NFTs have gradually attracted so much interest globally from 2020 to date. Google Trend shows that from Q3 of 2021 till Q1 of 2022, the global search for the word, NFT, was at its peak.
This asset has birthed an industry that has grown to $15 billion with over 2 million active participants in the last quarter of 2021. Although data also shows that $8 billion worth of NFTs were traded in Q1 of 2022, the market offers huge potential in the coming years.
NFTs are illiquid assets and compared to fungible assets that are easier to sell with the press of a sudden, they pose great risks to traders. But these can be avoided.
Here are five things to look out for before buying an NFT.
1. The team
NFTs are not built out of the blues. Someone or people make them. Evaluate the team members for experience in the NFT space. What have they done before? Do they have the technical and marketing credentials to execute the project? Seek answers.
Team members that have succeeded in previous projects will tend to have a higher chance of doing well again. They bring in their experience, passion, and resources to make new projects work out. Their previous work also embodies their ideologies. And these are pointers that can determine the success of their projects.
A simple search engine search will bring results from platforms like Twitter, LinkedIn, Instagram, and personal websites where you can see information about team members. Also, note that there are projects with unknown teams. Sometimes this is used as a marketing strategy. The Goblintown.wtf is an example. In this case, the other four parameters can guide you.
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2. Community strength
One vital foundation of any crypto project is the community behind it. Bitcoin, although not an NFT, has a force because of the numbers behind it. This same attribute is important in the NFT market.
You would want to ask a question like what is the number of those involved in this project? What does the engagement look like in their communities? There are a lot of copycats in the market but engagement cannot be falsified for long. Projects with large and throbbing communities will likely do better than others.
Platforms like Twitter, Telegram, and Discord as the best spots for analyzing the strength of the community. The most impressive projects in the NFT space like BAYC, Vee Friends, Cool Cats, and others have massive communities behind them.
For new projects, a community still matters. If the community isn’t convincing enough, look for potential and make your decisions.
A roadmap shows the direction of a project and what it intends to achieve for certain periods. Look up what the project wants to achieve if it plays well with your investment preferences.
To be fair, there’s a current trend with NFT projects that have no roadmap. They want you to take them at face value. The objective mostly is to not over promise but over deliver. This is common with free mints NFTs.
4. NFT utility
Vee Friends NFTs by Gary Vee have two main utilities: access to Veecon (yearly NFT event) and real-life access to Gary Vee. BAYC utility is the value of the community itself. The essence of the NFT determines the utilities tied to it.
Before investing in an NFT, enquire about the utility otherwise you might be going into a ‘JPEG project’ with a discord server. There are NFTs that give people access to retreats (Crypto Packaged Goods), premium content (Rug Radio), clothes (Adidas), and more. For each of these values, more people will be willing to be part of the community. But if there’s no value, there’ll be no community.
5. Pricing, rarity, and sale volumes
NFTs have floor prices. A floor price is the least amount of money one can pay to buy an NFT from a collection. This can be in dollars or any other currency. It’s set by the owner of the NFT you want to buy. At certain times, owners choose to use a lower price to attract buyers.
Apart from floor price, another sales parameter is the number of NFTs minted. Check for rarity levels also. You don’t want to end up holding a common piece no one wants to buy. Remember laws of demand and supply?
Gas fees are also part of the sales parameters. How much will it cost to mint the NFT? With this, you can know what your budget should be. Consider the volumes of the collection and NFT. NFTs are largely illiquid but some can be traded more quickly than others.
NFTs provide compelling applications, and when the market is bullish, many projects seeking to ride the wave always crop up. A trader should exercise care not to buy into NFTs without long-term viable goals.