How to Assess the Value of an NFT Before You Ape-in
We’ve recently given you the lay of the land, if you will, about NFTs. You now know the potential gains waiting for you on the other side of the door. You also understand some of the risks involved, especially if you don’t research well.
So enough of all the theory at the moment and let’s talk about acquiring your first NFT.
If you already have one, then great! Now do your friends and family a solid and share this article with them. You’ll save yourself hours of explaining. Plus they’ll appreciate it.
Disclaimer: This article is not financial or legal advice. It’s our opinion about the NFT space. We’re just a group of parents obsessed about this technology and are building something awesome.
OK, let’s get into it.
Before You Even Think About Buying an NFT
Question for you: Why are you interested in NFTs? Some do it for the status to express their wealth, how cool they think they are, or something along the lines of those. Nothing wrong with any of that.
Others like the blend of art and technology of which we must say is incredible. Plus it directly supports creators and forms a bond between them and their fans.
There are those interested in NFTs for the powerful network and community. Some are fascinated by the types of utility (DeFi tools for example) or premium features that are unlocked by have a particular NFT.
The above are some possible reasons why you may be interested. You could just be curious too. The reason you should understand why you’re interested is so you can manage your expectations and make decisions that fit your appetite and situation.
We don’t want you feeling the big FOMO ape breathing down your neck only for you to end up buying something you may regret.
Let’s talk about how to approach this economically.
Play Money
Like your other extracurricular activities and interests, the money spent exploring the NFT space should have no impact on your day-to-day life. Yes, you hear jokes about “ape-ing” into a project, but there are levels to this.
You have no business betting the house or risking anything you deem important on jpegs. Go make more money first.
You know what? This should make it easier. Imagine you purchased an NFT or anything crypto related and for whatever reason, the entire project just fails. The entire community dries up along with any hopes of making a return on your “investment”.
Does it make your stomach turn? If your answer is no, then good! Read on.
The Approach to Thinking About Investing In a Project
You can play this one of two ways: as a Speculator or For Your Entertainment (FYE). One could argue they’re one in the same. We digress.
Speculator. You’re a bonafide day-trader watching trend charts and keeping an ear to the ground for what’s hot. Risky business. If a project fails, the liquidity dries up faster than a mouthful of cinnamon and you’ve got a worthless token.
For Your Entertainment. This will be your bread butter. Here you’re looking for projects that essentially speak to you. Ones that you actually like. They have strong marketing, a great community of people with diamond hands, and offer real value to their token holders.
Nothing’s wrong with being a speculator. You just need to understand and respect the game you’re playing as it’s not for the weak of heart. Taking the FYE approach tends to be a lot more fun. You’re generally a bit more cool when the bulls are running.
Where to Find Upcoming NFT Releases
While I can’t endorse any specific website. You should simply do a Google search for: “NFT drop sites”. There you’ll find a bunch of sites announcing NFT launches in the coming weeks.
A lot of communities share their launch dates with the sites, so you won’t find too much discrepancy. Some drop sites are clearly better than others because of the information they provide, disclaimers, and more.
How to Assess an NFT
Moving forward, I’ll explain how to actually evaluate an NFT project with the assumption that it’s not a rug pull (we’ve got a thorough article about how to spot those).
I’ll be upfront with you, it’s difficult to know for sure if a project will be successful, but there’s a framework that should make it easier for you. That framework is made up of 3 categories:
- Cultural Relevance
- Core Values
- Utility
Cultural Relevance — everyone talks about how “Do you like the art?” Lazy thinking. Of course you do! It’s the first thing you see and draws your attention. A bit of a no-brainer with that one.
Cultural relevance, on the other hand, is something that not everyone understands and is your chance to get a leg up.
Does the project have a clear differentiator?
Projects that have this, have not only created a lane of their own of which their community members are drawn to it for that specific reason. But also, they increase the likelihood they’re around for at least five years, if not more.
Here’s an example:
CryptoPunks will probably stand the test of time, relatively at least, more than most projects because it’s one of the first. That’s its differentiator. It’s an OG. And OG’s are respected around the world.
Now, compare that to any project that’s a clear rip off of Bored Ape Yacht Club. Projects that do rip-offs like this are FOMO plays more than anything. Maybe good for speculation though. Maybe.
A project with relevance tends to have strong marketing that keeps it…relevant. Over time the community members become the loudest voice over all.
Core Values — This doesn’t mean the fluffy stuff like “do they care about the world” and whatnot. Such things have no real substance. There needs to be something about the project that makes you feel connected. Your preference and values play a vital role here.
When observing a project’s core values, ask yourself:
- Are they specific?
- What do the founders actually care about?
- What actions have they taken so far that have demonstrated such care?
- Finally, do those actions and statements align? And do they align with your values?
You might like a project simply because it looks exhilarating or offers a seamless decentralized service. Great reason.
With the introduction of charity and non-profit projects, many people feel drawn to such because of their social impact.
You might come across projects that focus on preserving the environment. You might start to feel connected with the project that visions the same world as you do.
The best thing about projects you feel aligned with is that even if they go down in market value (through no fault of their own), so to speak, their value for you will remain the same. Especially if they’re backed by a real-world organization
Utility — This word is starting to get thrown around quite a bit, but for good reason. We’re leaving the novelty phase of NFTs in which FOMO was at all time highs trading one-off art pieces.
We’re entering the phase of communities offering real value.
Think about it.
You’re shelling off some big bills, so what do you get in return? The utility of a project tends to go hand-in-hand with their core values.
Utility enables you to translate the digital use of a token into the real world apart from being just unique in appearance. You can use these tokens in games, as membership cards, sell them for a profit (yes, status can be a utility), and much more.
For example, let’s say a particular project is for busy parents who want to participate in crypto (*cough* Wall St Fam *cough*).
So, that project will probably focus on producing exclusive educational resources to reduce the learning curve for its members. And in parallel, they’d build tools that make it incredibly easy to identify big winning projects.
Without real-world applications, NFT tokens aren’t really useful outside of being status symbols. And for some, maybe that’s all they want.
Every NFT community is not going to have the same utility. Whatever it does have, though, it should be valuable to you.
In Conclusion
If you haven’t noticed yet, NFTs are amazing for creating and growing powerful communities.
Being a speculator is okay, but it’s more short-term thinking. You will get the most value out of the technology by joining communities that matter to you.
Bonds that you can’t form anywhere else in this lifetime.
So ignore the FOMO, take your time, make mistakes, and enjoy the ride.
Until next time.
