INVESTING in NFTs can be a daunting process and from an outsider’s perspective, it can be baffling why someone would pay over $1million for a photo of an ape.
NFTs exploded in popularity during the coronavirus pandemic.
Artists, collectors, and investors have all flocked to the space as cryptocurrencies and other digital assets have skyrocketed in price.
The jury is still out on whether this is an unsustainable bubble ready to pop, or if this is the start of a new long-term investment.
But NFTs themselves hold promise for artists and can also be used in the business world.
Not sure what NFTs are and how to get started investing in them? Here’s what you need to know.
What is an NFT?
NFTs are non-fungible tokens.
These tokens are digital representations of real-life things for example art, videos, music, and in-game purchases.
Each token is unique, which is what makes it non-fungible.
NFTs use blockchain technology which encodes the identity of the owner.
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How to invest in NFTs
Step 1: Research NFTs
Sites such as Rarity.tools or NFTcatcher.io have an upcoming list of Ethereum and Solana NFTs that will be released in the future.
Gary Vee once tweeted that: “99% of NFTs won’t be good investments”.
And even though the figure quoted is arbitrary, it’s true that many if not most NFT projects will flop shortly after launching.
So before buying one you want to confirm:
The team behind it needs to be reputable as this will help drive the value of the NFT up and make sure you don’t get scammed.
You will also want to join the NFT’s Discord and Telegram chats to learn more about the project. This will also allow you to get a feel for what others are saying about the collection.
Step 2: Create a cryptocurrency wallet and purchase crypto
You’ll need to open and fund a cryptocurrency wallet.
A crypto wallet, like a digital wallet on an e-commerce platform, stores cryptocurrencies needed to purchase an NFT.
Most NFTs are on the Ethereum blockchain, so you would need a MetaMask wallet.
But you can buy Solana NFTs using Sollet.
You can buy Ethereum and other cryptocurrencies at an exchange such as Coinbase, Binance, Robinhood, Kraken and more.
Keep in mind you need to consider fees when buying cryptocurrency. Coinbase for example charges $0.99 for a trade of $10 or less.
This fee goes up the bigger the trade is.
Step 3: Select a marketplace to buy your NFT on
The marketplace is where NFTs are bought or sold.
When you find the marketplace where your NFT will be sold, you register and connect your crypto wallet.
Each marketplace has its own crypto wallet requirements.
An NFT marketplace will either sell the item for a flat rate or hold an auction for the token.
Popular marketplaces include: OpenSea, Rarible and Axie Marketplace.
You need to ensure you have enough cryptocurrency to carry out the transaction including any relevant fees.
Fees can include the costs of purchasing crypto, transferring crypto, converting one crypto into another, and gas fees.
Gas fees are the fees paid to miners in exchange for the computing power they use when recording transactions on the blockchain.
When should you invest in NFTs?
According to Andreessen Horowitz (a16z) – a venture capital firm in Silicon Valley – a NFT’s mint price is vital.
There are many factors which impact a project’s success, however, investing in NFTs with mint prices in the range of 0.05 – 0.10 ETH gives you more of a chance of returning 10x gains.
The result is based on the performance of the top 150 NFT collections in a16z’s portfolio.
Higher mint prices (more than 0.10 ETH) reduces the potential returns for early investors.
Andreessen Horowitz also said only two collections have succeeded with higher mint prices – Azuki Zen and Invisible Friends.
Investors who got in early have made 20x returns.
High-performing collections also usually allow 5 – 10 mints per address such as Meebits, Doodles, and Cool Cats.
NFT projects with fewer mints per address generally see lower returns, breaking the myth NFT projects with a low mint amount per address have higher returns.
Social presence, community engagement, roadmap, and the project team’s level of transparency are also essential factors to look into before purchasing an NFT.
