The non-functioning token (NFT) market is still a true Wild West where the law does not prevail due to lack of regulation. In addition, this market is rife with scammers, each more sophisticated than the last. Lack of liquidity is also a factor that can explain the completely disproportionate price fluctuations.
In this article, we offer 6 tips for choosing NFTs to invest in.
1. Choose reputable funds whenever possible
First and foremost, NFTs provide ownership of a digital work. They are registered in registries (blockchains) to guarantee their authenticity and non-interchangeability. This is why there is a concept of "rarity". It will fluctuate depending on the popularity and usefulness of the NFT or collection.
Therefore, to choose with confidence, it is best to choose collections that have already proven their value. In other words, NFTs whose authors are recognized and authenticated. This is usually a guarantee of high liquidity. In other words, high buying power. Studying the transaction history can give you an idea of the supply and demand for the collection.
2. Study the technical documentation of NFTs
The NFT market works on the same principle as the cryptocurrency market. Every time a new project is launched, it is accompanied by a ceremonial document (whitepaper) that outlines the main points of the project. Most often it can be found on the official website of the project. It can be in the form of a simple web page that can be consulted or, more commonly, a downloadable PDF file.
This type of document usually outlines the main stages of the project with a timeline and deadlines. Also detailed are the objectives, strategy, the marketing plan used, and the quantities that will be for sale. This document often includes the names and roles of the team members responsible for the project.
3. Keep an eye on the community associated with the NFT collection
This is one of the main things any NFT investor should consider. A quality, serious NFT project is reflected in the strong community behind it. The commitment of that community ensures the success of the collection.
The reputation and "hype" (ranking by sales volume) of entire NFT collections can be built on the support of the community. Feel free to join forums dedicated to the collection or Discord. By connecting with other enthusiasts of a particular piece or artist, you can gauge its potential, ask questions, and even communicate directly with the creators of the collection.
Note: Many people also rely on information spread by public figures or influencers on social media. This can be beneficial, but in most cases you need to remain vigilant. Many scams (phishing, identity theft, etc.) occur through social media.
4. Assess the "usefulness" of the NFT project
The NFT project is useful because it allows you to take advantage of various related services. For example, joining a private club or a specialized platform, and taking advantage of discounts, private events, rewards, etc.
Behind the search for "utility" is the cultural impact that an NFT or collection can have. It doesn't matter if the collection consists of a few unique pieces or over 5 000 NFTs. That is the point of your search: to find an NFT that will be a turning point, a revolution that will mark its era and persist through time.
5. Understand the project and its team
Spending Ether to have an image of an NFT in your portfolio is not enough to ensure the long-term future of your investment. It is important to understand the project behind the NFT collection and any additional applications that may result.
You should also take a close look at the members leading the project. Their experience, areas of expertise and shared vision lend weight and credibility to the project.
This is a very important consideration as it can add value to your investment over time. Indeed, a few years ago, some projects revolutionized the NFT industry. If you hope to turn an investment of a few thousand into millions of dollars, there must be a clear message of innovation in the work.
You also need to consider the timeline of the project. The seriousness of the team, and therefore the project, will depend on its ability to meet deadlines and the transparency of the schedule.
6 Invest in an NFT you like
Perhaps the most obvious, but above all, the most important of these 6 tips for choosing an NFT to invest in.
Art is always subjective, and NFTs are no exception to this rule. However, one must not succumb to greed. And don't forget that buying an NFT means believing in a long-term project. It's not about buying and selling every day.
You need to form your own beliefs about the work itself and its environment (project, community, reputation, history, etc.). The market is huge and you are sure to find something you like. You can find NFT music, video anthologies, art paintings, video game artifacts, etc.
The NFT market is still young and insufficiently regulated. However, in recent years their number, usefulness and interest have been growing steadily. Many manufacturers are entering this market, well aware of its attractiveness.
Be careful, however, as scammers abound. The best defense for investors is to take as many training courses as possible, learn the codes and terminology specific to this market and, of course, follow the 6 tips in this article.