With so many NFT projects already in the market and so many new one popping up, how do you know which are worth investing in?
Some of these are going to be worth a lot more than they are right now. Many others are not going to make it.
According to Tokenized, total net sales volume from NFTs was nearly $25 billion in 2021 and about 28.6 million different wallets traded NFTs in 2021. The overall market grew by more than 26,000% versus 2020.
The idea of NFTs is said to have emerged between 2012 and 2013. The first NFT, according to an article by Adam McBride was launched on August 7th, 2015. It wasn’t until 2021 that NFTs really blew up and people started to realize their potential.
The popularity and value of NFTs is due to their scarcity, value, and versatile use-cases. Popularity and talking about NFTs is one thing, investing and finding value is something else altogether.
Organizations and celebrities are also hugely embracing NFTs, and ushering them into the mainstream.
But what does Snoop Dogg, Katy Perry Eminem or Jack Dorsey know that you don’t? Probably less than you might think when it comes to something as new as the NFT market.
Evaluating NFT Projects
Look at the following criteria and apply it any NFT project (that you’re thinking aping into).
- Trading Volume
- Activity Trend
- Estimated Market Cap
- Personal Taste
2021 saw many new NFT projects come to life. However several of the biggest NFT projects like CryptoPunks, CryptoKitties, Mooncats, and Curio.Cards have been around since way back in 2017.
When evaluating an NFT project, consider how long it has been in existence. While some projects have been around for years and are not performing as well as recently launched projects, a more established NFT project does give you some assurance that it’s not as likely to die off suddenly.
An NFT project is usually only as good as the people behind it.
If a project lacks a strong and committed team its success can be short-lived.
A strong team ensures a project will deliver on its promises. This is especially important when considering a project still in the early stages of its development. A strong team can also help the project win partners that can help its growth.
Any good NFT project should list its team proudly. Team members should be easily found on a project’s official website, and/or a quick search. It’s almost mandatory that they have social media pages (Facebook, Twitter, Discord or LinkedIn) with some level of engagement. This lets you see if they’ve worked on other similar projects, have been successful and whether they have the expertise needed to help a new project grow.
If a project doesn’t have this, it’s definitely a bit of a red flag.
CryptoPunks has John Watkinson and Matt Hall. John Watkinson is a computer scientist, software developer, and artist. He holds a Ph.D. in Electrical Engineering from Columbia University. Matt Hall is a technologist working with web, mobile, and blockchain.
Besides a strong team, an NFT project needs a solid and active community. A community helps you gauge how many potential users and buyers an NFT has in the open market. The larger the community the better for the NFT project, the more people talking about the NFT the higher the chances of more people investing in it.
Join the project’s discord and/or telegram groups, and read some of the discussions and announcements. This can help you determine how engaged and involved people are in the project and how much the leadership participates. How many people are in their discord or following on twitter? Is the project being discussed by a large number of people? Are people participating in (and enjoying) the game, excited for a new release or launch, or are they just watching from the stands?
Bored Ape Yacht Club, has close to a million followers on Twitter, about 700k followers on Instagram, and over a lot of members on their Discord. These members are one of the main reasons for BAYC’s continued success.
So check the community of any potential NFT collection or team by visiting them across different channels and checking their subscriber counts.
Trading volume reveals the amount of activity surrounding an NFT project. It helps analyze the frequency in which an NFT is bought and sold. It also reveals the popularity levels of the NFT.
OpenSea is one of the top NFT marketplaces that allows you to check the trading volume for different NFTs. As of writing The Sandbox is leading by trading volume (15,037.95 ETH) followed by Wolf Game (12,339.37 ETH), then Chain Runners (6,694.73 ETH). Bored Ape Yacht Club comes in fourth (6,308.65 ETH) and CryptoPunks fifth with a trading volume of 6,000.79 ETH which is equivalent to more than $25 million.
While trading volumes can give you a good idea of what projects are hot at the moment, please note that trading volumes can drop very quickly when the hype around a certain NFT dies down.
Like any tradable asset, NFTs go through market cycles. Depending on the rule of supply and demand, if more people are buying an NFT with limited supply its price will go up.
Depending on the type of investor you are, monitoring the activity trend of an NFT can help with your decision. If you plan on being a short-term NFT investor you might want to consider projects on their way up and try to get in as early. Ideally the pre-sale or shortly after launch where you can see what’s available on marketplaces like OpenSea.
For longer-term NFT HODLers, short-term price movements should not be as concerning. BUt then again how long is something like a Bored Ape or a CryptoPunk going to have a market of people willing to buy it for more than you did? It’s very hard to say.
gmoney.eth thinks of it like this:
One year ago today I purchased Punk 8219 and wrote this Twitter thread explaining why:https://t.co/VLyOXLHgOI 1/15
— gmoney.eth (@gmoneyNFT) January 6, 2022
What can you actually do with an NFT if you buy it?
