In order to make money by trading non-fungible tokens (NFTs), you need some solid strategies. This is even more important given the huge risks of rug pulls and scams that are prevalent in the nascent NFT space.
In this article, we will explain some of the best NFT trading strategies that are very easy to follow and fit for almost all investors, even beginners.
But first, why NFTs can be a good investment?
Why NFTs Are a Good Investment?
NFTs offer a unique opportunity for investors. They’re a new asset class that is still in its early stages of development, which means there is a lot of potential for growth. NFTs also offer a number of benefits that other asset classes don’t, such as the ability to be easily traded and stored, and the ability to be used in a number of different ways.
1. The NFT Market is New
Even though the history of NFTs stretches back to 2012, the notion became popular late last year when pioneering sales such as the renowned Beeple Art, which cost roughly $69 million, were made. With NFT regarded as fresh to many cryptocurrency fans, odds are the industry will survive for decades and early investors will gain bountifully.
Getting in early in space will set you in an excellent location to reap the rich perks that will come in the future. The buzz over NFTs is only getting started and more individuals will be entering the field soonest as the usage of cryptocurrencies continues to expand.
The value of NFTs is projected to grow in the near term as more individuals, including investors and content producers, continue to become engaged in the field.
2. Huge Opportunity for Profit
Many internet gurus and crypto influencers have publicly claimed to have made huge profits by buying and selling NFTs. Of course, each NFT is unique, and reaping the rewards later means that you’ve invested in the right NFT project from the start. We’ve talked about NFT investing before and the importance of researching NFT projects that have the highest chance of exploding.
NFT investors who have the right NFT trading strategy will be able to make reasonable profits over the long and short term.
3. NFTs Promote Content Originality
Since NFTs give content creators the opportunity to tokenize their works without being scared of copyright, investing in the asset class would give other artists the confirmation that their works will be protected.
Although there are a few reports of artists complaining over the fact that their works have been tokenized without their consent, experts believe that this issue will be addressed in the near future, as new features are constantly rolled out to make the NFT marketplace more efficient.
Before promoting your favorite artist’s work via your investment, ensure that the NFT marketplace you are buying from has several content creators’ validation and high-security credentials.
4. NFTs Come with Use Cases
NFTs can be used in a number of different ways. They can be used to represent physical objects, such as art or collectibles. They can also be used to represent digital assets, such as music or video files. NFTs can even be used to represent non-fungible tokens, which are themselves a new asset class with a variety of uses.
Is NFT Trading Similar to Crypto Trading?
Investing in NFTs isn’t the same as investing in cryptocurrencies as, unlike the latter, NFTs cannot be bought and sold per the market movement as each individual NFT have different values.
For example, one can buy a Bitcoin and sell it the next day and repurchase it the day after, and that Bitcoin would be the same as the first purchase.
However, if you buy a CryptoPunk and sell it, you may never be able to buy it back, and any other CryptoPunk won’t be the same as the first one. Thus should you decide to invest your money into these Non-Fungible Tokens, you must be prepared.
Why You Should Have NFT Trading Strategy?
NFT trading is a new and exciting way to invest in NFTs. However, it’s important to remember that NFT trading is still a form of investing, which means there is risk involved. In order to minimize your risk and maximize your chances for success, it’s important to have a well-defined NFT trading strategy.
There are a number of different NFT trading strategies, but the most important thing is to find one that works for you. It’s also important to remember that your NFT trading strategy will likely evolve over time as you gain more experience and knowledge about the NFT market.
Having an NFT trading strategy would:
- Gives you a significant return on investment
- Guide how you approach deals.
- Help you stay concentrated regardless of market circumstances.
- Establish a roadmap to assist you to analyze your prior performance.
Top NFT Metrics
The new growth in NFTs has encouraged the establishment of various initiatives claiming to provide investors with fair value for their money. While this is helpful to an extent as it helps sustain the hubbub about NFTs, it has also created a dilemma of choice for traders.
Most traders may be questioning how to choose a worthwhile NFT project from the everlasting list to aid them to accumulate large profits from the market.
If you come within this group, then this section is for you. We’ve gathered four fundamental NFT criteria to assist your NFT investing decisions.
Estimated Market Cap
Analyzing the project’s market capitalization is a smart technique to identify the proper NFT project. NFT market cap does not move quickly like other cryptocurrencies (fungible tokens) owing to the way they are designed. A nice platform that delivers a succinct assessment of the NFT market cap is Rarity. tools, you may want to consider checking them out.
