How to Ride the NFT Wave
The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.
The market for non-fungible tokens (NFTs), has exploded. Last quarter, trading volume on OpenSea, the largest NFT marketplace, topped $3 billion. That is fast approaching the likes of e-commerce giant eBay (NASDAQ:EBAY). Jack Dorsey sold the first tweet ever for $2.9 million. Sotheby’s just auctioned a CryptoPunk for $11.75 million. One thing is clear: Serious money can be made with NFTs.
What is an NFT?
First, you need to understand what fungible means. Essentially, it’s something that is not unique. A dollar is fungible. Swap my dollar for your dollar and nothing has changed. You still have a dollar, just like any other. When something is non-fungible, however, it is one of a kind. An NFT is one of a kind. It is a unique digital collectible. Think baseball cards but on the blockchain.
Really though, NFTs are about ownership. There is nothing preventing a picture sold as an NFT to be copied, but the record of ownership from the artist to the current collector cannot be faked. This is something like digital provenance. Another way to think of it is the difference between owning a Rembrandt and having a print of that painting.
How do I Make Money?
According to RocketFuel Co-Founder Jeff Wang, there are 2 main strategies to NFT investing: minting and trading.
Minting is when an NFT project is born. It is similar to an initial coin offering (ICO). The NFTs are created and then released to the public. The upside to choosing this route is that you’re getting in on the ground floor. But this also comes with inherent risk. You’re betting that this project will catch on, which is definitely not always the case.
To pick the right projects, keep supply in mind. Choose projects that mint less than 10,000 NFTs. Relative scarcity is important. Some of the most successful projects like EtherRock only have 100, which are hundreds of thousands of dollars at minimum, and Etherlambos which only have 1500, and have gone up in value 700%.
Look for the most original projects. If it’s too similar to others or a direct copy, the project will likely fail to gain any traction in the market. The market is looking for innovation and not someone who did a lazy copy and paste of another project.
Don’t spend too much. Try to spend 0.03 ether (ETH) or less. If you spend more than 0.5 ETH, you’re playing with fire.
The other option is to trade NFTs with established value. You want to keep in mind all the same principles guiding your minting strategy, except for spending limits. Most projects of worth will be well above that.
The key here is finding anomalies in value and price. Using a tool like rarity.tools, you can get a rarity score for NFTs. Look for one with a score much higher than others in the same price range, or look for a rarity that is under an ETH cap that is much cheaper than the rest. These are the NFTs that are easier to sell later if things move up or down.
An Eye on the Future
At the moment, NFTs are mostly seen as digital collectibles. Nothing more. But this belies their exciting and disruptive potential. Soon the technology may govern IDs and healthcare records. Record labels will be supplanted with a system that allows artists to fund and distribute an album directly to their fans, even their royalties. The possibilities are endless.
If you’re looking for more insight into the future of NFTs, a deeper understanding of blockchain technology or the scoop on opportunities in the market, check out the resources at Rocketfuel.
The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.
© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.