With the NFT industry in its relative beginnings it can be tempting to invest some hard-earned savings in to the NFT space.
After all, we hear daily of NFTs selling for hundreds of thousands of dollars, or even millions of dollars.
Wouldn’t it be great to invest just $300-$500 in to an NFT and see its price rocket to moon and retire early and young!
It has happened of course, but the media will have you believe just one side of the NFT industry. Our media have a habit of portraying the unusual and rare as if it happens every day to every person.
In this guide I’ll show the real truths surrounding the high valuations, new NFT launches and how to try and spot the diamonds in amongst the rough, to see whether NFT investing is right for you.
Why Invest in to an NFT
Some people are calling NFTs a bubble or Emperors new clothing – but those people are not seeing the bigger picture of the capabilities of NFTs.
Most see NFTs as cartoon apes and punks selling for hundreds of thousands of pounds.
Will that bubble burst – possibly.
Holding a Bored Ape Yacht Club is a trend right now, but with celebrities now clambering over themselves to own one and show them off on their profiles, it’s now an uber exclusive club for the rich, famous and smart investors, so many not be going away any time soon.
For the rest of the collections, we will find 98% of NFTs will become worthless in less than two years.
Flipping NFTs for a quick profit is becoming harder and harder.
Those projects in very high demand, that would probably result in an immediate boosted price are often bought out by computer bots, seconds after launch, and generally quicker than a human can buy them by hand.
If you want to look in to NFT buying you should do so based on the project itself and the longer-term reasons to invest.
When an NFT project launches it raises immediate capital for the founders. This capital should be the pot used to deliver on the roadmap.
What is an NFT Roadmap
It’s all well and good selling 10,000 NFTs as part of a project, but what do the holders do when they have made their purchase.
In some cases, the project is ethical, and the proceeds goes towards helping a charity of some kind.
In other cases, the project is art based by a famous artist, and fans purchase the NFT to hold in their digital art collection just as they would a painting to hang on their wall.
As the NFT space is exploding, and its old enough for patterns in NFT sales to start being seen, there is a realization that the initial hype on launch fades quickly when 90% of the NFT purchasers realize they do not have a rare item and start to sell.
The NFT projects that will do well longer term are those that give their investors a reason to hold their NFTs and not immediately sell to start recouping some of the losses they have made.
This is a reason why you will see the floor price drop on an NFT release shortly after the rarity announcement.
NFT founders are seeing this pattern and trying to work out ways of keeping the majority of their investors for the long haul regardless of rarity.
The only way this can be achieved is to launch a project with a long-term goal, incentivize NFT holders with rewards, prizes and other assets and find new ways to increase demand for the project – as this natural flock in interest will naturally increase the price of each of the NFTs returning a project to original investors.
All of this is usually described in the NFT projects Roadmap, which outlines what they will do and how they will do it.
Some projects are building a digital game in the Metaverse where the NFT pieces become the game pieces and will increase in value once the game launches and players start playing.
Other projects are buying real estate in the Metaverse for future use of its NFT holders.
Another project (that I invested in to) has the vision of building schools in developing areas for under privileged children who would not have had the chance at education otherwise.
And then you have projects like Bored Ape Yacht Club who hired a luxury yacht and invited NFT holders to exclusive parties.
What ever the roadmap sets out to achieve, it needs to have strong entrepreneurial founders who can deliver on the promises of the roadmap once the sales of all the NFTs come flooding through and not to a disappearing act with the money – which has happened several times, and called a rug pull.
Reasons to Invest in an NFT
Here is an at-a-glance list of all the reasons I look for to invest in to an NFT. Unless I can see strong signs in each of the following, I will usually look elsewhere.
Each NFT investment starts from around 0.06 ETH-0.08 ETH plus gas fees ($250-$400), so you need to make sure your money is being spent wisely.
- Founders are clearly visible and have a following already
- Founders have the right experience, or tenacity, to continue to drive the NFT project forward and deliver on their promises
- The NFT project has a website, Twitter account and Discord channel – all with lots of buzz and interest (beware of large following numbers but few posts, comments and likes as this could be a sign the following numbers were paid for and there isn’t the interest the follower numbers appear to suggest)
- The pre-sale of the project sold out quickly
- The public sale of the project fully sold out quickly (this will not apply if you are looking to mint)
- There is a high number of holders vs NFTs in the project. You want to see a ratio of each NFT investor holding no more than 2 NFTs on average
This last point can be a little confusing, so let me explain.
If there are 10,000 NFTs in the project being held by just 2,000 investors, it may be a red flag. You really want to see as high a number of investors as possible compared to the number of NFTs.
For a project with 10,000 NFTs I would want to see 5,000 or more investors, so on average every investor holds two NFTs from the project or less.
This means the demand isn’t being over-inflated, and the higher the demand the better.
You have to ensure NFT investment is right for you and do as much due diligence as you can rather than being suckered in on hypes, promises and flashing fancy graphics.