How To Invest In NFTs – A Step By Step Guide

NFTs have gained popularity in the last year, leading many investors to wonder how to invest in them. NFTs like Beeple, pixelated CryptoPunks, and Bored Ape Yacht Club(BAYC) are sold for millions of dollars. If you’re one such investor looking to invest in NFTs but don’t know where to start, then read till the end.

Prerequisites to Buy an NFT

To buy any NFT, you need a wallet with some cryptocurrency like Ethereum or Solana. So the first step is to go to Coinbase or Binance and buy some Ethereum or Solana, as most of the popular NFTs are built on these two blockchains. Below are the two popular wallets that you need to buy an NFT.

1. Metamask – Metamask is an Ethereum based wallet used to buy NFTs built on the Ethereum blockchain. Set up your Metamask account and transfer Ethereum from your crypto holding account to your Metamask wallet.

2. Phantom – Phantom is a Solana-based crypto wallet used to buy NFTs built on the Solana blockchain. Set up your Phantom account and transfer Solana from your crypto holding account to your Phantom wallet.

Both of these are chrome extension wallets and are very easy to use.

Ethereum And Solana NFTs

Currently, most of the NFTs are built on Ethereum and Solana blockchains. Ethereum NFTs are more popular as of now, but they are also more saturated and expensive because of their huge gas fees. That’s one of the most significant downsides of Ethereum based NFTs, and investors with a low budget may not afford to buy them. Opensea is currently one of the popular websites to buy Ethereum based NFTs.

On the other hand, Solana offers impeccable and fast service with almost zero gas fees. It’s great for people who don’t want to pay a massive gas fee and look for faster transactions. Solanart and Magiceden are the famous websites to buy Solana-based NFTs.

Difference Between Good NFT Project And Bad NFT Project.

There are good NFTs, and there are worthless ones. Since anyone can post their NFTs, you should be able to spot the few good ones among many valueless projects. 

What is the difference between an NFT that can bring you money versus a useless NFT that will lose its value overnight? Is it even worth it? Here is some of the information I could find that can hopefully help you make a more informed decision.

New NFT projects drop almost daily, so it’s getting harder to identify the solid projects from the not-so-solid money grabs. With so many project launches, it’s your job to do your research and proceed with caution. Like with other overhyped things, there are a lot of risks involved.

The good

1. Communities

NFT art projects such as CryptoPunks and Bored Ape Yacht Club(BAYC) are massively successful because they have great teams and online communities. A limited number of NFTs per collection is nothing compared to the potential membership base. Thus the value of each NFT is only growing. Most of the NFTs with robust existing communities have some utility and even reward holders, resulting in passive income.

CryptoPunks are evolving as the VIP passes on the Internet. Although still mainly known within the crypto world, we’re starting to see how punk owners are seen as a unique community. Most younger people in their 20s are thoroughly engrossed in virtual worlds, and digital VIP passes are inevitable.

2. Utility-based NFTs

Some NFT projects offer virtual and real-life rewards. By buying their tokens, you become a member of an exclusive club and enjoy real rewards. Utility-based NFTs always bring some value. 

Another example, Moon Boyz, is another project that can give crypto users plenty of dedicated characteristics. Available on the Open Sea, Moon Boyz is a collection of more than 11,000 unique NFTs on the Ethereum Blockchain. 

The Moon Boyz Party Platform, where first come users with the rarest characters can get rewarded with special merchandise for users and VIP club entry.

Moon Boyz continuously updates its roadmap and functionalities awarded to its NFT holders, making it a worthwhile investment.

3. Accessibility

At first, when NFTs were not that popular, everyone could get in. Axie Infinity is an excellent example. Many people made money selling those because of their affordability.

The bad

1. Price

The best NFTs are still overly expensive for most people to buy. The high price label is also why many imitators emerge, and it’s getting increasingly difficult to find quality projects.

2. Influencer Hype

Remember that hype can take away common sense. If something is overhyped today, it doesn’t mean that its value doesn’t go down tomorrow. Even if you see an NFT on a popular Twitter influencer profile, it usually doesn’t mean anything. These influencers receive giveaways or a few hundred dollars to promote them on their social media profiles.

3. Celebrity Names

A massive red flag is when an NFT has a celebrity name attached to it. NFTs from celebrities proved to be bad investments in the NFT space. Even if everyone knows the creator of an NFT, it still doesn’t mean that this NFT is a good buy. 

4. Volatility

The Crypto market has always been volatile. One should never forget about the risks involved before entirely investing their hard-earned money. We’ve seen similar volatility in the crypto market before, even with prevalent coins like Bitcoin or Ethereum.

5. Scam

It’s not very difficult to create and launch NFTs these days. Anybody with a bit of budget can create and promote them. 90% of all the NFTs out of there will disappear in a few years. Therefore, the buyer needs to do their due diligence before buying them. 

Takeaway

NFT investment has downsides to it and is incredibly speculative. Only invest money that you’re willing to lose. NFTs are still very new, so making speculative guesses is risky. Since nobody can be sure whether projects will be successful, some people will lose while others make quick money. Please keep in mind that this is not financial advice.