The NFT market is one of the most volatile that you will find, and it can take a lot of nerve to ride the storm when the market heads south as it has done during 2022.
Some people might have the perception that NFTs react to the same market factors and trends as cryptocurrencies. This doesn’t always hold true, as NFTs may react to different market factors and are by no means as liquid as cryptocurrencies. It’s important to understand this, as new investors can be quick to burn their fingers in the NFT market.
While some see NFTs as an investment, others may think of NFTs more as collectibles or personal items where their value may or not appreciate if market hype remains. Regardless of how you look at NFTs, market conditions affect their prices, and it can all happen quickly.
So how do you deal with the highly volatile NFT market while protecting yourself from making expensive beginner mistakes? We will dive into that and give some general advice to help you along the way.
One of the first things to know about when collecting or trading NFTs is trends and their cycles. Sometimes there are certain “metas” or trends that NFT projects follow, which can be useful for buyers and sellers when attempting to predict the market.
An example of one of these metas can be when a majority of art NFTs see a big boost in popularity and sales for a given amount of time. This means that art NFTs, or a specific style of art, might be profitable to chase after.
Trends never last forever, so it’s important to look for them when they shift. They tend to cycle between genres such as metaverse, gaming, or a specific NFT type.
It’s important to note that a majority of the NFT market is driven by hype. While the stock market, housing market, and other fields of investment are generally decided by more economic factors, the NFT market is mainly driven by the hype projects receive. A project that is picked up by big influencers or celebrities can create an instant spike in a project’s value.
The dangerous part about hype is that when it dries out, then people will have a harder time finding buyers for their NFTs. This can ultimately mean you are forced to sell at a loss or hold your NFT bag when the hype wave crashes.
Hype in the NFT market can make you profits as it drives new buyers to certain projects or collections, but it can also head the other way just as quickly. As a rule of thumb, always pay attention to the market and where the money is flowing.
You’re bound to discover that the NFT market is filled with opportunities to flip projects for quick profits. Dedicated flippers have even reported making large sums of money all from flipping NFTs in a single month.
Flipping NFTs can come with big rewards, but there are also chances you may end up losing in the process. Remember, these markets move fast, so you need to know the right time to sell. It depends on your own personal strategy and risk level, but it’s always good to know which NFTs to flip and which to hold.
Why hold onto an NFT? Well, ask those who sold off their BAYC or CryptoPunk way too early how they feel today. Making a clear plan for all the NFTs in your portfolio will be the first step in helping to avoid spontaneous trades in the hopes of making quick profits when you may have some gems you’ll want to hold onto.
Figuring out which projects to hold long-term and which to sell off quickly can be tricky. Generally speaking, you’ll want to hold projects that have a well-defined roadmap, a great team, a groundbreaking vision, and possibly even big backers.
Just be careful not to hold onto too many projects, and be sure to take profits. Try to keep your portfolio roughly 50% holds and 50% flips if possible; you can always adjust these regardless of your goals and risk level.
Ultimately, how you invest should be based on your gut feeling. If your gut is telling you to sell, then sell. If you really believe in the project and can stick it out longer, then hold. Sometimes it’s as simple as that.
Finding those gem projects that you’ll want to hold onto for a long time is no easy task. While nothing is guaranteed, here are a few things to look for which may increase your chances of finding a valuable project.
You’ll probably hear this often, but it’s important to do your own research. This is something that financial advisors have been saying for decades in the stock market, and the same goes when investing in NFTs.
Doing your own research ensures that you go about with your own thorough backcheck of a project to ensure everything checks out. Don’t always listen to others on the hype train.
Since NFTs fluctuate a lot, you will need to be prepared for the floor price of an NFT to go down just as fast as it went up. This can be hard to witness for long-term projects, but with the right research, it shouldn’t be something that shakes you if you believe in what the team is trying to accomplish.
Finding the projects that suit you for the long run might feel like a jungle since many great NFT projects out there seem innovative. While this may ring true, it should be noted that some projects will take longer to get traction despite having promising stuff in the pipeline.
People in the NFT space can be quite impatient, so you may see the floor price slowly drop over time for projects with a long roadmap despite the team building in silence.
In those cases, it’s once again important that you believe in the process of the project and stay comfortable in holding it through turbulent times. It’s also a great idea to look at projects that have been “battle-tested,” meaning they’ve been around for a while and managed to hold up a steady floor price through turbulent times.
As a bonus tip, every NFT investor should remember that you shouldn’t be afraid of bear markets. As a matter of fact, times like those could turn out as a great opportunity to buy into new projects at a lower entry price.
Even though it takes courage to put money in during an NFT bear market, this is also where you may see the biggest gains. If you can time the market on a downward trend, you could be seeing profits once the market starts to rebound.
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