The core question you’ll need to answer with NFTS.

This is a follow on entry in my series to help people who are new to NFTs (non-fungible tokens). This post will centre around the idea of understanding the different approaches to think about the NFT market. There is so much to cover but we’ll cover it all across this and future posts!

When you are new to something, there are always so many questions! It doesn’t matter if it’s a new sport or game or industry, learning the rules through which you play is a key first step. In the world of NFTs this holds true too. Some of these ‘rules’ you’ll learn by listening, reading or watching and some you will need to just get in and try things. I think regardless of how you learn, part of the exploration of a new space needs to be about having curiosity. The other part is being open to try and okay to make mistakes. You’re never going to nail everything right off the bat and that in a way is freeing. You can be smart about how you approach it though and I hope to share some of my learnings in this post.

For me, one of the first question I had to answer was where do I start?

To help answer this, let’s explore a series of other questions. I was going to cover, what ‘good projects’ look like but that is honestly a secondary question once you’ve worked through these core questions. So, let’s start by asking ourselves the most important question:

What are your goals for NFTs?

Some of you might have read Simon Sinek’s ‘start with the why’ book. Even if you haven’t, the central theme is that everything we do should start with a WHY. From there you can build out to a WHAT and a HOW. Essentially it speaks about the purpose and reason being a huge motivator of our actions and how things sit with us.

If we look at NFTs, answering this key question of why will help inform what a good and bad might look like from your view. Spoilers. There isn’t a universal right answer but there are some key philosophies or lenses we can think about when answering this core question.

What lenses can we use to think about your goals?

The most common answer that people have when entering the space is: “to make money”. There’s nothing wrong with that and I actually respect the honesty!

It’s exciting and hard not to get caught up in all the stories of making massive gains through buying an NFT. Having it grow in value and be able to sell it for lots more $$$ lots of money a few weeks or months later. You might want a to be a part of that and who could blame you?

Another common answer is: “to support artists or to be involved with the amazing amount of creativity that is going on”. Another amazing answer because there is some amazing works being created!

Some have described NFTs as a modern artistic renaissance. There are so many opportunities for people to create. To share their work and reach new audiences that hasn’t really been possible before. I’ve heard a number of stories of people making life changing amounts of money and actually being able to make a living doing what they love. Being part of that is powerful.

The final aim might be: “to be involved in the forefront of innovation”. There is so much happening and the space moves so fast. The rush of being involved and invested in it is exciting!

Blockchain and the NFT technology, while they’ve been around for a number of years, they are certainly the new frontier of exploration for a lot of incredible innovators. There is a lot of amazing things happening at the moment and while it is great to make money (and obviously a lot of our society runs off currency), there is something to be said for being on the bleeding edge of creating a new industry or discovering new ways of working. Some of the brightest and best minds are moving from their other jobs into Web3.0.

Maybe you have another aim in mind? There’s likely other ways you can measure success in this space. Perhaps it’s with the opportunities Web3.0 can present your career? It might also be too early for you to say, you need to learn and explore more. That’s okay too!

My challenge for everyone here; to try understand, either by reflecting or doing, what is important to you when it comes to the world of NFTs?

What form might this take?

To layer on top of this, the other question I would ask is do you want to be a collector, a trader or even a creator within the NFT world? If you will, your role. None of these are mutually exclusive, you can certainly do some of each but key question here is what do you want your part to be?

When we purely think about the control over our measure of success or the ability to influence an outcome, you might want move to have more or less involvement. For example, if you’re a creator or founder of a project, you are obviously very much in the driving seat. If you’re a collector then you’re looking for others to drive and innovate (perhaps still with your involvement in their community) but you’re banking on the art. Having something in your collection could mean different things but a lot will fall to the project being relevant in the future from the execution and time the team puts in. Traders, are likely to look at things in a more ‘pure numbers’ based approach and will be interested a lot in the trends. Whether they like the NFT they’ve got in their collection might not be important, as long as the financials allow them to get returns.

I mentioned it at the top but I think it’s important to explore which of these roles suits you better. Maybe it’s a combination of all of them but being in the NFT space is similar to other walks of life. The amount of involvement and investment you have into project, people and the space as a whole is entirely up to you. This might change over time too.

What timeframes are you working with?

When thinking about your goals in the space is you should also consider what timeframe are you looking to get ‘returns’ on your investments?

As you might have worked out, all of these questions flow from each other. Let’s assume the goal is ‘to make money’ and the role you best identify with is ‘a trader’. What does this mean for you and your strategies?

Are you out to make a quick buck ‘flipping’?