When a project has a large market cap, it means that there are multiple owners of the NFT who are prepared to pay a greater price to purchase the NFT collection from another.
Diamond Hands Balance
Another indicator to examine is the number of holders who have not sold their NFT collection. They are described as long-term believers in the project because they were determined to hold onto the token irrespective of what occurs.
The greater the diamond hands’ balance, the more probability that the enterprise has long-term promise. Nansen Analytics offers the ideal platform for this study.
Utility of the NFT
NFTs have real use as they can connect the digital and physical worlds. They bridge these two worlds and can be used as in-game assets, for example.
Ultimately, any digital asset must have utility. Without it, it has no purpose and will be in low demand. An asset with utility may become more valuable over time, depending on popularity and other factors.
Going by recent projects, gaming NFTs hold the greatest utility. It’s expected that their value will grow as new players join the gaming community. But the utility is something that the project developers might build down the line. That’s why it’s important to research the project’s future plans and even the roadmap if there is one.
Real-world utility is another factor worth considering. NFTs can be exchanged for real-world prizes, while others grant access to events. For instance, some musicians offer physical merchandise to their NFT holders.
Another space that seems to be growing is the integration between DeFi and NFTs. There are more ways to earn a passive income from NFTs, and some might be eligible as collateral for secured loans. In that case, NFTs become inaccessible if the borrower does not repay the loan and pay the agreed-upon amount of interest. The NFT is returned to the borrower once the debt has been repaid.
Let’s not forget that some platforms offer NFT staking. This is a feature that is rapidly gaining popularity on specialized platforms. Users can stake the native NFT for a project to earn in-game coins, which can be used to redeem premium content or crypto rewards.
Number of Unique Holders
This measure takes into account the number of addresses that possess an NFT. When the number of addresses owning the token is big, it signals a larger community, which would assist in promoting the product to other possible investors and also enhance the token’s worth.
Dune Analytics’ NFT Comparison dashboard could come in helpful in confirming the number of unique holders for an NFT.
This indicates the number of tokens exchanged for a certain project during a defined time. The bigger the volume, it signifies that the project is in high demand from investors.
You may examine different NFTs trade volumes on the prominent marketplace, OpenSea to discover whether the project is in significant demand. If you’re using a different platform, this data is normally accessible on the data page for the NFT.
Of course, all NFTs are unique items, NFT collections feature a set number of items that vary when it comes to attributes. Although there may be many items in a collection of different items, rarer items are more valuable than others. They are usually more expensive than any other item in the collection.
If an NFT collection becomes popular, then the rare NFTs will have a higher chance of selling fast and at a higher price. Most NFT investors use rarity.tool to determine the scarcity of a given NFT. All things being equal, and if you have no preference for aesthetics or value in NFTs, those with higher rarity scores will be more valuable than those that are lower.
This information allows NFT collectors to more easily value and compare the relative values of individual NFTs. Rarity is a rating system that gives each NFT a Rarity Score. The Rarity Scores for all NFT traits are added together to give an overall rating.
Top 10 NFT Trading Strategies
NFT collectibles are now considered profitable ventures because of their high value. It is important to create a trading strategy that will help you make huge profits before investing in them.
With all the fundamentals in mind, it’s time to think about NFT trading strategies. Regardless of whether you are looking for a short-term flip or a long-term NFT investment, you have to carefully plan your NFT purchases.
We’ve researched some of the most useful NFT trading strategies and put them in this guide to help you improve your trading skills, whether you are a novice investor or an experienced trader.
Trading any commodity or asset should always result in a profit. But when the trader does not use the correct trading strategies, it could reduce the potential profits.
An effective NFT trading strategy should help you assess past and new trades, keep you focused on the market, and ultimately guide you to make the best NFT investments.
1. Mint Early and Mint Two
There are two schools of thought on NFT trading: minting and buying on the secondary market.
The first strategy is minting at least two NFTs of a new collection. That way, you can sell one if it doubles and covers your investment. The second you keep it as a moonshot. You can, of course, buy more than two if you’re convinced by a project, but always look to cover your initial investment.
2. Use Google Trends to Find Trending Collections
No matter how new you may be in the NFT market, you can quickly determine if a particular NFT market is still hot by looking at the current Google trend. This will look more like marketing research. But that’s because that’s exactly what it is. And how else is more entitled to ask what are people interested in, if not the search engine that everyone uses to surf?
Google Trends is a fantastic free tool that offers great insights into the public’s opinion on a topic or keyword. Searches for the word are rated in a range from 0 to 100. A high rating indicates that people are interested in NFT collectibles. It also indirectly signals that it is a good time to buy.
