How to Invest in NFTs

It looks like the summer of 2021 will be remembered as NFT (Non-Fungible Token) summer, following the DeFi summer we had in 2020.

Non-fungible means that something is unique and one-of-a-kind. NFTs are therefore unique digital tokens representing something.

NFTs have grown on the Ethereum blockchain, but they are also available on other chains like Solana. The future seems to be pointing towards a multichain space. One major problem with Ethereum is that gas fees needed to make transactions go through are very high, thus pricing out many smaller investors.

Anything digital can be made into an NFT on the blockchain; however, the most common form of NFTs is digital art. Images, audio and video files can also be sold as NFTs. Once a digital asset has been made into an NFT, it will be unique on the blockchain and can be traded in exchange for money, just like physical art would be.

I find the NFT space to be extremely fascinating for many reasons, and I’ll be gathering my notes here. The one thing that I would start off with, is that after looking at NFTs for a while, the regular crypto space (Bitcoin, Ethereum, etc) starts to look downright boring and run of the mill. If you thought understanding the valuation of cryptos like Bitcoin and Ethereum was very hard, the NFT space is just wild in comparison.

Buying Blue Chip NFT Projects

One of the best strategies for getting exposure to NFTs as a beginner is to stick with the so-called “blue chip” NFT projects.

• CryptoPunks
• BAYC
• ArtBlocks

While the prices for these projects are currently quite prohibitive (some popular ones have sold for more than $1 mln), you can invest in their fractionalized versions on the following sites:

• Fractional – the most popular fractionalization platform.
• NFTX – mint and trade NFT index tokens.
• Unicly
• nftfy
• Niftex

Apart from fractionalization, investors are increasingly forming Decentralized Autonomous Organizations (DAOs) to pool their funds and gain exposure to the priciest NFTs. Here are some examples:

• FlamingoDAO – minimum 330 ETH investment to join.
• ARK Gallery
• Beets DAO
• PleasrDAO
• ApeDAO

Trading NFTs

The biggest NFT platform is OpenSea, and that’s where most of the trading happens. You can also get a quick overview of which NFT projects are the most popular at any point in time. Make sure that you interact with original projects, as there are a lot of fakes and copycats. Look for the blue checkmark next to the project name to make sure it’s the original project you’re looking at.

Other trading and minting platforms you should know about are Rarible, Mintable and Nifty Gateway. The most interesting of these to me is Rarible. If you’re looking for a higher risk/higher reward investment, look into the RARI token, which you can buy on Kraken.

Buy $RARI on Kraken

RARI has a total supply of 25m and is considered to be a utility token. By owning RARI tokens, users gain the ability to submit and vote on proposals to change its rules. This includes voting on possible fee changes, how those fees are spent and the rules governing creator promotion.

It is important to note that voting with RARI is non-binding, and that the Rarible company still needs to accept user decisions and implement them. However, Rarible’s goal is to eventually transfer power to a software-based system controlled by users called the Rarible DAO.

The idea behind buying the RARI token is to gain exposure to the growing NFT and digital content market or to have a say in how one of the leading NFT marketplaces develops.

Some other useful sites for evaluating NFTs:

• Rarity Tools – ranks project items by their rarity.
• NonFungible.com – analyze, track and discover NFTs.
• ICY Tools

You can also exchange NFTs in a P2P fashion on the following platforms:

• NFT Trader
• Sudoswap
• Swap.kiwi

What I’ve Done So Far

I haven’t done much actually in terms of investment. I’ve mostly been curiously following things and trying to understand what all the fuss is about. I have limited time these days as my kids and training take up the majority of my days. Indeed one of the biggest issues with NFT investing is that things happen very fast, and if you’re not there at the right time you’re going to lose out on most of the gains. Those who do this professionally basically spend all their days on crypto Twitter and Discord channels, trying to separate the chaff from the grain and position themselves for a bet on the next big thing.

However, one of my close friends has been pretty active with NFT purchases, and I’ve thus been privy to the wild ride so far through him.

I’ve bid on one of the Nouns through a partybid, however unfortunately our bid was unsuccessful, and the NFT eventually sold for 200 ETH, while the party’s pool was around 190 ETH. From that experience I really understood why ETH’s gas fees are a problem as of mid-2021, since every transaction costs a good chunk of money in transaction fees alone, making any investment below $500 not worth doing.

I later managed to get my hands on an NFT, this time a OneDayPunk. This was a spur-of-the-moment purchase based on the recommendation of my friend. I’m not sure I’ll make my money back on this investment but it was quite an interesting project that helped me understand the buying process better. Two interesting factors of OneDayPunk:

1. The actual value creation happens once the punkscapes are released, so at minting stage you’re betting on a future event creating value.
2. There are 10k punks but only one is allowed per wallet, in a way preventing people from scooping up many punkscapes.

This purchase was another confirmation that with current gas prices it doesn’t make sense to make small investments. The price I paid for the NFT was 0.02 ETH but the gas price itself was 0.027177 ETH, even higher than the NFT itself. That means that in order to break even the value of my NFT has to double in price, and that’s not considering the gas needed to make the sale from my end.

The Future of NFTs

I am absolutely fascinated by the possibilities that NFTs are enabling, and beyond the current price bubble, I expect NFTs to play a significant role in the future of crypto, with lots of real-world applications up for grabs once the technology matures and regulations catch up.

What do you think of the NFT space? Are you invested in any projects? Let me know in the comments section below.