How to find profitable NFT projects
If you want to invest early in a new NFT project, here are 9 factors you need to analyze first.
Bear market or not, NFTs are still in vogue and everyone’s looking to get in on the ground floor of the next hot project. There are two main reasons why people turn to NFT investments:
- NFTs are simple to trade and tend to increase in value quicker than tokens.
- NFTs offer a variety of benefits in addition to financial gains.
What’s more, trading NFTs doesn't require you to be an experienced investor. Anyone with a basic level of knowledge of the web3 world can start participating in NFT marketplaces. It can be advantageous to hold and trade NFTs given that they appear to be the future of many industries.
However, you definitely don't want the hype around the project to be the sole influence on your trading strategy. Here are 10 things to consider when evaluating new NFT projects.
9 metrics to analyze NFT projects
While investing in crypto currencies requires taking into consideration the token's market capitalization, the success of an NFT project can be gauged by its total volume. This is the total amount earned by the collection through selling (and re-selling) of its NFTs.
The high volume of say Cryptopunks (1M ETH) indicates a great interest around the collection and promises good profits. You can't really buy a CryptoPunk now (unless you're loaded of course), but if you're looking to find the next blue-chip NFT project, keep an eye out on the volume in its early days and avoid investing if it's too low.
A project's floor price, which is the selling price of the cheapest NFT in the collection, is another strong indicator of performance. A high volume and a rising floor price signal good performing NFT projects.
The total supply of NFTs in a collection is another important factor to consider because the number of NFTs issued plays a role in the price each NFT will sell for. A greater supply of NFTs tends to lower the prices for individual pieces, making them not so sound investments.
Whales and Unique Owners
NFT Whales invest into numerous projects and are good at knowing when to HODL and when to dump. Therefore, tracking whale activity is an easy way to figure out whether the experts are bullish or bearish on a NFT project. For instance, if whales own multiple NFTs from a project and haven't listed them for sale, there's a good chance of the project being successful.
The number of unique owners (which don't count people holding multiple NFTs from the same collection) a particular collection has also indicates long term trust in a project. For example, the Proof collection has a lot of unique owners, indicating greater market trust, which in turn promises profits for Proof NFT holders.
Regardless of whether or not they are doxxed, founders play an important role in the success of their NFT projects, even long after they have been launched. Take the example of Azuki NFTs.
When Zagabond, one of the project's pseudonymous founders, revealed that he had abandoned failed projects in the past, the floor price of Azuki fell by almost 9 ETH as holders rushed to sell their NFTs, having lost trust in the Azuki team.
Azuki survived this due to its strong community, roadmap and really good art, but not all collections have all that going for them. So it becomes crucial for prospective investors to conduct in-depth research into the founder's history and previous endeavors before buying into a new collection.
While comparing two NFTs from the same collection, their rarity is a good way to determine which one to buy. The rarity of NFTs are determined by their traits and can be analyzed through online tools. The rarer the NFT, the higher the price it will rise to.
Dedicated groups of fiercely loyal believers are the reason why collections like BAYC and Doodles achieved the much vaunted blue chip status. NFT projects with strong communities can withstand market volatility and have real impact which bolsters the collection's value.
Creator royalties are a bit of a contentious topic in the NFT space right now, but it's an important metric to consider before making an investment. If you buy an NFT from a project that imposes a high creator royalty, you might end up paying a large share of your profit during the resale. So be sure to keep an eye out for collections that down have unreasonably high royalties.
The team's project plan serves as both an entry point into the project and a good tool for assessing a project's value. Entering a project before an airdrop or a new collection can be quite rewarding because that is when the buzz about the project grows. But, in most cases, having a detailed roadmap is an excellent way to keep NFT holders invested in your project for the long term.
If you're an NFT investor, whether an experienced one or a noob, there's a lot to consider and analyze before investing in a project. To make this process easier, RoverX is building an NFT analytics tool that not only provides real-time floor prices and sales volumes, but also helps verify the authenticity and legitimacy of NFT projects and its creators, so that collectors can avoid getting scammed or rug-pulled.
Regardless of whether you want to generate passive income from NFTs or switching to virtual estates because you're sick of actual estates (which is completely understandable) it's critical to DYOR before investing in an NFT project. WAGMI.