I bought my first NFT on January 25th of this year; it was a WOW collaborative and it cost me 0.01 ETH. Fast forward to today, and I now own about 25 (constantly changing!) NFT’s from 9 different collections on 3 different blockchains. I’ve made a little over $6k from short sales in the past few days and would earn close to $50k in profit from NFT’s if I sold my portfolio today. My how much can change in a month! If you want to buy a NFT or just learn more about the process, this is what you need to get started.
NFT Collection Basics
Most NFT’s are part of a collection by one artist. One of the more popular NFT trends right now is for the artist to release a collection of 10,000 (or thereabouts) generative NFT’s. Instead of the artist illustrating each individual NFT in the collection (which would take a lot of time!), the artist instead creates traits which are then combined upon the minting process to create a unique NFT. The artist determines how frequent each trait manifests. Obviously, rare traits become more desirable and will most likely garner a higher price. Several examples of these types of collections abound. WOW and Cyberbrokers are good examples.
Sometimes these collections are known as pfp (profile picture) collections because many people will use them as their profile picture on twitter or discord. If you look through these collections, you’ll see that traits are repeated i.e. the outfit, the background, the hair type, etc. If you go to the bottom left of the NFT on OpenSea, you can see the properties and how rare each one is. When you click on a certain property, you can see each NFT in that collection with that same property. This will come in handy when you’re looking to purchase a NFT, as you will most likely want certain properties or properties that occur less frequently. The most expensive NFT's in a given collection are typically the ones with the rarest traits.
There are however artists doing smaller collections where each NFT is drawn by the artist. One example is Lost Girls of the Metaverse. In this collection, there are 20 of the same print. This is called a 1/20. NFT's that are completely unique are called 1/1’s, meaning they don't share traits with any other NFT's in the collection, like Yasmin Shima's Ride or Die collection. Sometimes 1/1's will be dropped in a collection of 10,000 to add some thrill to the minting stage.
Speaking of minting . . . when a collection of NFT’s is produced or “dropped,” the original creation and purchase of the NFT is called “minting.” In order to mint an NFT, you’ll connect your crypto wallet to the minting website, press the Mint button and Wallah! You will have created/bought an NFT from this collection. This happens until the collection sells out or is "minted out."
If you’re interested in a certain collection, buying the NFT during the minting stage is the ideal time, as you’ll likely pay the lowest price the NFT will ever be. Typically the mint price is quite low i.e. <0.1 Eth to encourage the collection to sell out quickly. The quicker the sellout, the bigger the excitement/hype surrounding the collection and therefore typically the higher the NFT price will go (and the better the investment.) However don’t base everything on hype. Hype and price are sometimes tenuously correlated.
Questions to Answer Before Buying
First off, figure out why you want to buy a NFT. Is it for fun, is it to make money, to join a community, to support a cause? All are fine reasons but will impact how you approach the buying (and possibly selling) of your NFT(s). Once you’ve found a NFT collection you want to buy into, ask yourself the following questions:
A: Is my main reason for buying because of the art?
The collections will show you sneak peaks or samples of what the NFT’s will look like before the minting process as well as numerous examples of the artist's work.)
- If No, proceed to B.
- If Yes, great! See next questions.
A.1: Has the collection minted already?
- If yes, you’ll need to buy on secondary sale i.e. OpenSea or Rarible
- If no, try to get on the pre-sale list. If that doesn't work, you should still have an opportunity to mint during the public sale. The easiest way to find the timing of everything is to find the collection's official Twitter where they will have links to their website and Discord. When you join a project’s Discord, read their Announcements and FAQ’s. (Please don’t be that guy who joins the Discord and immediately asks “How do I get pre-sale?” It’s annoying for all those who are supporting the artist for other reasons than making a profit.)
