How To Evaluate NFT Projects [Both Value & Success]
NFT

How To Evaluate NFT Projects [Both Value & Success]


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It’s very essential to evaluate the value of every Non-Fungible Token before investing.

As with all kinds of cryptocurrency investment, researching projects is one of the main skills to acquire.

NFTs are no exception, as it’s even more important in this emerging world, characterized by high volatility and new territories.

There are a few aspects that are worth looking into in more depth, before deciding to put your crypto asset into a project.

While it’s possible to list key indicators to look out for when doing your research, I will also add that experience is another key factor.

After spending days and hours learning, and investing in different projects, you will likely develop a kind of sixth sense for NFTs.

A quick look at most new projects gives me a feeling that almost always turns out to be correct.

Being right about an NFT value in an objective way does not mean you’re also right about the floor price momentum.

You will struggle to understand why certain projects rise to dizzy heights when your objective analysis points to the other way.

Conversely, you will see extremely interesting projects flounder price-wise.

Diversification can help you to avoid the problematic projects, knowing that some of your other bets will cover those losses.

How to evaluate NFT projects

Here are the major key indicators that I use to evaluate NFT (Non-Fungible Token) projects you must checkmate before investing in them.

Aim of project

There are copycats for every successful project, so make sure you don’t invest in one of those copycats.

They usually go down to zero after a few days of hype, that’s if they manage to gather that initial traction.

Unfortunately, lots of people who missed out on minting the successful project think they can get some exposure by buying the copycat.

Earlier in the days, NFTs were mostly PFP experiments, and also generative art, but in 2022 the focus seems to be shifted.

They’re weighing heavily, towards extra utility, community access, real-life perks and metaverse gaming.

Typically, you may want to own an NFT for any of the following reasons:

  • Access to a strong network e.g. punks, apes
  • Status symbol (any blue-chip PFP or gen art project)
  • Early access to other NFTs through whitelist collabs
  • Access to future cashflow/airdrop e.g. apecoin from BAYC.

Look for projects that disrupt the norm in some way.

Utility

I’ve developed good taste over the years, and a good idea of what resonates with NFT investors.

Red flags is using copyrighted works or derivatives, when the original project’s license explicitly prohibits the practice.

If it’s not artwork par say, I normally myself whether I understand the NFT niche though.

If I don’t, that’s a show stopper for me, unless I decide to spend significant time understanding the niche before investing.

For example, generative music and crypto gaming are not really my favorite areas, so I avoid buying NFTs that fall in those niches.

I can’t value them in any credible manner and thus justify an investment.

I’ll also note that one of the good things about NFTs is that they’ve led me to explore emerging niches that I was unaware of in the past.

The team

Having a great founding team (consisting of famous individuals) is very important for a project, but it’s not a requirement.

If they don’t have a big following, however, they need to make up for it with some other relevant background and a ton of work prior to launch.

There’s a lot of fanfare about being anonymous in blockchain Web3.0, but to me, it’s a significant downside.

It’s not a deal-breaker, but I definitely prefer an identifiable project team.

Ideally, I want to be able to judge the team properly, and have a look at their track record with their ethics.

Roadmap

It’s always important to look beyond a project’s artwork and learn their actual plan with the funds they raise from selling the tokens.

I like original roadmaps; projects that are trying to do something different, but also very realistic.

Roadmaps can change once, or frequently when an NFT project launches, but it’s important to know the initial idea.

It will give you an idea of what the founding team’s intentions are, and what they are capable of dreaming up.

Community

When buying into an non-fungible token project, you are placing a bet on both community and the team.

It’s very important to spend some time in an NFT Discord before purchasing any of the projects.

Discord channels usually open few weeks before an NFT project minting begins, so you can get a feel of things.

This is the way to understand community members, and how serious the project is towards future plans to add more value.

Minting cost

It is important to know the NFT mint price, and the amount of gas fees involved at minting, as there’s a wide range of prices.

This is one of the most important aspects for determining the floor price in the early days.

Depending on the type of project, when the gas price is too high, it means that the team is focused on initial sale than long-term vision.

If you’re minting, you should understand where the mint price falls on the spectrum.

Percentage royalty

Royalty percentages can vary, but you may pay up-to 10%+ on a secondary market sale between royalties and platform commission.

OpenSea charges 2.5% on each sale, while project royalties ranges between 2.5% ~ 10%.

Have it in mind that you might loose money, when you factor in royalties, platform commission and Ethereum fees all together.

This is even if you’re selling at a higher price than what you had bought an NFT project.

Floor price

If you’re not buying at the mint stage or shortly after, then you should look at how the price has evolved over time.

Always avoid buying a project when the price is pumping.

It’s very tempting to buy when a project is experiencing a big moment, but the best practice is to restraint.

There will be multiple entry points over the life of a project, and there are many other projects at different stages of their lifecycle.

Try to find a period of suppressed floor price combined with upcoming release, or announcement of a new game-changing.

These events are usually priced in by the time they’re announced, so in order to anticipate them, you need to put in the work of being in the Discord.

It’s not always easy and possible, but an ideal scenario entails talking to the founders, proposing new ideas etc.

Project promotions

If you follow some NFT experts, a quick metric is to check how many of these people followed the project social media account.

If there are several following, and even better, tweeting intelligently about the project, then it’s a good sign.

It’s necessarily a bad thing to pay these influencers, but it indicates using marketing as a crutch rather than strong team, community and roadmap.

Liquidity

Some projects (especially the generative art) can shoot-up to very high prices, but are extremely illiquid.

It is quite normal to see no sales at all happening in certain months, with the most liquid months having a few sales at best.

These are dangerous territories unless you’re both super-rich, or just want to hold on to the NFT artwork for life.

Rarity

Keep a close watch on how rarity influences the value of each token, though, not all NFTs are very dependent on rarity.

Since rarity is indeed an important factor, then it should be one of the major reasons to buy an NFT over another.

You should be using sniping tools (like: Trait Sniper) to understand the NFT value, and to discover under-priced ones.

For a new collection, it is generally advisable to favour liquidity, thus buying and flipping them at the floor price level.

This has proven to be more profitable than acquiring rare items and hoping that someone comes along with sufficient wealth.

Crypto market

In the end, most collectors just wants to make money, and this means more ETH as the currency commonly used as minting fees.

History have shown that when Ethereum price is steadily climbing, while altcoins are bullish, NFT activity plummets as well.

Most minting process based Ethereum blockchain can have higher gas fees than the NFT itself.

Additionally, NFT investors are likely going to move their ETH into riskier crypto-coins and ride the wave.

Conclusion: How to evaluate NFTs

I’ve learned to make these analysis intuitively, and now, I can easily conclude whether a project is valuable or not.

The key indicators above are essential to evaluate an NFT value before investing in the project.

The best way to gain an edge on how to evaluate NFT value, is to actually put in the work and digest this information.

Be humble to learn from your mistakes and others’ success, as you manage your own emotions.

To keep track of your NFT portfolio performance, there are recommended price trackers you can use.

Make sure to always store your NFT collections with a secure hardware wallet (like: Ledger Nano X), because they’re known to be the safest.



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