You will have to be careful if the search volume for NFT-related keywords drops. This means that fewer people are interested in the market.
However, you need to be aware that trends can quickly gain or lose popularity, which applies to NFT projects as well. Traders are attracted to hyped projects, but they can quickly leave when trading volume falls.
For better results, try to observe and correlate market trends with the project’s trading volume. It is also important to monitor the number of traders, as a project that has a lot of traders is more likely to be healthy than one with only a few traders.
3. Buy Trending NFTs on Secondary Marketplaces
The other strategy is waiting for a collection to be released and scooping up good deals on a marketplace like OpenSea. For this strategy, you need a good grasp of NFT Twitter and understand which influencers back a project. Some NFT projects get hyped up fast, so if you follow the right people, you can still get “underpriced” collections early.
4. Find NFTs with Few Sellers
Making a profit from any NFT investment implies that you will successfully sell that NFT for a higher price than the price you pay to buy it. Obviously, it will be more difficult to sell an NFT that doesn’t have a large community supporting the project and is willing to buy it.
Your NFT trading strategies should always depend on how many sellers there are for that NFT collection. If you want to sell, you need to have a high enough trading volume to make a sale. With more sellers, the difficulty in maintaining competitive prices increases. That’s because there are more people who will lower their prices than you.
When you are looking at sellers for an NFT, look at how they act. If the prices listed are spaced from one another, it means that the sellers have enough patience to wait for the right buyer for them. They will probably not react if you offer a lower price.
However, if there are many prices that are close together, it is a sign that the sellers are impatient and want to undercut. Selling NFTs is about a battle for buyers’ money. You will be more successful selling NFTs with patient sellers.
The market trends and how sellers behave will significantly impact how they act. Note that this NFT trading strategy trend can change over time. This strategy is best used when you are comparing similar NFTs collections.
5. Value the Project, Not the NFT
In many cases, investors tend to jump for NFTs that are either suddenly trending or are insanely expensive and ignore the lesser expensive NFTs, thinking they may hold no potential value. That is where one may lose out on a good opportunity.
Projects that are backed by big names and have been developed by notable artists will hold a much higher value in the long term, and one should aim for them.
6. Buy Fractional NFTs
Of course, the best NFT trading strategy is to buy the most valuable NFTs. But not everyone can afford a Bored Ape or a Crypto Punk. However, some protocols allow you to buy a fraction of an NFT from a valuable collection. That way, you limit your downside by buying an established collection but can still benefit if the floor price rises.
7. Find Valuable NFTs
The NFT value strategy focuses on purchasing high-value NFTs. It is worth mentioning that this might not be the best trading strategy for you if you’re just starting out and your budget doesn’t allow it.
You’ll need to use online NFT tools, such as rarity.tool to find valuable NFTs. It is one of the most popular tools that compare different NFT projects by their rarity.
For instance, CryptoPunks is one of the NFT collections that sell for high prices because it is considered to be an NFT collection with unique features.
Rare NFT collectibles have a greater chance of increasing in value over time because their demand will always exceed the supply.
8. Reputation and Community
Since NFTs are a relatively newer breed of crypto, they also remain vulnerable to scams and rug pulls.
In the past, too, projects such as Frosties and Evolved Apes have managed to get away with rug-pulling investors up to $3 million in NFT value, even though they were some of the most trending projects.
This is why it’s necessary to ensure that any NFT project has a credible developer team that is transparent with the community.
9. Invest Big in Rare NFTs
If you’re ready to invest big bucks in the NFT market, then you should consider buying the ceiling as your NFT trading strategy.
The ceiling, or top, is a great option if you have the money to invest in NFTs, as these assets are rare and highly sought-after. This means that ceiling NFTs may go up in price if there is more demand for the project. These items are also popular in the marketplace, where people can sort by the highest to the lowest price. They may be promoted in different places as the best example of the project’s NFTs.
The downside to this particular NFT trading strategy is that there are fewer people who have enough money to purchase the NFT. This makes it difficult to find someone willing to sell at a fair price. Ceiling traders could suffer huge losses if the project loses popularity. For those with large bankrolls, this is a high-risk, high-reward play.
10. Buy Cryptocurrencies Related to NFT Projects
There are ways for an NFT enthusiast to still find exposure to these tokens without risking themselves directly. This can be done by investing in tokens of the NFT projects, marketplaces, or blockchains that they are associated with.
Examples of the same can be found in ApeCoin (APE), the token of the Bored Ape Yacht Collection, which was launched last year and currently has a market cap of $1.75 billion.