So what do customers look for when assessing price and value as an investment from a strictly financial perspective? For investors paying large amounts, anything 1 ETH or more, while it looks like random gambling, they do use analysis. We interviewed a few active NFT traders and while they have different strategies there are a few things they all notice and evaluate.
Keep in mind that in 2023, traders are looking for substance and value that will tend to hold up, rather than quick flips. Still, for projects that have these values, these basic fundamentals apply:
- The website. It should be well-designed and presented. “If they have a tacky website it’s a deal killer.”
2. Size of the social community. Yes, they will research how many followers you have on Twitter and Discord, and 10,000+ was a number one investor looked for, especially an active Discord. “Twitter you can buy followers. On Discord, people are engaged. I’m looking for a lot of conversations, questions, and excitement about the project.”
3. Number of owners. “Any number in the thousands,” one investor told us, signified that there was a large enough community interested to be able to resell the NFT later.
4. Number of NFTs in the collection. Most are around 10,000, so if the collection is 39,000 that may be considered too high to sustain price increases especially if prices are flat or low.
5. Price chart with an upward trend. The theory here is that an upward trend will keep going up, although as we know in Crypto this is not always the case! You can find the price chart on Opensea by clicking on the collection.
6. Floor price versus top selling prices. One strategy is to look for an NFT that meets the above criteria – A great website, strong following, thousands of owners, 3+ sales in the past hour, heavy trading volume – and then buy something at the floor price or close to it, when there is a strong market and activity at higher prices. The idea here is that you will be able to sell it at the higher prices that are already being obtained, perhaps in a few days, for a gain in ETH that could be remarkable. in other words, they are calculating “How fast can the price rise.” This is a short-term strategy used only by NFT flippers, and is highly risky. We’ve included it for informative purposes and not as investment advice.
7. Rarity. Rarity was less important than pricing issues. The traders we talked to were more interested in buying cheaper options and waiting for them to go up (“it’s safer just to buy the cheapest on”) than betting on the “rarity” of a particular NFT. However, when they do want to research use tools, such as Icytools.com that identify “what’s rare.”
*The blue verified check. Especially with higher-priced NFTs, this seems to be important to be verified before spending thousands in ETH. It only makes sense.
Inside the mind of an NFT-trader: What they avoid
- Low prices. “Do not use the low to high tool” on OpenSea, an investor told us. “If they are too low, there may be too many in the collection.” “Too many” was defined as anything 3x of the typical 10,000.
2. No verification or very recent verification.
“Prices can jump up very quickly after a verification. If they have a recent verification, you’ll see a 15x jump. That verification only means that means it is not a scam. It can have no value.”
3. Most of the collection is at the floor price.
If there are a string of items at the floor price, and not many at higher valuations that shows weakness in the price movement.
4. Weak volume, inactive social (<10,000), tacky website, no recent sales, flat or declining price charts.
You are probably starting to get the picture.
Having said all this, we are really expecting to see some convergence in which more NFTs have off-chain functionality, team up with causes and celebrities, and even tokenize governance of off-chain events and opportunities.
It’s still an exciting new industry with a lot of creative potential! Questions on a project? Contact CryptoProcafe@gmail.com