- Pre-sale, white list, allowlist, whatever the project calls it, there will almost always be a sale before the public sale/minting. Some also have a sale for just the discord community called a community sale. For highly sought after collections like Cyberbrokers, there was no public sale. Regardless, if you're interested in a collection, try to mint during the pre-sale. If that's not an option, then mint during the public sale. Again, the purchase price of a NFT is almost always lowest during the minting stage, so that's when you want to buy.
Buying when you like the art
- During mint: My rule of thumb is usually to mint as many as is reasonable for your budget. Upon reveal, keep the one(s) you like and sell the ones you don’t. Remember that the NFT is generated during the minting process; you won’t know exactly what it will look like until after you've bought it. And even then some collections have delayed reveal, typically 24-48 hrs after the NFT collection is sold out.
- During post-mint/secondary sale: Buy the one(s) you like the most that fits your budget. Check out the activity on OpenSea to make sure you're not buying at a high price.
If you actually want a physical copy of your NFT, make sure that a high resolution photo is provided with the purchase of the NFT. For example, World of Women gives you ownership of the underlying artwork and IP as well as exclusive access to your WOW in a 4k x 4k file. This means you can print it out, put it on a coffee mug, make a t-shirt with it, etc. I’ve seen all kinds of things!
B: If not for the art, what's the main reason for buying?
B.1 Short-term investment
Here are some great tips for short-term investing, also known as flipping or paperhanding. (People who sell quickly after minting to make a quick profit are called paperhands. People who hold their NFT are called diamond hands.) The best advice in this thread is to only buy a NFT if you are 75% sure you can turn a profit the same day i.e. Is the floor price (lowest price that an NFT in a collection is listed at) going up? Timing is huge here. I suggest you spend some time watching how the price fluctuates during the different stages of a collection's sale. Whether a NFT is revealed instantly upon mint and also how quickly a collection sells out will also play a factor on immediate secondary sale prices.
B.2 Long-term investment
Buy low and sell high. So easy, right? It's up to you to determine when the lowest and highest price will occur. Obviously this requires some skill and a bit of luck, just like timing the stock market.
For either investment strategy, you will usually have the lowest price during mint. Typically the price of the NFT will increase from there. I have seen some recent exceptions, however. For example, I grabbed a Not Your Bro NFT just yesterday morning on secondary sale for 0.5 Eth. It minted at 0.8 Eth. Why would someone sell at a loss? They may not have liked what they got once the NFT was revealed to them, and they wanted some ETH back quickly to buy something else. Same with Honey Badges. The mint price is 1.75 Solana (hasn't minted out yet as of 03/11/22), however some are selling theirs on a secondary sale site for 1.3 Sol. This is most likely because buyers didn't like what they got and just want to sell quickly in order to mint another one.
Additional Investment Tips
If the NFT is on another chain other than Ethereum e.g. Solana it might be very hard to sell the NFT after minting. Some projects are dropping on Solana because the gas fees are low, however the market for non-Ethereum projects is significantly less than those for Ethereum. Beware of this if you are looking into Solana NFT’s as purely an investment.
Beware of any mint prices higher than 0.1 ETH, especially if you have a low risk tolerance. If they are higher, this will most likely discourage a wide audience from buying and put you more at risk of selling at a loss. One notable exception to this was Cyberbrokers, which dropped a collection last Friday (03/04/22.) The mint price was 0.35 Eth, which is much higher than normal and did seem to discourage some (or at least in seemed like it in the Discord.) However, in less than 5 days, the floor price of said collection shot up to over 4 Eth. Yes, you read that right. So if you had minted 1 NFT from this collection, held it for 5 days and then sold it, you could've turned your $1,000 into $10,000 (depending on when you bought your Ethereum.) If you're wondering how people make big money from buying and selling NFT's, it's from collections like this.
Like any investing, don’t put all your eggs in one basket i.e. don’t focus on one collection. This is why index stocks are always a safer bet than individual stocks. It’s best to spread your money around on several projects, unless you have really good intel about one particular project. Also like index funds, the majority of your profit will come from one or two collections and the others will probably stagnate. Full disclosure, all of my current profit has come from short sales of the Cyberbrokers collection. I bought for the investment opportunity and fell in love with the art, so I'm now a proud parent of a few of these and am holding for long term investment.
