You finally want to get started with NFTs in 2022? Yey, happy to welcome you to this brave new world 🙂 At the same time, the NFT space looks like a big jungle to you that you have not understood yet? Particularly, you don’t understand why some avatar „cartoons“ are selling for millions while others are not bought even for 50 bucks? Here is your beginners guide to the magical land of NFTs with my 10 biggest NFT lessons learned from 2021 🙂
- Define your goals, your time horizon, your investment budget and how much time you are willing to dedicate
This first point is probably the most important of all. I see so many people randomly entering the space, hoping to get rich quick somehow with anything and then getting sucked in and forgetting their initial budget/goals and so forth. If you don’t care about your return on investment and just want to play a little bit around, then you can ignore anything in this guide, because for this, no particular strategy is needed and this is absolutely fine. But if you do care, decide early on how much money you are willing to spend and what kind of return you want in what time frame
- Learn to distinguish between good NFTs and future garbage
Often I see people on twitter saying they just invested in a new cool avatar project and will hold it long term. By now, I can distinguish within under a minute, if something is worth looking at or not by looking at four simple collection aspects. If you want to know how to distinguish good from garbage, check out my blog post on this „ultimate guide to distinguish between blue chip or garbage? How to distinguish the good from the bad in the NFT space in under 1 minute“
- Follow the right people
If you are new to something, it is usually a good idea to first follow smart people who have been in the space longer than you and have a track record. Sure you can follow your buddies who entered yesterday and it will surely be a fun time, but seriously, find people who are in the inner circle of the NFT space, follow them on twitter for regular updates, and research what they like. Beware though! Don’t just buy anything they say they like and particularly not when something is hyped! Even the best influencers will hype projects that will go to zero. Not because they have bad intentions, but simply because this space is so new and dynamic and in one week, all can change. You will find a good starting list with some of my favorite NFT influencers here:
- For investors who want a quick 50x – be there on mint day
This one is hard because it requires a lot of research & time if you don’t just want to go around mint random stuff. Here you can follow the influencers but usually they will have the incentive to post about their newest coolest mint once they temselves minted, meaning probably it will be sold out by the time you hear about it. So you will have to research deep across twitter and the web or – if you want a shortcut – join NFT communities with good alpha in their discord. Be ready to spend many hours in Twitter researching the space and many discords
- Buy NFTs on Ethereum, and expect high gas fees
When you buy NFTs and particularly when you mint them, gas fees on Ethereum can be incredibly high. This can at first be very discouraging. Still, I would recommend Ethereum as the NFT chain to go, because most high quality NFTs are on Ethereum. I own a Cardsano Kid, and also a few Solana NFTs and I checked out the Binance Smart Chain NFTs. But if you look for investment returns, the chance to succeed on Ethereum is much higher than on the other chains. That does not mean that you cannot make incredible gains there and fortunaltely pay much less in gas, but as said, there is so much quantity there but the big money is mostly still made on Ethereum
- Buy the floor of a collection instead of middle or rare ones
Seriously, if you are not rich and willing to lose lots of money, buy the floor instead of rare ones. Rare ones are much harder to sell even for great and successful collections, but particularly if your collection is not taking off (and many won’t). Of course if you minted a rare one, that is something different 😉
- Better to be at the floor of a blue chip collection than a rare on a speculative bet
I remember my biggest NFT mistake of all time. In Late June, I talked to my boyfriend that I believe it is better to buy a more established NFT with a higher price than to spend less money on a speculative bet. But there I was and made the biggest mistake: I was deciding between buying a floor bored ape for 2.5 ETH, and buying a rare slumdog billionaire for 1 ETH. I chose the second. The floor price of the apes is 60 ETH today, the floor price of slumdog billionaire is 0.04 ETH or lower. One small decision, huge implications. Looking back, one might wonder how I could have made this mistake. But back in the days, it seemed not that bad of an idea: the apes had already had a parabolic run, the biggest ape holder Pranksy was selling all of his apes, and buying a lot of Slumdog Billionaires, and we just came from an incredible dog meme coin run. So I believed if I am early to a project that focuses on dogs, might get picked up by Elon, is already picked by the guy who played a huge role in making the apes popular – well, it didn’t seem