(Article Updated 11/13/2021)
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If crypto investing is the wild west of finance, then NFT investing is the wild west of crypto. It’s harder to keep up with, easier to get scammed by, more complicated, and, potentially, more lucrative. Here are a few tips to help you survive and perhaps even thrive in the NFT age.
Quick primer on NFTs
NFTs function like any other cryptocurrency with one difference: each has its own unique serial number. Most cryptocurrencies are interchangeable (your Bitcoin = your friend’s Bitcoin) but NFT #472 will always be different than NFT #473, which means that each one can be assigned to a unique image, a unique song, a unique club membership, and so on (the sky is the limit!)
Most people equate buying an NFT to buying an image on the web. That’s a simplification; NFTs give you the right to sell that NFT, sure, but they can also confer other benefits: the right to exclusive content/drops, the right to join private groups, the right to intellectual property, the right to play that character in a video game, and so on.
You buy NFTs using MetaMask on platforms like OpenSea. If you’ve used Uniswap before, you’ll be comfortable with OpenSea.
How much to invest
In a previous article, we recommended that crypto should be roughly 5-10% of your portfolio. We’ll use that same 5-10% rule of thumb for how much of your crypto portfolio to put into NFTs, if you’re inclined to invest. If you own $25,000 worth of crypto, put $2.5K - $5K into an NFT. If you own $100,000 worth of crypto, put $5K - $10K into an NFT, and so on. Just note that blue-chip NFT investing is expensive, so if your crypto portfolio is $2,000, for example, your options are extremely limited with $200. You basically have to become a scalper or bet on future blue chips (more on that below).
The most boring approach to NFTs
If you have zero interest in NFTs but still want to profit from them, you can just buy and hold Ethereum. Most NFTs run on Ethereum and NFT traders burn a lot of it. If that’s too broad, you can also buy the token powering NFT-focused blockchain platforms like Flow and WAX. Most ETH holders will beat most active NFT traders in the long-run.
Scalping vs. long-term investing
In the NFT game, some people are scalpers and others are long-term investors. Scalping NFTs is like scalping tickets to a sporting event; you get in at a project’s launch, mint as many as you can (typically a few hundred $ each), and hope to resell later for a profit. Sometimes the NFTs you mint take off, but other times they don’t. Instead of minting, you could also scan auction listings on OpenSea for NFTs you think are undervalued and buy them up (“snipe them”) for resale.
Scalping can be lucrative, but it’s a game that takes enormous discipline and practice to win consistently with (luck doesn’t hurt either). One wrong move and you could lose a lot of money quickly. Worse, the NFT world is rigged to draw people into FOMO (fear of missing out) as well, so be prepared to face emotions you may not have grappled with before. If you struggle with the emotional side of trading, don’t become a scalper!
The other approach to NFTs is to buy and hold quality projects for the long-run. That’s the approach that will win most consistently and the one we recommend. There are two types of quality projects: blue-chips (though they're really expensive) and value picks (aka future blue-chips).
Blue-chip approach (ultra-expensive)
In the same way that the blue-chips in crypto are Bitcoin and Ethereum, there are blue-chips in NFTs. The only problem is they're incredibly expensive right now, so it's hard for us to recommend buying unless you're rich.
- CryptoPunks: The iconic, original collection of 10,000. Owning one of these is like owning a rare Rolex watch. They're iconic and extremely expensive. Anyone who has a CryptoPunk as their Twitter profile will command attention. Price: $300,000+ (I know...)
- Art Blocks: Art Blocks is a platform that features limited edition digital art from well-known artists. They have three different collections, with the most prestigious being their “Curated” collection. Pretty much any "Curated" Art Block is investment-grade, but you can't go wrong with their first one, the Chromie Squiggle. Price: $40,000.
- Bored Ape Yacht Club: This was the first project that took the CryptoPunk model a step further with a roadmap, membership community, and other perks. Still, very expensive. Price: an Ape is $150,000+, a Mutant Ape is $20,000+, an Ape Dog Companion is $10,000+.
