NFT Strategy: How to Make Money with NFTs as a Collector

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NFT Strategy: How to Make Money with NFTs as a Collector

In the world of NFTs, there is no golden strategy that guarantees that you will make a profit. Nonetheless, by adopting one of several NFT investment strategies that match your budget and preferences, you can increase your chances of success. In this guide, we will look at different strategies you can use to potentially make money with NFTs as a collector. 

What Is NFT Strategy?

An NFT strategy is an approach to collecting and trading non-fungible tokens (NFTs) with the aim of generating an investment profit.

An NFT trading strategy involves using one or several approaches to researching, finding, purchasing, and selling NFTs, taking into account market conditions, latest trends, and historical price developments.

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Factors to Take into Account in Your NFT Trading Strategy

Let’s take a look at four important criteria to consider in your NFT investment strategy that may help you to determine what NFTs to collect and which ones to skip.

Market Capitalization

It is imperative you determine the market cap of an NFT project before you invest in it. The estimated market capitalization of an NFT project is calculated by taking the total number of a project’s circulating supply and multiplying it by the average price of one NFT token from the collection. You can use apps such as rarity.tools to get an estimated market cap of an NFT collection. 

Trading Volumes

NFT trading volumes show the number of NFT tokens exchanged for a certain project during a defined period. A high trading volume for a specific NFT collection typically indicates a great deal of interest from investors for that collection. You can examine the trading volumes of different NFTs on marketplaces like Opensea and analytics platforms like DappRadar.

Number of Unique Holders

The number of unique holders is determined by taking into account the number of addresses that hold an NFT token. When a large number of addresses own an NFT, this signifies that a larger community is behind the particular project. A vibrant community is useful in promoting a project to other investors and also improves the token’s popularity, which can possibly affect a token’s value.

Scarcity

While there are many NFTs in a collection, rarer NTs are typically more valuable than others within the same collection. Should an NFT collection become popular, the rare items in the collection will likely sell quickly and at a better price. NFTs with high rarity scores on platforms like rarity.tools or OpenSea are more valuable to investors and, therefore, typically fetch a higher price. 

NFT Buyer Strategy: Here’s How You Can Improve Your Chances of Making Money with NFTs

Regardless, of whether you are looking to make a short-term or a long-term investment, an effective NFT strategy should enable you to analyze past and new transactions, keep you focused on market dynamics, and guide you in making potentially profitable NFT deals. 

Here are seven strategies you can use to improve your chances of making money with NFTs.

Buy the Floor

Buying the floor is a trading strategy that allows you to buy an NFT token cheaply and sell it for a potentially substantial gain should the NFT become popular. Floor price signifies the lowest price you can buy an NFT for within a certain category or collection. More importantly, buying at the floor price gives you relatively affordable exposure to potentially profit from a specific NFT collection’s future potential. 

Search for Google Trends

You can quickly assess whether a particular NFT market is hot by analyzing activity numbers on Google Trends. Google Trends offers insights into the public interest in a certain topic, illustrated by a keyword. Searches for the word are scaled in the range of 0 to 100. 

A high rating implies that many people are interested in the specific NFT collection you are looking into (or NFTs in general), which can be taken as an indirect signal for now potentially being a good time to buy.

Should searches for NFT-related topics or keywords decline, on the other hand, then it means you might want to slow down your buying activity as fewer people are interested in NFTs. 

Purchase NFT Collectibles with Few Sellers

Market dynamics are undeniably clear: when many sellers are in a market, prices typically goes down. This also applies to NFTs too. It is difficult to sell an NFT in a bear market as the presence of many sellers means you will likely end up selling your NFT for a lower price.

Your NFT strategy should factor in how many sellers are there for your NFT collection. If you plan to sell an NFT that has several buyers, analyze the seller’s previous published pricing to see if they are placed above recently completed transactions. 

Also, evaluate how an NFT’s sellers will act. If the prices listed are spaced from one another, this will mean the sellers are patient and are waiting for the right buyer. In this scenario, they will probably not react if you lower the price. But if the prices are close together, it will signify the sellers are impatient and will undercut each other on price. Your chances of success are high selling NFTs with patient sellers.

Value Investing Strategy

A value investing strategy focuses on buying NFTs with the highest yet unrealized value. You will need to use NFT analytics tools like rarity.tools to find NFT projects that have rare traits. Rare NFTs typically have a greater chance of growing in value, so taking the time to understand a collection’s rarity traits and how valuable one NFT in a collection is versus another can help you determine which NFT to purchase in a particular collection.

Buy the Ceiling

If you are looking to invest large amounts of money, then you should consider this strategy. This is simply going after the most popular or rarest assets, whose prices may go up in price if the demand increases for the project. These NFTs have a greater chance to shoot up in value even further, especially when famous influencers and celebrities back these projects. 

The disadvantage with these so-called ‘ceiling NFTs’ is very few individuals can afford them as they can be very expensive. Also, ceiling traders stand the risk of making serious losses should the popularity of an NFT collection drop, and they are forced to sell at much lower prices. 

Search for Underpriced NFTs

Searching for undervalued NFTs simply means you look for NFTs that are selling for a lower price than they were originally purchased. For instance, you can purchase five copies of the same NFT listed at $500. While this looks like a great deal, don’t overlook the possibility the NFTs may have been bought for less. Instead, you can browse for less expensive NFTs in the collection.

The Market for an NFT Collection

Finally, another thing to remember before you invest in an NFT is to ensure that there is a market for the particular NFT collection that you are planning to buy into. If the community is small and there are little to no sales, then you might want to avoid that particular collection. Aim to identify NFTs that have utility and communities large enough to drive future growth for the value of your NFTs. 

FAQs

What makes an NFT project successful?

The most important ingredient for a successful NFT project is having a vibrant and healthy community surrounding the project. Projects with a lot of user engagement are the ones most likely to succeed. NFTs are more than just owning a piece of art or a collectible. They also represent the option to be part of a community with its own culture and following. 

What is the most expensive NFT ever sold?

The most expensive NFT ever sold is the Merge NFT collection, which retailed at over $91 million. The Merge was created by renowned digital artist Pak and was purchased by 28,000+ people in December 2021.

Is investing in NFTs risky?

Yes. The prices of non-fungible tokens are incredibly volatile, with some NFTs dropping by over 90 percent of value since their highs in 2021. You should, therefore, only invest what you can afford to lose and only start trading NFTs if you feel comfortable that you understand the risks involved.