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ABCs of NFTs (2 of 2)

In the first series, we talked about why both retail and institutional investors are rushing over to NFTs.

The next logical question is then, how do we find good NFTs to flip? Since we are no financial advisor, we cannot handpick specific NFTs or collections for our audience. Instead, here are some important indicators that can give a glimpse into the future outlook of an NFT.

  1. Trading Volume and Liquidity

This is a clear indicator of the demand of an NFT. If the trading volume/liquidity of an NFT has been consistently high for a length of time, it means the there are a lot of people wanting to buy the NFT. The likelihood of this particular NFT seeing a increase in price, as long as the NFT space maintains its current state, is higher than the ones with a low trading volume. So be sure to check how often and how much money is being poured into the NFT of your interest.

Trading Volume of the Bored Ape Yacht Club

2. Asset to Owner ratio

This would be the equivalent to the decentralization of a cryptocurrency. We all know the risk if a single wallet is holding most of a certain cryptocurrency. The price of it can tank anytime if the whale decides to dump all of its holdings.

The same goes for NFTs. We want to invest in a collection that has a healthy owner to asset ratio where the total minted NFTs are evenly distributed to holders. The more evenly distributed the NFT collection, the bigger and more active the community which translates to demand.

3. Community and Team

As mentioned in #2, a strong community of a NFT project can do wonders as seen by the Bored Ape Yacht club. Check the discord channel of a NFT project, see how big the community is and then see how organic and constructive the conversations are in the community. A community with 50K members all asking ‘when moon’ is not a good community. A good community should consist of real supporters of the project who genuinely care and make proposals for improvement for the project.

Secondly, but not less important, team members is an integral part of a NFT project’s success. The people behind the project should have a solid experience in the crypto space or a strong passion for the project they are building.

A good example of a team member driving the success of a NFT project is Sneaky Vampire Syndicate. A founding designer of the Bored Ape Yacht Club, one of the most successful NFT projects since CryptoPunks, has lead the project and saw an immense price increase of 23.5 times the initial minting price of 0.08 ETH.

Sneaky Vampire Syndicate

To actually make profit off of NFTs, you always have to keep your eyes peeled for new projects to get in early, monitor the market and perform research on NFT projects based on the indicators listed above. When you try to get in, the chances are you are already priced out. Not all of us have the capital and time for that.

There might be a solution for retail investors which we will discuss in our next post. So, stay tuned.

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