5 NFT Trading Strategies for JPEG Traders
If you don’t have a strategy, you can’t successfully invest or trade any asset – stocks, bonds, crypto, etc. The same rule applies to NFTs.
With the boom in the NFT market over the past year, we have seen more investors allocating capital to NFTs. And with that, many NFT investing and trading strategies have emerged that anyone could adopt for their JPEG and digital collectibles portfolios.
Read on to find out what to look for when investing in NFTs and find a list of popular NFT trading strategies.
What to look out for when investing in NFTs
Although buying and selling NFTs is a simple process, the case is not the same if you want to make a profit when trading your NFTs. It is important that investors invest their time in researching future NFT projects before investing.
For example, if an NFT is trending on Twitter, it’s not the best time to invest in it. Why? Because as soon as it starts trending, it means prices have already gone up.
However, if you spend more time researching future NFT projects, you are more likely to find a good NFT project to invest in.
So what exactly should you be looking at when investing in NFTs?
Considering the market capitalization of an NFT is a good place to start as it will show you how liquid an NFT is.
The market capitalization of NFTs is determined by multiplying the total number of holders by the average price of a single NFT in a given collection. This way you can assess the current value of an NFT collection and see how well you can resell your NFT once you want to exit your position.
Today, there is a plethora of NFT tools that can provide investors with the right data to help them make the right decision.
The usefulness of NFT
More and more NFT collections offer some type of utility. The utility can come in the form of token and NFT airdrops, access to exclusive events, rights to limited-edition products, and more. There are also NFTs that allow you to claim an item or asset in the physical world.
If you are looking to invest in NFTs, consider their usefulness against similar declines.
Rarity of an NFT
Although each NFT is unique on its own, they usually come in NFT collections that vary in terms of attributes. For example, an NFT collection may consist of different items, but some items may be rarer than others, making them more valuable.
Rarer items tend to be more expensive. They also tend to be more popular and therefore sell for higher prices and faster. As an investor, you can determine the rarity of an NFT using a rarity tool before investing.
Number of unique holders
The number of unique holders is another way to measure the present value or potential future value of an NFT. This indicator can be used to determine the size of the community that supports this particular NFT project.
If you are looking to invest in a profitable NFT, one of the most important factors that you cannot overlook is the community. The larger the community, the more word of mouth marketing will take place.
The reputation of the team
Before investing in an NFT project, you need to know the team behind it. Background research on who the developers are and past history is crucial as there have been several anonymous NFT drops that ended in all-in draws.
So, before investing your hard-earned cash in an NFT project, do your due diligence on the developers. If they are anonymous, you know the risks.
Another very important metric when researching NFT projects is trading volume. If the trading volume of a particular NFT collection is high or keeps increasing, it indicates the growing interest in the project. If volumes are declining, it may mean that interest in the collection is fading.
NFT business approaches
During the NFT boom of 2021, many NFT trading strategies emerged as more and more savvy crypto investors “singled” themselves to NFTs. Let’s take a look at five popular NFT investment approaches.
Buy the blue chips
The term blue chips is derived from the stock market and refers to the largest publicly traded companies.
In the NFT world, blue chips refer to top NFT collections, such as Bored Ape Yacht Club, CryptoPunks, and ArtBlocks. Buying top-notch NFTs means you’re buying into an already popular and valuable collection that has the potential to increase in value and not lose too much value in a downturn in the market.
Buy the floor
NFTs have had a strong run in 2021 and the momentum is only expected to pick up in the years to come. With that in mind, you can buy NFTs when their current price floors are low.
The floor price of an NFT means the lowest price at which you can buy an NFT from a specific collection. Although it is not advisable to buy NFTs just because they have a low price, you should opt for an NFT project in a category that interests you instead of focusing only on the price.
Buying the floor is a popular NFT trading strategy because it allows for price growth if the NFT collection gains popularity. Simply put, buying the floor helps secure you a front-row seat in the NFT brand’s journey to higher potential price growth.
buy the ceiling
Conversely, another common NFT trading strategy is to buy the cap. Buying the cap refers to buying the most expensive NFTs in a collection. These types of NFTs tend to be popular among deep-pocketed investors. Although expensive, ceiling NFTs in popular collections are well positioned for price growth as they are the most sought after NFTs in the collection.
A major problem with capped NFTs, however, is that there are only a small number of people who can actually afford them due to their cost. As a result, if a cap NFT’s popularity declines, holders may incur significant losses, forcing them to sell their NFTs at much lower price levels.
Shop the trend
It doesn’t matter if you’re new to the NFT space or a veteran, you can always tell if the NFT market (or a specific NFT collection) is still a popular niche by looking at its trending on Google.
google trends can be used to gauge the public’s opinion of a particular keyword or topic, with searches for the keyword scaled from 0 to 100. If the rating is high, it means that more people are more interested, indicating that it may be a good time to make a purchase.
However, if the rating is low or the trend is down, it means that fewer people are interested in NFT collection, so you should proceed with caution.
Buy NFTs with few sellers
If an NFT collectible has many sellers or an increasing number of sellers, it could indicate decreasing interest in an NFT collectible. Therefore, picking NFTs from collections where there are few sellers is another popular NFT investing approach.
Start by looking at the NFTs’ posted prices to determine if they are higher than the most recent sales. Also, look at the gap between the displayed selling price to determine if sellers were eager and willing to sell at just about any price.
While you may be able to get NFTs cheaply from sellers, you should beware of excessive selling pressure as this may mean investors are allocating funds from this collection.
Before you monkey
NFTs are a new class of high-risk digital assets. Therefore, only invest what you can afford to lose. Do your due diligence and choose NFT projects that have potential for price growth. But remember that when the market turns and the hype dies down, you may struggle to find a buyer anywhere near the price you bought at.
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