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 (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 a few blue-chips, lock them away for five years, and hope they’ve taken off when you revisit them. That’s the approach that will win most consistently and the one we recommend.
In the same way that the blue-chips in crypto are Bitcoin and Ethereum, there are blue-chips in NFTs that should still be around in five or ten years. To help me survey these blue-chips, I asked Zeneca, a professional poker player-turned-NFT analyst and author of a great weekly newsletter, to give his recommendations. Here are a few!
CryptoPunks: The most popular NFT projects today are cartoon characters that people display next to their usernames on Twitter, in Email, and so on. These projects randomly generate 10,000 or so variations of their characters with some variations being more rare/valuable than others. For example, a cartoon dog with solid gold fur might be ultra-rare while the same dog with brown fur might be common. The first project to pioneer this model was CryptoPunks and so, as the first, it has special status. Buying a CryptoPunk isn’t cheap, at the time of writing the cheapest one is just under $40,000, but, as Zeneca told me, “It’s hard to imagine a situation down the line where they won’t still be a big deal.”
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. Zeneca is a big believer in the platform and considers every “Curated” project thus far to be investment-worthy. If you had to pick only one, he points to their first-ever project: the Squiggle, which at the time of writing is around $7,000 minimum. (Pro tip: it animates if you click on it.) If you could pick two more, he likes Fidenza and Ringers (though they’re more expensive, due to lower supply). At the time of writing, all Art Blocks projects have been soaring.
When I asked Zeneca for a third project, there was a long pause as he struggled to narrow down the field. I laughed: his pause was telling! So we’ll just list these contenders as potential, bonus options:
- Buy a Punks Comic for $2,000 - you get exposure to the CryptoPunks universe, but also get other economic benefits as well and it’s from a sterling team.
- Zed Run Genesis horse - an NFT project where you breed horses and race them in a virtual game. They’ve been around a long time and have spawned copycats.
- Any project from the makers of CryptoPunks. After the punks, the studio created Autoglyphs and Meebits, both of which are solid bets.
- Join the Bored Ape Yacht Club with an ape or (for a smaller outlay) a Kennel Club dog - this was the first project that took the CryptoPunk model a step further with a roadmap, membership community, and other perks ($15,000 for an ape, $3,000 for a dog).
- Play the Minting Game for the next Art Blocks curated project. You’ll have to spend a lot of money on gas and get in before it sells out, but it’s a blue chip investment potentially for less than $1,000.
- While not quite blue-chip territory, it's likely that one or more cat-related projects will survive, since the Internet loves cats, obviously. Three projects there are Guttercat Gang, Cool Cats, and Moon Cats.
Rather than loading up on a lot of projects, Zeneca suggests considering just buying two CryptoPunks or two Squiggles. That way, if the price of Squiggles skyrockets, you can sell one and keep the other.
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). Zeneca recommends buying the cheapest one if your investment horizon is shorter, since they’re easier to sell in case you need the money, or if you simply can’t afford the rarer version. But if you have the funds available and a longer investment horizon, he offers a good rule of thumb: “There's a sweet spot of value at 20% above floor price; you can find some great deals there. Plus, it forces you to research the NFT inside and out before buying.”
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.
When in doubt, email us, we’ll take a quick look and try to help, no charge.
A final note: if you want to go deep in this world, Zeneca offers a word of warning: “You're going to lose money making some mistakes as you learn to navigate the NFT space, likely hundreds of dollar, perhaps over a thousand - consider this your tuition payment.”
I can attest to that!
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