• Buying and then quickly selling a token for a profit. Leveraging the concept of arbitrage (or the idea that you can see something is undervalued and if you buy it you’ll be able to immediately sell it for a profit). This strategies relies on the concept that small gains add up over time and projects having good trade volume. It’s fast paced and relies on some good intuition and honestly knowing when it’s time to cut your losses and get some liquidity back (ie sell the NFT and get Eth back).

Are you out for medium term gains?

• Thinking about realising (making real instead of on paper) gains in anything from a couple of weeks or months. You’re looking to find some projects early when they are under valued. Ride with the growth and the realisation from the market that they’re worth more. Hoping to see some strong growth you’re aiming to sell for a 5x or 10x profit. This strategy relies on being able to find project early or before they’ve exploded and then do homework to understand if they’re ‘going places’ or not. This might involve having multiple different positions and you want to always being thinking about your level of exposure (exposure being the amount of risk you’ve taken on or how much $ is invested). The consideration here is how readily you’d be able to convert that risk back to a ‘safe’ position (like Eth).

Or maybe you’re after a long term investment?

• Something that is going to deliver consistent value to you as a holder over the next 2,3 or 5 years and be a worthwhile investment over a longer horizon. The idea is that you’re patient with the value that it’s going to deliver and understand that there aren’t any guarantees of success as a lot can happen on the longer time horizons. This strategy might rely on a deeper level of research and commitment that the project being around in the future. It will also require being patient with how this process develops. As we talked about in my previous posts, projects go through cycles, some aggressive pumps and dumps but if a project can weather this storm they will be worth much more in time. If you’re lucky some projects might be your retirement plan.

So, yes… There is a fair amount to think about.

I’m going to walk through some scenarios of how these different strategies might play out soon, keep watch out for that, for now it’s just worth considering them. In my time in the NFT space so far I’ve done a little of each of them and have learnt a lot. Landing after my many months in the space on this last important question. It’s a simple question.

How much risk do you want to take on?

As Crypto and NFTs are so new, it’s very volatile. This means that there isn’t really a ‘sure thing’. Everyone needs to understand how much you’re willing to ‘bet’ to reach your goal.

Sure there are going to be strong signals that certain projects are going to succeed and do better than other but there will always be risk. Acknowledging this, there are a few approaches to minimising that risk and reducing your exposure:

1. Be careful only invest what you can afford to completely lose or go to $0. I will repeat this every time. It’s important because it relieves some other pressures that can lead to poor decision making.
2. If you’re playing it safe, only put in small amounts and bet on projects that have established themselves and you’ve got high confidence in. If you’re willing to risk things, then place bets accordingly but know that to get huge upsides you need to put in large positions (not always true but it’s all about percentages).
3. Diversify your risk, spread your eggs in a few baskets. That way if one fails you’re still going to be left with a few other horses in the race. [This is an important topic to expand upon in another post, there’s so much to cover here!]
4. The earlier you discover or get into a project, the bigger your upside could be (but also the riskier it might be for it to succeed long term). Big upsides but also big potential you might not end up having something that’s valuable. If you wait for a project to establish itself it might cost more but it can give you more confidence.
5. If you’re buying into a project consider buying 2 (or more) because that’ll allow you to take profits along the way up and cover your initial investment. Selling one early in the process to cover the future losses and then hold some to ride it out. It just gives you more options.

All of this isn’t meant to be financial advice but there is a lot more to consider when it comes to how you’re spending your money. There are tools and strategies to average the costs (and losses) but I won’t cover those now (look up dollar cost averaging and cost basis management if you’re interested). Additionally, I’ve skipped over some ideas of committing hard to positions if you’re confident in them to allow for bigger upsides and strategies to layer out of them. This is something I’ll cover in a ‘flipping’ guide soon.

For now, I hope this entry has been helpful for pondering the question of ‘what your goals are’. There are a few different layers to consider this

• What lens do you view success through? Is it making money, investing in art or being there for innovation?
• What does this mean your role might be? Are you going to be hands on, maybe even leading a project, a community member or just playing the market?
• Have you thought about the timeframes for success? Is this something you’re looking to have overnight success or are you patient backing the ‘right’ projects?
• Finally, have you thought about the level of risk you’re comfortable with? Are you willing to take big bets on projects or looking to play it safer?

Once you’ve worked through all of these and found your balance then you’re going to be in a great place for pushing forward with the next step in the NFT journey. What does a good project look like (for you?).

Alright, you’ve made it and I’d love to hear from you what your goals are and how I can best tailor future content to support you with that journey. The next post (which is ready to go, I split this one in two) is about how to look at NFT projects and understand if they’re any good. See you there!