Investing in non-fungible tokens is one of the most intriguing elements about them. But it is also challenging, especially if you’re trying to find the next Bored Ape or Crypto Punk. Here is what you need to know when you want to invest in NFT Art.
From the outside looking in, it’s hard to fathom why someone would pay 400 Ether ($1.3M) for a photo of a digital rock. Not to mention Beeple’s “Everydays”, which anybody can view and download, raked in $69.3 million, making it the most expensive NFT in the short history of NTFs.
Even the most jaded art critics were floored when it was reported that someone had paid $11.8 million for a pixelated CryptoPunk wearing a Covid mask this past June.
The sky-high prices are undoubtedly one of the reasons why NFTs soared this year. People were, and are, looking to get rich with NFT art. Sure, there are purists who only want to acquire art and collectibles but there is no doubt that speculation is driving the NFT art market.
2021: The Year of the NFT
Athletes, entertainers, and business titans have all dabbled in NFTs. Brands, businesses, organizations, and even countries rushed to find the fastest way to establish an investment-grade NFT collection.
Choosing which NFT to buy can be difficult with NFT collections disappearing faster than you can consume them. If you’ve ever wondered how NFTs are valued, read on.
We’ve put together this simple guide to help you out.
We’ll explain the price factors for NFTs. What should you look out for when buying an NFT? How are NFTs evaluated? What makes one worth more than the other, or worth anything at all.
Yes, we’re talking to you, photo of a digital rock.
Get yourself a Crypto Wallet. Yo!
After creating your wallet, you’ll need to fund it with ETH to pay for your NFT investments. It’s up to you how much you store in your wallet, but keep at least 0.02 ETH to pay the cheapest NFTs and gas prices.
How much is gas? Those are the fees for modifying the blockchain by adding, deleting, or changing NFTs. The price of gas is determined by the network’s capacity. The more people use NFTs, the more you have to pay.
Today the most popular blockchain for NFT is also the number two crypto project overall, Ethereum.
Choosing an NFT investment platform
An NFT Marketplace is where NFTs are created and sold. These are platforms where NFTs can be kept, displayed, exchanged, and even minted. To use an NFT Marketplace, you must first create a crypto wallet compatible with the blockchain network your NFTs use. You need a MetaMask wallet to use most NFTs.
To identify NFTs to invest in, simply browse one of the various online marketplaces. While new ones appear practically daily, several have become key crypto art community anchors.
OpenSea and Rarible are popular hosting goods for beginners, pros, and artist collectives. Try Foundation, SuperRare, or Nifty Gateway. These sites are either more focused or have stricter artist acceptance criteria.
While each of these markets has its own distinct traits, there is no “best” place to find artwork.
For example, OpenSea offers a very user-friendly interface. Its sheer volume of content can be overwhelming to new users. You’ll have options, but perhaps too many.
Buying art strategically: Which NFT to buy
Once you’ve chosen a market, you must choose an NFT. When making such a choice, many factors must be considered:
The project’s team and the list price and bidding history; whether it fits into a trend, and how near it is to the trend’s “focal point.”
Remember that art will appreciate in value over time. This means you must evaluate it critically when making your choice.
NFT drops and Collectibles are many, but those with great art always stick out. In recent months, the NFT Community has been drawn to animal-themed items, such as cats and apes.
Could “Dangerous Ducks” be selling for $5M each? Who knows? It’s isn’t beyond the realm of possibilities, that much is certain.
Note: “Dangerous Ducks” is not a thing-yet. But your writer is definitely thinking about it.
The rarity of an NFT determines its value. Sotheby’s sold the Covid Alien CryptoPunk for $11.75 million. Just as you leared in Econ 101, scarcity drives price. There are only 10,000 CryptoPunks and no plans for making more.
So, when searching for NFTs, consider the uniqueness as well as the overall attractiveness. Traits, accessories, facial emotions, and even the smallest element such as the character’s orientation determine this.
NFTs’ value is driven by historical relevance and scarcity. Because they are the original NFT Collectibles, CryptoKitties and CryptoPunks have always had high floor pricing. Coin collectors rescued Mooncat Rescue, an Ethereum-based NFT Collectible founded in 2017.
MoonCat Rescue was created by Ponderware in 2017 and was found by the NFT Twitterverse in mid-March. The Collectibles were gone in hours. Mooncat is the second oldest NFT on Ethereum behind CryptoPunks, making it a potential goldmine for NFT collectors and enthusiasts.
Invest in artists
In many situations, NFTs contain or link to artist biographical information. However, you should be aware of creators who are merely interested in NFTs to make a quick buck.
Short bios and brief item descriptions are red flags. It implies that the work is mass-produced with little thought. You’re purchasing the artist’s reputation as much as an image, so avoid buying from folks who won’t be artists in a year.
Punks and Apes
Also consider the list price and bidding history. Created six months ago, and yet no bids, or a price reduction every six months may be a bad indicator. You may have found an undiscovered gem, but consider these aspects before buying.
Question whether the artwork is clearly cashing in on a trend (like CryptoPunks or Bored Apes) or adding to the conversation. If it’s just a rehash of an old trend, pass. An “also ran” item is unlikely to gain value.
What matters most is how you feel about your work. When everything rationality says “no,” you just can’t look away. Then trust your gut instinct.
After all, the first sale can make or break an unknown artist’s career.
NFT indexes for savvy traders
Because investing in a single artist’s work can be risky, there are various ways to invest in NFTs without becoming an amateur art expert. NFT Indexes allow you to buy a piece of a well-known NFT and watch it appreciate in value as the base artwork does. NFTX provides this for well-known NFT brands, whereas NFT20 permits fractional investments.
Investing in NFTs can be part of any investment strategy, especially now, in the early days of NFT adoption. NFTs represent a new facet of wealth accumulation, so whether you want to gamble or grow slowly, there are no shortage of options. At the end of the day it comes down to your ability to research and evaluate quality and gauge your own appetite for risk.
This article is provided for educational purposes only and is not intended as investment advice. As with any investment, do your research and talk with a trusted financial advisor before making any decisions.
Jay Speakman is a technology writer based in San Francisco, California. He writes on the topics of blockchain, cryptocurrency, DeFi and other disruptive technologies. Clients include Avalanche, Be[in]Crypto, Trust Machines and several blogs devoted to blockchain gaming. He will not rest until fiat currency is defeated.