B.3: To be apart of the community, reap holder benefits, for utility or to support a good cause:
Cool! Mint one and done or buy one at floor (lowest) price on secondary.
Right now, I have a VERY hard time buying something when I don’t care for the art. If you just want to be apart of the community, joining their Discord and following them on Twitter might be enough. Don’t let FOMO be the reason you lose money!
That being said, one of the most successful NFT collections right now is VeeFriends. Let’s be real, people are not buying this for the art . . . but to be apart of the community and to reap holder benefits. I don’t know what Gary Vee is providing to his holders (I admit that I haven’t researched this), but I do know that he has made himself a very rich man! Currently the cheapest NFT in this collection is $40k. Gary’s collection just goes to show how valuable building a community can be. I also think we will see much more NFT’s like this in the future.
If you just want to support a project, liking and retweeting them as well as telling others about the project is support. There are some projects who are doing great things in terms of giving to charity and supporting other causes but their NFT art just doesn’t appeal to me, at least the ones I can afford. So I haven’t bought one!
On picking a proven project
As previously stated, buying due to hype is not a good rule of thumb. The great Pixelmon debacle is a great example of this. This is also another example where the mint price was much higher than the price it is now on secondary sale. Cue in the term "rug pull" where the project team hypes up the collection to garner a higher price, over-promises and then under-delivers.
Remember, if you are buying a NFT for other reasons than just the art itself, you are setting yourself up for potential disappointment. The project team may not deliver what they say they will, and there currently isn't any recourse for buyers of the NFT. I've heard many people discuss their buying strategy, but it usually comes down to this:
On finding NFT collections
Twitter and Discord are your friends. For some Discords there’s even a dedicated channel for talking about other projects that people are interested in. Besides, what better to learn about other projects than from people who are already involved in a project you really like? Pay attention to the word “alpha” as this typically means someone is going to discuss exciting news about a particular upcoming or current project.
DYOR (Do Your Own Research)
Join a project’s Discord, look on their website, research the team, listen to them on a Twitter space, look at their sneak peaks, etc. Don’t rush into a project without doing the proper research; I've done this and I ended up losing money because I went off of hype/tweets instead of doing my research.
- There is a lot of money to be made in the NFT market and therefore a lot of scams and bots.Do not click on any links that are DM’d to you on Discord. When you join a Discord, immediately turn off your DM’s. Every NFT Discord it seems has a bot that will immediately DM you once you’ve joined to tell you that you can mint right away at a phony website. Don’t do it!
- Only mint or buy from official links that are posted in the official Discord account. I have seen very sophisticated fake minting websites as well as fake accounts on OpenSea. There are alot of people spending a lot of time trying to dupe people out of their money. And unfortunately there’s no recourse once the money is gone, the unfortunate downside to crypto.
- Buying NFT's for reasons other than the art itself is a risky endeavor. If you have a low risk tolerance or can't stand to lose the money you are using to buy NFT's, it's probably not a good idea to do it in the first place.
- Some alpha: I do think that we've seen the peak of pfp projects; I'm not the first or only person to say this. We've seen an influx of these projects, and there's not enough real demand. The strong will survive and hold their value, but I'm pretty suspicious of any new pfp projects. I also think that NFT projects are going away from the art itself and providing value to their holders in other ways. Two projects that are on my radar are Gary Vee and 10ktf. I'm not saying I'm going to buy any NFT's from these projects, but I do plan to research them to see what they're doing differently and how they have such a captivating audience.
All in all, I hope everyone has an enjoyable NFT buying experience. And if I’ve encouraged you to buy your first NFT, I’d love to hear from you! Please reach out to me on Twitter and tell me what you bought!