The NFT space is very exciting, and it’s easy to get caught up in all the hype – especially when the news is flooded with stories of people making thousands to millions of dollars in flips. It may be tempting to just ape in on any project that tickles your fancy, but the reality is, many NFTs are simply not a good investment and most people aren’t going to be making these million-dollar flips.
As a beginner to NFTs, you need to understand how to properly assess their quality so you can make better, safer investments from the start. This guide will teach you how to do just that, and save you the pain of losing money to a bad investment because you didn’t know what to look for.
A strong community is usually a good indicator of how well an NFT will perform. Check Twitter and Discord to find out how many people are interested in a project. The number of followers alone won’t tell you much though, so check the levels of engagement too.
Large communities with high engagement mean that many people are interested in the project, and there are more people to spread the hype. Higher demand for the NFTs means higher prices on the secondary market, which makes for a good flip.
Any NFT project with high enough demand to do well on secondary markets, will have high demand during minting too. The NFT projects that have done the best usually sell out within a day of launch, if not hours. If you find a project that’s still minting, but hasn’t sold out after a couple days, it’s probably not going to be worth much on secondary markets. Exceptions to this rule do exist, however, in the form of rare NFTs.
As with any other collectibles, NFTs are more valuable when they are rare. Rare items from a collection tend to be worth much more in secondary markets even if the main collection doesn’t do well.
For example, the Wooshi World NFT collection had a mint price of 0.11 ETH, but sells for less on the secondary market. You would lose money on a common Wooshi, but a rare Wooshi like #5549 would still make you a decent profit. A common strategy is to mint several NFTs at once to increase chances of getting a rare, which would offset any money lost from the common NFTs.
More utility means more value. Many NFT projects allow holders to participate in exclusive events such as NFT claims, raffles, community giveaways, and more. Holders of the original Bored Ape NFTs, for example, were given free Mutant Ape NFTs in August that are now worth a minimum of 4.29 ETH!
Some decentralized game developers also release their in-game playable characters as collectible NFTs prior to game launch in order to generate interest and funding. These NFTs can be worth a lot if there is high interest in the project.
Generally, NFTs that come with additional perks or access to project events are worth considering as an investment. Still, there’s no guarantee a project will do well (or deliver on all their promises), so proceed with caution. Looking at their roadmap and community engagement will help you better assess the project.
A project’s roadmap is essentially a timeline of the goals they want to achieve, and this can help you assess your investment. The image above shows part of the roadmap for the Sipher project, which has an upcoming comic series and game launch where you can use your NFTs as playable characters – this means more value added to your investment over time.
If you’ve been following the project, you’ll see that they have been consistently hitting their targets and updating their website to show the progress being made on the development of their game and comic series. Many projects make many promises, but one that actually delivers on time is definitely a safer bet.
Where the NFT data is stored will tell you how likely it is to retain its value. Some NFT from projects like Art Blocks and Cryptopunks can be thought of as blue chip investments that are likely to retain their value or increase in value over a long period of time. Other NFTs, like most avatar collectible projects, are gambles – we don’t really know what value they will have years from now.
Blue chip NFTs have permanent on-chain data. NFTs that have their data stored on centralized servers or any non-permanent file storage cannot be blue chips because if the project shuts down or there’s a rugpull, your NFT is essentially lost. If you’re planning to flip an NFT, where the data is stored will give you an idea of how long you have to flip it.
Minimizing Your Risk
Doing the due diligence and researching a project before you buy is the best way to minimize your risk when investing in NFTs. Aside from assessing the points stated in this article, you should also get involved in a project’s discord channel to keep up to date with the project and benefit from community rewards.
Often, projects will reward community engagement with raffles and giveaways, and a free NFT means guaranteed profit on secondary markets. You could also be given access to early minting before public sales, which will save you a LOT of money in gas fees.
Finally, if you’re new to NFT collection, the best piece of advice I can give is to invest in a project with good art, that you’re actually interested in participating in, and that provides attractive perks to NFT holders. That way, even if your NFT doesn’t appreciate in value, you’ll still be getting your money’s worth.
This article is part of an educational series for NFT collectors called Collectors 101, where we teach you everything you need to know to get started collecting NFTs.
If you’re an NFT creator, check out our Creators 101 series for best practices on creating and selling NFTs.