Introduction
Unless you’ve been living under a rock, you’ve probably heard of NFTs at this point, even if you don’t know what they are. Like many, you may have started off being skeptical about the entire trend – and seeing JPEGs of apes and pixelated humans going for hundreds of thousands of dollars didn’t help either. However, months have passed and you’re seeing your favorite celebrities, luxury brands and large industry leaders such as Nike, Adidas and Visa getting involved with the emerging technology in one way or another.
Perhaps now you’re finally open to learning more about NFTs, even considering taking the plunge and picking one up. In this article, we hope to answer all the questions you might have about NFTs and offer tips on investing in your first NFT.
What are NFTs?
Non-Fungible Tokens or NFTs, for short, are crypto tokens that are unique and represent a non-interchangeable set of metadata that’s stored on a blockchain. Fungible tokens, on the other hand, are interchangeable. Tokens such as Bitcoin and Ethereum are examples of fungible tokens. 1 Bitcoin = 1 Bitcoin and users are indifferent between the exact bitcoin which they are purchasing or receiving. Conversely, each NFT is uniquely identifiable and in most cases users would care about the exact NFT that they are purchasing or receiving.
At its core, NFTs offer proof of ownership that is missing in digital economies today. The technology has created the ability to combine many benefits of the digital world: a global audience, scale and distribution, with benefits of the physical world, including ownership and authenticity. Leveraging on that fundamental benefit, multiple real world use cases have arisen over the past 2 years - tokenizing art, academic certifications, game assets and even physical real estate are just a few examples.
Why Invest in NFTs?
The main driving force behind investing in general is to receive future monetary upside, and the theory behind investing in NFTs is no exception. Currently, there are a few leading implementations of NFTs that investors are focused on: Art, Gaming, Music, Sports, Collectibles and Access Passes. Each unique category appeals to a different group of investors, allows you to play to your own strengths and circle of competence and offers the opportunity to partake in the financial upside of an area that you are interested in.
Beyond monetary upside, owning an NFT typically means that you’re also joining a community, especially when it comes to social/PFP NFTs such as Bored Ape Yacht Club and Clone X. You get warmly welcomed by fellow holders on Twitter, the projects Discord channel and get to interact with fellow holders. Being a part of that community gives you exclusive access to chat groups in their Discord or on Nansen Connect and invites to exclusive events hosted by the NFT project. Holders of popular NFT projects oftentimes are eligible to join the minting whitelist of upcoming NFT projects, adding on an additional layer of benefit to owning NFTs.
How to Purchase Your First NFT
If you’re new to crypto, buying your first NFT can be a daunting task. There are multiple steps involved but fret not, we’ve got a whole article that explains how to buy your first NFT.
For those that just want a quick overview, here’s are the main steps required:
- Purchasing the cryptocurrency used for transactions (ETH/SOL/AVAX etc)
- Creating a crypto wallet (MetaMask/Phantom)
- Deciding on a NFT collection and specific NFT to purchase
- Purchasing it from a marketplace
Things to Look Out for When Investing in NFTs
Given how nascent the NFT space is, there isn’t a standardized methodology or fixed set of metrics that allows investors to evaluate NFT collections. Many projects are being built in public, experimenting with what’s possible with NFTs and are only at the first innings of their roadmap. However, there are a few things you can look out for to aid you on your investing journey.
Fundamental Analysis
As mentioned above, many NFT projects are typically at the first innings of their roadmap. While you want to invest in NFTs that have a good roadmap, execution risk is very real. The quality of the team working on the project is a more important indicator of future success. As an investor, it’s beneficial to spend time understanding the background of the team building the project and evaluating their ability to execute on their plans.
On-chain Data
On-chain analysis might be unfamiliar to you if you’re new to the space. It’s essentially analyzing data on the blockchain and getting a better understanding of what’s actually happening. Using a NFT analytics tool like Nansen, can give you an edge over other investors by helping you cut through the noise and surface quality projects.
Nansen enriches on-chain data with wallet labels, offering the most comprehensive coverage of the NFT market. You’re able to do deep dives into your favorite NFT project and get a clearer understanding of what the best traders and investors in the NFT world are doing. We highly recommend checking out the article that we’ve written covering the different data points you can check out on Nansen.
The Best NFTs to Invest In
NFTs span across a wide range of categories - music, sports, gaming, art, there’s a category for everyone. At Nansen, we categorize NFTs and group the largest collections into indexes according to their category. Investors should take their time to understand the various categories of NFTs and dive deep into individual projects that pique their interest before making a purchase.
If you’re unsure of where to start, a good starting point would be looking into collections in the Nansen Blue Chip-10 index which is a collection of the 10 largest NFT collections on Ethereum by market capitalization. The index contains popular collections such as Bored Ape Yacht Club and Clone X, both of which we’ve done deep dives into.
Recap
NFTs are an emerging and ever changing asset class that has taken the world by storm in the past year. Picking the right NFTs to invest in can be difficult and making your first purchase is oftentimes daunting if you’re new to the space. However, leveraging on NFT analytics platforms such as Nansen to give you a deeper understanding of each NFT collection is key to making informed investment decisions.
