NFT Investment 101
How to invest in NFTs? What to buy? When to sell? These are all very common questions from newcomers to the space.
The NFT movement is new, so when it comes to buying NFTs for their value as a collectible, keep in mind they are a speculative investment. Value is uncertain and will fluctuate based on demand and market conditions.
That being said, our group has spent countless hours buying, selling, and hodling all types of projects, some good, some bad, and some just downright ugly. So without further ado, let’s jump in.
What makes a good project
Like any investment, unless you’re a day trader looking to flip NFTs 24/7 (literally, because the markets don’t ever close), it’s smart to bet on projects that have great long term potential to be successful.
Here are the 5 most important things to keep an eye on in the order of most important to least important (in our opinion):
- The Market
- The Team
- The Community
- The Roadmap
- The Art
Let’s take a deep dive into each category.
There are constant fluctuations in the market based on demand. One of the biggest factors that seem to directly impact the NFT market is the cryptocurrency market. When the crypto market goes up, the NFT market typically goes down, and vice versa. This makes sense, as people tend to follow trends. If ETH is rising in price, people generally want to hold their ETH or buy more ETH. If ETH is dropping in price, people generally want to liquidate their ETH into NFTs or other currencies (ie. different coins or fiat currency).
This is human nature. But as the great Warren Buffett famously said, “Be fearful when others are greedy, and greedy when others are fearful.” In other words, invest when everyone else is too afraid to, and don’t invest when everyone else is aping in. It’s a simple rule, but yet most of us don’t follow it.
In terms of NFTs, watch the market and try your best to enter it at the right time, regardless of how hype a project is, or how much FOMO you may have when all your friends are going in.
It boils down to the people behind the project. The people matter because at the end of the day, that’s what you’re investing into. You’re betting on people and their ability to deliver on all the promises in the roadmap (which is much less important in our opinion). The smartest and most successful people in the NFT space put their money on great people.
If a project has an anonymous team, that is a huge red flag. It’s not that anonymous teams can’t be successful, but it is much harder to trust a team when you can’t find what they’ve done in the past.
One of the simplest ways to evaluate a project is to go to the website and see if there is a team page to read about the individuals behind the project. Are there links next to their profiles that you can click (ie. Twitter, IG, LinkedIn, etc.) and peruse? What have they done in the past that would convince me they can deliver on their promise? Have they built a company or brand before? Have they led a project before? How long have they been in the crypto space? Have they launched NFTs before? And most importantly, do they seem like good human beings? These things all matter.
The next thing on our list is community, which is not the people behind the project, but the people supporting it. Join the discord server, and see how active the community is. Numbers of followers are easily faked, but authentic conversations and engagements are much more difficult (if not impossible) to fake.
Most projects pay for bots to inflate discord and twitter followers to kickstart a community, but the conversations are generally real. We’ve seen discord communities with 20K+ followers, but very few engagements. This is a red flag. We’ve also seen discord communities with far fewer followers, but the engagement level is very high. Numbers lie, conversations don’t.
What are the people talking about? Are they genuinely passionate about the project? Or are they talking about pumping it up or spreading FUD (fear, uncertainty, and doubt)? If the majority of people are primarily interested in flipping for a quick cash grab, it’s indicative of a project that will come crashing down very quickly.
However, if the community loves the project, respects each other, and talks a lot about the long term roadmap of the project, this is a great sign that the project will do well in the long term, but also a community we genuinely want to be a part of (and you should too).
Almost every project presents a roadmap on their website, one that includes all the promises that are triggered at different stages of the project. For example, after a project sells out, it’s typical for the team to market the future, such as cartoons, comic books, games, or even a DAO (decentralized autonomous organization).
Think of a roadmap as a rough plan that a project hopes to deliver on during and after the sale ends. We wouldn’t put too much emphasis on it, but take a look and see if there is anything different or interesting on the roadmap. Maybe something innovative that you’ve never heard of before? We love seeing teams who are honest and not overpromising the future.
Why we place the roadmap lower on our list of priorities is pretty straightforward. A roadmap is often a well executed marketing strategy to sell out a project. And this is not to say the intention isn’t there for projects and teams to deliver on these promises. The questions we have are: Can they deliver on these promises? Has the team behind the project built a game before? What about cartoons? What about building a brand? If they haven’t, we’d take the roadmap with a grain of salt and tread lightly. A good roadmap is a good roadmap, but it’s all in the execution.
Beauty is in the eye of the beholder. Good art is interpretive, and what resonates with us may or may not resonate with you. We do think that art is important in the sense that you should like it. But from an investment perspective, good art is the least important factor in determining the value of a project. Art is subjective, end of story.
If you follow these 5 steps, you’re well on your way to choosing great projects with great long term chances for success. And when in doubt, reach out to us and join our community. We’d love to share our insights with you online or at one of our in-person meetups.