What’s its utility? What potential does that utility hold? An NFT with strong utility typically has more value, which can boost its demand. Higher demand means higher prices obviously.
Different NFTs have different utilities.
Some NFTs are used to power up blockchain-based games. They can be used as in-game assets that can be exchanged, bought, sold or even rented in different NFT marketplaces. Popular blockchain-based games like Axie Infinity, MOBOX and Gods Unchained feature NFTs as in-game assets.
Some NFTs can be exchanged for real-world prizes or access to events. For example, the Lewis Capaldi NFT Collection on Binance allows users to receive special rewards with each Mystery Box Collection. The rewards include tickets to a studio session, a secret live show, and physical merchandise.
NFTs could even be used as collateral for loans, for staking, and other redeem-ability, where holders can exchange their NFT for either a physical or digital good.
Being unique or rare heavily influences the value of an NFT.
While it’s true that all NFTs are designed to be unique from each other, some NFTs are far more valuable than others due to properties or traits, which determine their rarity. The rarer the properties on an NFT item, the more valuable the NFT.
Here’s an example:
Bored Ape Yacht Club features 10,000 apes differentiated by their background, fur, hat, clothes, eyes, mouth, and earring. Some of the rarest properties include solid gold fur, bored dagger mouth, bored unshaven pizza mouth, and trippy captain’s hat.
In October 2021, Bored Ape Yacht Club 8817 was sold at auction for a record 3.4 million USD. The Ape featured the solid gold fur property, which is a property available in less than 1% of the 10,000 Bored Apes.
#AuctionUpdate #BAYC #8817 sells for a RECORD $3,408,000 USD! This is the first time it has been made available since it was minted. Less than 1% of all Bored Apes have the gold fur trait. From the collection of @j1mmyeth #NativelyDigital pic.twitter.com/HfFTpEOIUh
— Sotheby's Metaverse (@Sothebysverse) October 26, 2021
Rarity.tools is one platform that allows you to get an objective view of how rare an NFT is. The platform is a good place to be when looking to know the rarity of an NFT. It lists a good number of NFT projects including 0N1 Force, CryptoPunks, Meebits, and Mutant Ape Yacht Club.
Estimated Market Cap
An NFT estimated market cap is worth evaluating as it helps with understanding the NFT’s value. A higher NFT market cap means more people own the NFT and might be willing to spend more money to buy the NFTs from each other.
Market cap is calculated by multiplying an NFT’s 7-day average price by its total supply.
Rarity.tools is also a good tool to use for measuring the estimated market cap of NFTs. According to the platform, as of writing CryptoPunks has the highest estimated market cap, followed by Bored Ape Yacht Club, then Mutant Ape Yacht Club third, and Meebits come in fourth place.
NFTs rely on hype to grow. It’s like sunlight, air and water to them. The more people talking about and sharing about an NFT the higher the chance of attracting new investors and growing the community. If or when people stop talking about it…
Will people still be talking about CryptoPunks in five or ten years? If they are, maybe a few thousand ETH will seem like a bargain in hindsight. It’s impossible to say what the future holds.
You can try to judge whether an NFT project has the potential to grow by looking at its community size and rarity. Community size gives you a glimpse of how many people are talking about an NFT right now. Rarity helps with the concept of supply and demand.
Like the crypto space, in the NFT space, not many projects are bound to have a long shelf life. This is why it is important to consider the potential of an NFT.
NFTs with long-term community support are better than ones with short-term community support. The longer an NFT project exists, remains relevant, and retains user involvement, the better its chances of growing in value.
The popularity of NFTs has seen hundreds of NFT projects come up with more on the way. With so many NFT projects to choose from it all comes down to the one or ones that you like.
Different things can make you like an NFT project. It could be the creators, the artwork, or the relevance the NFT has to you specifically. It’s always nice to consider investing in an NFT that has a deeper connection to you than simply trading based on price.
What’s more, if you like an NFT project and think you can get in early or on pre-sale you’ll have to go with your gut to some degree because the metrics won’t have been established yet on a secondary marketplace. There’s no price history.
Buying NFTs in a pre-sale or early is far riskier than investing in a project that has already established something and amassed a loyal following.
Before jumping into investing in a newly hyped NFT do your homework on it.
Check the history of the NFT.
A project that has been in the market for some time gives you some assurance that it is not one to die off quickly as has been the case with many crypto-based projects. Some NFTs kick off with a bang while some take years before they experience a positive trend.
Review the team behind the NFT project.
A strong team can help with boosting an NFT value and ensuring it lives long. A strong team can also help bring in strategic partners to help with its growth.
Consider the project’s community. The more people talking about an NFT project the better it is for that project.
Other things that can increase the potential of an NFT include: trading volume, activity trend, utility, rarity, and estimated market cap.
As always, information in this post is not to be construed as investment or financial advice. These are a few tips and relevant information to help you evaluate and navigate a sea of NFT projects out there.
Do your homework and do your own research.