When you invest in an NFT(non-fungible token), you’re investing for the long term. As opposed to Bitcoin, Ethereum, and other cryptocurrencies which are designed to be bought and sold quickly for profit, NFTs are meant to be bought and held as a way of collecting the new digital forms of art and media.
The best way to approach investing in NFTs is by finding an artist whose work you admire. Like collecting any piece of art, you might like some works more than others by the same artist. But your goal is to identify not just one specific piece that’s valuable today, but also the whole body of work that will gain value tomorrow—the equivalent of buying a Picasso rather than just one painting he did in his lifetime.
This article will teach you what you need to know about investing in an NFT.
Types of NFT to Invest In
Before you dive into NFTs, it’s important to know what type of NFT you are looking to invest in. There are two main categories:
- Asset-backed tokens (ABTs) are backed by real-world assets such as artwork, precious metals, and other unique items. They can be used for collateralization of loans.
- Crypto collectibles like CryptoKitties or Etheremon are non-fungible tokens (NFTs) created on the Ethereum blockchain using smart contracts and cannot be divided into smaller units. These can represent anything from artworks to video game characters and even real estate properties like homes or apartments.
Since they have no intrinsic value outside their in-game purpose, they have no physical form; however, their value often lies in the item’s scarcity (similarly to baseball cards). This means that each unit has its unique attributes, which makes them difficult to replicate exactly but still allows them all to work together within a single ecosystem.
Research and Research More
Now that you have a basic understanding of what an NFT is and how it works, the next step is to select the right project for you. There are a lot of factors to consider like what kind of use cases the NFT has, where it’s going to be used, who is behind it, and so on.
Lookup details about each token (you can do this by clicking “Details” on an asset page). It would also help to look at past performance charts when considering investments in high-risk assets. They’ll give you better insight into how volatile the market could be with its historical trends in the future.
You need to understand that while investing in an NFT, you’re investing in a real person. That is the person behind the project. This is similar to how you bet on a player’s ability to perform in the case of sports betting.
This means that there are a few things you should consider deeply while researching the person behind an NFT project. Some of which are:
- Their previous performance
- Past ability to execute
- Social status
- Brand awareness strength and strategy
If you see a project with a good track record, a reliable team that is fully invested in the project, and a positive social media brand, then you are on the path to investing in the right project.
Read the Whitepaper (WP) of Your Chosen NFT
A whitepaper is a document that explains the problems a project aims to solve, as well as how it plans to solve them. Most NFTs have a Whitepaper and they are usually not hard to find.
The whitepapers of many projects are written in technical language that may not be accessible to non-experts. However, if you take the time to read through them carefully and thoroughly, they can provide valuable insights into the potential future value of NFTs based on their business models and use cases.
Check Out Their Social Media Presence
Speaking of social media, Ninja Squad co-founder Bekir Cagri Celik and Marketing & Communications Manager Elif Hiz took the time to explain the most effective technique to measure the social media effects of NFT projects. The simplest way to do this, they say, is to compare the number of followers to activity stats like retweets, likes, and comments. Take into account the influence of giveaway postings and bots when doing so. Always remember, organic hype is better than celebrity influence.
But, this is not just limited to Twitter alone, according to Chris Gale of MetaEdge Ventures, to make better decisions on the right NFT, Discord, and Twitter should also be accessed together. Both communities provide a good engagement ground for any project, and the strength of their presence and activities on these platforms are key to the success of an NFT project.
Invest Only What You Can Afford To Lose
As with any investment, you should only invest what you can afford to lose. While popular opinion may tell us that this market will be around for some time and will continue to rise, it’s important not to get too comfortable in your position when investing in NFTs.
The crypto market has been incredibly volatile over the past few years, and this will likely continue moving forward. If your investment goes down 10% one day or even 25%, don’t panic! Instead, take some time to look at the bigger picture and see what if else can affect your decision. If everything remains the same from your initial research, it might be a good idea to sell off some of those tokens to not overstrain yourself financially by holding onto them for too long (or, even worse: buying more).
Keep An Eye Out For The Updates?
To pick the right NFTs to invest in, you need to watch the market. This means that you need to be aware of all developments in the NFT space and stay up-to-date with the latest updates.
Keep a watchful eye on technological advancements and regulatory changes, too: new technologies may make existing NFTs obsolete or less valuable; new regulations could impact how the trading of the assets happens.
Also, keep your eyes peeled for new types of NFTs (including those issued by ICO projects). As well as competing platforms that might offer better functionality or lower fees than those currently available in today’s market.
Finally, it’s important to find the right NFT for you and your long-term investing portfolio. Remember to follow these basic rules before deciding which NFT is best for you: Find what you love, do your research, and never invest more than you can afford to lose.