that stupid, considering the team was having a partnership with Bosslogic (stuff the bored apes did much later with Adidas). But interestingly, the dog hype in coins somehow didn’t make it to the NFT world (the only dog NFT that made it is doge pound, and the dog companion NFTs from BAYC and Gutter Cat club. Most others flopped), which is very Ape-oriented so far (Bored Apes, CyberKongz, Solana Monkeys, Rumble Kong League…) , also another doge project came up later that stole the show with more influencer support and more on the roadmap (the Doge Pound), and that is how spending 2000 Dollars on a rare one in a highly speculative bet instead of paying the premium of 5000 Dollars on a floor ape let to no returns at all and an opportunity cost of 300.000 Dollars (if you consider that buying an ape at that time meant getting a dog companion and also a mutant for free) and lots of amazing connections in the NFT space
- Understand cycles – don’t buy when the floor is flying
We get FOMO when a project is flying. But more often than not, similar to the crypto market, it is better to wait out the FOMO, and to buy once the project has calmed down or ideally retraced a great deal. Of course, there can be exceptions, I was waiting for a dip on Bored Apes from 2.5 ETH…it finally came when they peaked around 65 ETH in August to fall back to 30 ETH. So yes, there could be a moonshot and you miss it by waiting. But statistically it is better to miss out on one moonshot, instead of treating every regular NFT as the moonshot and buying too high. I bought my Cryptoadz when they calmed down after the first initial hype, around 1.6 ETH. It had an incredible run to 15 ETH floor, and I vividly remember that I felt FOMO to buy a second toad at 15 ETH when Beaniemaxi was twittering that the Toadz could detrone the Apes. But I resisted my Fomo, remembering that a big retracement is about to happen after such a run up. To be honest, I didn’t expect the retracement to be that severe, Toadz dropped from 15 ETH floor to 2.2 ETH floor a few months later. Imagine I would have bought a second toad at peak prices. In the short term, this would have been disastrous – and all this with a project that was considered blue chip material and still is. So, whenever you see the floor mooning – do yourself a favour and remember that in 99% of cases, it will retrace and calm down and you will be able to save some precious ETH
- Expect high price volatility – even for blue chip material
See the Cryptoadz example. My friend could not understand why I didn’t want to sell my only Toad when it reached a floor of 15 ETH, I could have made 45.000 Dollars in profit. And yes, in hintsight, it would have been good to sell to buy back in later. But we don’t know how high something will fly and how low it will fall. I did expect a retracement but Cryptoadz falling to 2.2 ETH was unexpected. You expect bad projects to be able to fall so low, but not the blue chips. At the peak of the Toadz run, notable NFT influencers were making bold claims that Toadz would overtake the Bored Apes, Punks were posting their toadz on top of their avatars, and some sold their fidenza for toadz – yes, this was a mega HYPE. This shows you that you need to respect the market cycles – no matter if it is a good or bad project, the retracement will come sooner or later. The difference between good and bad projects is that the good ones will survive and thrive, while the bad ones don’t return. It is up to your preference if you want to hodl through all dips or sell into the FOMO when a project is flying to maybe buy back in later. But it is just important to know what to expect and don’t believe it is up only just because you hold a blue chip NFT of today, that might remain a blue chip tomorrow but might also lose its appeal
Finally, the 98% truth
Many influencers say that 98% of NFTs are gonna go to zero, and the 2% will thrive, but many collectors don’t seem to really get it because they see so many NFTs appreciating in value. Yes it is true we hit the NFT gold rush in summer, but realize that only a small fraction of NFTs is giving these high returns long term, a few on the initial hype, and most are just dead projects already. Like with music, you see the charts and say wow so many people become music stars, but remember all those hundreds and thousands who are not entering the charts or quickly leaving them. Also we are in unchartered territory right now. The leading NFT collections have exploded over 2021, and no one knows what will happen over 2022. Everyone expects a big year for NFTs, I do too, and maybe the leading collections and some new ones will make another 10-100x gains this year. But could they fall 90% because the market is overheated like internet stocks in the late 1990s? Yes, I can imagine that too. Both is possible and you should make sure that you are ready for both scenarios. We are early to NFTs, the same as people who were early to Bitcoin in 2011-2015. But being early to Bitcoin back then meant maybe investing at 100 Dollar Bitcoin and then seeing it fall to 2.5 Dollars. Or other currencies that looked like having a bright future, but never returned. In the long run, we are still super early, but in the short term, huge retracements could happen anytime