to do some due diligence.
You need to consider the rarity of the NFT, as well as the past history of the sale of the NFTs in the collection. You need to look at the whitepaper and the roadmap, as well as finding out who the investors are and whether you feel they can succeed with the business they have set out to create.
With so many NFT projects launching in 2022 it is more key than ever to trend more cautiously, than be over optimistic.
Treat every project as if it were going to fail but use your research to try and convince yourself otherwise.
98% of NFT projects will fail and become worthless within two years of launch.
For anyone who remembers the famous dot com booms of the late 1990’s, there were many online business winners, but there were more losers.
This current NFT world is the same. The Wild Wild West, just as the internet was when it launched.
The NFT space will change over the next 5 years.
Only recently did the deeds to a real physical house transact as an NFT on the blockchain.
This is just the start.
For now, Crypto Punks and Bored Ape Yacht Clubs are dominating the attention, and there will be NFT projects in the future, that no one has heard of today, that will make investors 10,000% plus in profits.
The analysis carried out so far on the NFT industry is showing that the NFTs that grow the most have the following characteristics:
- Passive Income potential when holding the NFT
- Founders are known to the public (doxxed) and have an influence of the market
- Merchandise and other exclusive benefits on offer
- Founders have the ability to deliver on the roadmap and business set to launch
My experience in the NFT world is showing that the initial hype around an NFT launch fades very quickly after launch, and even more so after the rarity reveal where 90% of the NFT holders realize they didn’t land the rarest, and most valuable NFTs, in the collection.
10,000 NFTs may be sold but only the top 5% will truly have a value that could see an immediate flip for a profit.
A further 5% (top 5%-10%) could break even on the mint price plus the gas fee.
This means 90% of the NFT project holders could immediately be at a loss.
This is why the floor price (the lowest selling price of an NFT in the collection) falls rapidly after reveal. It is where the 90% of holders, who did not get a rare item, start to sell to try and recoup some of their initial investment.
To make an NFT project successful it needs to have three key ingredients:
- More demand than the number of NFTs minted
- A reason to hold on to the NFT even if it’s not in the top 10% of rarity
- Great communication from the founders
- Ongoing utility and rewards reducing holders from selling, which in turn increases the NFTs value
I have been involved in, and have watched the launches, of many NFT projects and the single biggest question often asked in places such as Discord is – ‘why are we not hearing from the founders’.
If the founders are not visible and communicating properly with their community, it is a clear red flag.
It would be like the CEO of a publicly traded company not delivering on a shareholder update because they had something else better to do, or forgot.
When are NFTs at their Highest Value
NFTs are generally at their highest value at 8 months into the project as the longer term roadmap kicks in and the reason the investment was made is realized.
When a project launches, the minting of the NFTs raises the capital required for the founders to start their business and start delivering on the promised roadmap.
The roadmap could be a 6 to 12 month project. Businesses can’t be created overnight.
The issue today is that NFT investors are seeing media hype and are immediately expecting 10 times a return on their investment in a week.
This is not only highly unlikely, but also it’s not sustainable.
The likelihood of a 10 times return on investment in a week is incredibly small.
Unfortunately, many NFT buyers are looking for short term profits and quick flips, rather than the longer-term future of the business behind the project and the benefits it could bring if it’s delivered.
Let’s take a look at Bored Ape Yacht Club as an example.
In April 2021 BAYC minted. Some apes were given away for free, others cost 0.06 ETH (around $192 at the time).
The first sale on OpenSea happened soon after for 0.13 ETH ($416).
As of today, if you want to buy a BAYC NFT the minimum will pay is 91 ETH – yes that’s the equivalent of $291,200!
And that is the lowest priced BAYC NFT out of the 9,999 collection.
By analyzing the success of this one NFT project you’ll see it took many months before the ETH price reached the heights that are at today. It didn’t happen overnight, or within a week.
Why NFTs are Worth It
This is just the beginning for NFTs. The landscape will change.
NFTs will go far beyond cartoon apes, punks and goblins.
It will be the new method and process of authentication, validation and security of digital contracts and agreements.
I listened to a recent podcast by Gary Vaynerchuck, that explained a very real and possible NFT scenario.
He suggested that an up-and-coming musician with small following of say 5,000 fans could create NFTs for fans their to buy.
Not only will the fan feel closer to the artist and part of that artists close community – but the artist could offer giveaway and exclusives, even meets and greets with NFT holders.
The NFT holders could even share in all future profits the artist makes.
The sale and mints of the NFTs to fans could yield up to $1m for the artist to market themselves and launch their singing career.
in contrast, record companies will take up to 95% of early profits from new artists for essentially doing what an artist themselves, with the right investment capital could do themselves – and the artist gets to keep all the profits.
Even if the artist gave away 20% of all future profits to the NFT holders, they are still making a lot more money than being signed to a record label.
Its crowdfunding with added benefits, with full ownership of the contract agreement stored on the blockchain in full transparency. It can’t be changed or altered.
This is just one small example.
The NFT craze may shift and mold itself into many different shapes as it starts its journey, but the NFT world is most definitely here to stay!