- Cool Cats: This is the blue-chip cat collection with ultra-cute artwork reminiscent of Hello Kitty. The Internet loves cats and you can't go wrong with this. Price: $40,000.
- Gutter Cats: Gutter Cats has a much smaller supply than Cool Cats but an edgier art style. Still a great team and project. Price: $12,000+.
- Currency by Damien Hirst: World-famous artist Damien Hirst released a flagship NFT collection called Currency. This is the first big example of a traditional artist breaking into NFTs, so it should do well long-term. Price: $20,000+.
Value investing approach (future blue-chips)
If you don't want to invest $20,000+ into a blue-chip NFT, a good strategy is to invest in future blue-chips. Find great teams that are committed long-term and with projects that don't have immediate hype. That's how fortunes are made as the market catches up. After all, every blue chip started somewhere.
There are a lot of picks out there for other future blue-chips, but here's one project that I'm personally invested in in a big way (so I'm biased but with conviction).
Untamed Elephants checks all the boxes. It has historical value as the first major charity-driven NFT (goal is to save the elephants). It has cool art, amazing partnerships, a non-anonymous team, and best of all, it's a hidden gem. The cheapest elephant is less than $100 at writing, though it might not stay there for long. Currently you can buy hundreds of elephants for the price of only one of the blue-chip NFTs above and the supply is only 7,500 total. I've personally bought 50 elephants, including the 4th rarest one.
Update: I believe in this project so much I invested 15 ETH to take an ownership stake! Will still be buying more.
Other Hidden Gems
There are too many other options to list and you can follow me on Twitter to get my thoughts on them (@adamagb) but a few things to look for in hidden gems:
(1) Don't trust anonymous teams. They're anonymous for a reason.
(2) Avoid things that have gone up too fast recently as they usually retrace.
(3) Love the art because loving the art will carry you through the tough times. And...
(4) Avoid projects that talk too much about their price.
Every week there's five or six new projects that end up being scams. A lot of them have the red flags listed above. Remember that 1,000+ NFT collections launch every month and almost all will trade at less than their launch price only a month or two later.
Should you buy the cheapest NFT in a set or spend a little more for a premium one?
Because every NFT is unique, prices can range dramatically (the top CryptoPunk is worth millions of dollars, for example).
If you're beginning, just buy the cheapest one in the set. They're the easiest to sell and the easiest to profit from with rising values. If you're more advanced, you can hunt for deals. One great tool for deal hunting is Rarity Tools, which ranks NFT collections by Rarity.
A more advanced tactics is to find the rare traits using OpenSea's filter and buy the cheapest of that rare trait. For example, if NFTs wearing gold crowns are rare, buy the cheapest gold crown.
I’ll add that I’ve found the best deals for NFTs can come from the project’s Discord chat. People will privately sell their NFTs for a discount there to save on fees and existing members can even help you pick one. Just be very careful since scammers abound and use a middle-man platform like NFT Trader. When in doubt, drop us an email, we’ll be glad to help for free.
How not to get scammed
The last time I was scammed in crypto was a decade ago, but it took only a week for me to get scammed in the NFT world. Scammers create fake websites, fake NFT collections, and even approach you with viruses or fake sob stories. Three quick rules of thumb:
- Store your NFTs on a hardware wallet. I love the Trezor Model T for my crypto, but their NFT support is a bit more complicated, so you should stick to the Ledger for your NFTs. (And only buy the Ledger from their official website.)
- Be paranoid of anyone who approaches you directly on Discord or email. Odds are they’re trying to trick or manipulate you.
- Don’t buy a deal if it’s too good to be true. This is where I failed. I saw an amazing deal on an NFT, but it was a clever counterfeit that launched moments before I saw it.
If you want to start your NFT investing journey and are having trouble, email me, and I'll help you out as best I can!
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