This article will cover some of the best and most important strategies to make money with NFTs. Some tips in this article will also apply to other fields, including cryptocurrencies and traditional stock markets. Use the following five tips below as a guide to help you on your journey to becoming a winning investor.
1. Buy Low, Sell High
It may sound like a no-brainer, but any time you purchase an NFT, a smart investor always remembers to buy low and sell high. This one rule will help you keep a level head and away from feeling FOMO (fear of missing out). Just because a collection is pumping, and Twitter is going wild with talks of “going to the moon,” you shouldn’t purchase the NFT if you missed the train in getting in early. No matter how successful, all collections end up dumping after an initial pump. Don’t be the person left holding the bag in a zero-sum game.
2. Reduce Your Exposure
Reduce exposure and the number of risks you take by being selective with the investments you make. You can do this by dutifully researching the team’s history and those connected with the project. If the team has no prior history of success in the NFT space, then that project should be avoided altogether.
The NFT space is extremely competitive, and the fact is more than 95% of the NFT collections won’t make it in the long run. If a team has previous experience releasing a collection, make sure you look into the other collection’s history and how those prior collections are perceived in the NFT space. It may be that a team has a history of selling out and making tons of money for investors in the past. Still, if those collections fail, it is likely that the newer project will have a similar result unless there are compelling reasons that things will be different this time around.
3. Preserve Your Capital
You should always preserve your capital by keeping track of the amount of money you spend on purchasing any NFT. You should take into account the gas fees that you end up spending as well. Often times people end up selling an NFT without realizing how much they’ve actually spent on it.
In addition, failing to realize the market fees involved (ie: OpenSea’s 2.5% fee + a project’s secondary market fee, as well as the creator fee, can end up being as high as 7.5% or even higher depending on the collection). If the creator fee (royalty fee) is 6.5% and OpenSea’s fee is 2.5%, and if you take into account the amount of gas you’ve spent on purchasing the NFT, you will end up having much less of a profit than you initially thought, or even worse, you may end up with a loss (example of 3Landers with 6.5% royalty fees is shown below).
4. Decide Your Pain Tolerance in Advance
It will be wise to decide when you will be bailing out of the collection if the NFT fails to reach your desired result. Investors often end up unable to sell out of the collection because of the losses they will inherit if they sell.
For example, If you pre-plan and decide if the collection drops more than 20%, you will sell no matter what. You can end up cutting your losses instead of holding the bag and hoping that a collection will make a comeback.
A good example of a collection that will likely never return to its former glory is Creature World, a once highly touted semi-blue chip collection whose floor price peaked at more than 3.7 ETH during its peak. The current floor price of this collection sits at 0.275 ETH at writing, and many investors are still left holding the bag and praying that the collection will make a comeback. Those prayers will likely never get answered.
5. Never FOMO
Another way of looking at never being subject to FOMO (the fear of missing out) is to buy when there is blood in the streets and sell when there is euphoria. Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family, is credited with saying “the time to buy when there’s blood in the streets.” Most people end up doing the opposite and up paying a hefty price.
This doesn’t mean buying an NFT project when it reaches close to zero. On the contrary, getting a hold of your emotions is more important, even though it may seem like a project will run up forever and reach new heights. A crash is imminent when the community is overly excited and euphoric about their investments.
A great example is Bitcoin and Ethereum. Earlier this year, Bitcoin and Ethereum peaked, with Bitcoin hitting more than $69k, and Ethereum peaked at $4.8k. Most investors believed Bitcoin was going to $80k or even as high as $100k, and it felt like Ethereum would get to a minimum of $6k. Most investors ended up being wrong, and many ended up losing a lot of their profits.
Closing Thoughts
Remembering the five strategies listed above will help you make the best decisions when investing in any market, whether it’s NFTs, cryptocurrencies, or even the traditional stock market. There may be exceptions to the rules listed above. Still, most of the time, the aforementioned strategies will help act as a compass to help you find your way into becoming a prudent investor and a winning trader in the long run.
*All Content on this site is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing on this site constitutes professional and/or financial advice. Always remember to DYOR.
For more tips on how to trade NFTs, read our exclusive interview with one of the most successful NFT traders in history.
