Blockchain has come along way since Satoshi Nakamoto published the momentous white paper that would give life to the world’s first cryptocurrency. With second and third-generation blockchains proliferating across the crypto landscape, new possibilities and use-cases continue to emerge every day. Far from the least among them is the new-ish concept of NFTs, nonfungible tokens that establish ownership and authenticity of original digital assets — be it trading cards, collectibles, artwork, videos, gifs or anything else — and which have become the talk of the town lately.
While NFTs have existed for several years, the marketplace for them has seen an immense surge in interest following multi-million dollar sales and fortunes made almost by accident. If you’re thinking about investing in NFTs, we have tons of info you need to know to keep yourself safe, arm yourself with the requisite knowledge about the NFT market.
Related: What are NFT Stocks?
How to invest in NFT Art
1. Establish Your Goals and Finances
While it’s easy to get swept up in the crypto-craze, before you set out on anything investment journey you need to take a hard look at your finances and highlight how much you really have to put into investments. Many suggest that new investors ensure that they have enough savings set aside for a rainy day (a few month’s rent) Before putting any money into the market. You don’t want to invest money that you cannot stand to lose.
The way one should spend within their means, one should most certainly invest in their means. Once you have highlighted exactly how much you have to comfortably invest, you can consider looking into putting money in NFTs or any other investment.
Related: Best NFT Marketplace Websites
2. Evaluate Your Appetite for Risk
Before you put money into any sort of investment, be it the stock market, real estate, crypto or any other form, make sure to ask yourself what level of risk you find acceptable. This sort of ties into our previous point about knowing how much you can comfortably lose and making sure to spend within that range.
Every form of investment is accompanied by some level of risk and, as anyone who’s watched the crypto market for some amount of time can attest to, cryptocurrencies and other emerging technologies are about as volatile as it gets. If you are strapped for cash and looking for a way to grow your wealth through minimal risk, you might want to consider more stable methods of investment like index funds, retirement plans or high-yield savings accounts before you invest in NFTs.
3. Become an Expert on Crypto
They say you should never invest in something you don’t understand. One of the barriers to entry facing many investors looking to enter the crypto market is the informational asymmetry it presents newcomers. For those less than tech-savvy, understanding the ins and outs of crypto should be the number one priority before even thinking about putting money into NFTs. The market has only grown increasingly complex as blockchain has evolved in recent years started catering to numerous use use-cases beyond simply acting as a virtual currency.
Understanding how the technology works will inform your understanding of each individual blockchain and cryptocurrency, helping to evaluate their merits accordingly. Without a well of knowledge to draw from, it will be impossible for you to tell the difference between a futureless knock-off alt-coin and a brilliant blockchain with a bright future. This is especially important because when you bet on NFTs, you are also betting on the currency that helps fuel the decentralized network it is hosted on.
If that sentence made no sense to you, it means you need to do more research. Never be in a rush.
4. Take Security Seriously
Decentralized networks like a blockchain are in fact much more secure than centralized servers and any other system dependent on trust and a third-party. But the individual user, you, are not secure. You can fall victim to phishing and other social engineering scams design to convince you to give up your important details. You can fail to protect yourself against malware like keyloggers that can expose your sensitive information.
You can needlessly attract unwanted attention from cybercriminals by boasting of your meteoric returns. If you are going to put real money into NFTs or crypto, you need to make security your number one priority. Consider investing in an industry-leading hardware wallet to protect your funds in the long run and remember never to store NFTs or crypto on any public address that is not solely your own.
5. Know Your Subject
We said it once and we’ll say it again, you should never invest in something you don’t understand. Even once you’ve obtained a firm knowledge base on the technical side of crypto and NFTs, you need to start looking at the kind of subject areas that you can understand the consumer psychology of. This is a lot like being a curator for an art collection; you need to understand the kind of art and creations that people gravitate towards — what will resonate with people like you.
This doesn’t even need to an artsy-fartsy thing, either. There are all kinds of NFTs. There are the NBA Top Shots, games like Axie Infinity, meme-culture crypto art on Rarible and high-concept avant-garde 3D art on Foundation.
While highlight reel NFTs for huge players on Top Shots currently command exorbitant prices, if you know basketball you might be able to pick out little-known, up-and-coming players who could be the next Lebron James, scooping them up for cheap and selling them at their peak later on — just like betting on a good startup. The same goes for NFTs of any sort. Once you know how NFTs work, you can intermix that knowledge with your own interests to capitalize on unique insight into a niche market.
Related: What Is an NFT Art Exactly?
6. Choose Artists, Not NFTs
They say to pick good companies, not good stock. This can be applied to NFTs as well; If you find an artist who consistently puts out what you think is high-quality work, seems to be garnering momentum for themselves but has yet to explode to Beeple levels of fame, picking up a few pieces of their work to not only you support them but also place a firm bet on their future can be a rewarding way to frame your investment decisions in the NFT market.
Look at the kind of styles that resonate with you without giving in to cheap imitation; isolate what sort of elements seem to capture the attention of buyers and collectors without closing your mind to new ideas.
7. Watch the Market
This should, of course, be a given for anyone who is thinking of putting or has already put money into NFTs and crypto in general. You should be regularly aware of the comings and goings of the overall blockchain industry, the cryptocurrency market and the NFT space to be able to not only capitalize on opportunities but stave off potential mishaps.
It doesn’t mean you have to be reading crypto news 24 hours a day but investors in the space would do well to set aside some time to study it regularly, and by extension, their money.
8. Don’t Become Hostage to FOMO
There is an expression among investors that goes, “don’t try to catch a falling knife”, warning against the dangers of FOMO. Experienced investors in many cases view a falling share price or dip in the market as an opportunity for entry — even the most fundamentally sound companies have their ups and downs, but good companies can weather stormy seas and sail their way to the calmer, clearer waters on the other side.
Rather than waiting patiently for a price to bottom out, many end up recklessly putting money into a stock only to see it plummet even further or flatline. FOMO can drive users to the reverse as well — watching prices rise, some investors eagerly jump aboard the bandwagon right at the peak only to watch their investment shrink with the natural tide of the market. Make every decision with patience, and never rush to catch the bus.
9. Don’t Lose Sleep
At the end of the day, the purpose of investment is to help grow your money in order to live your life in safety and comfort. If your investments are keeping you awake at night or have you perched over crypto news like a hawk waiting for the next shoe to drop, you have not correctly tuned your decision-making to your own appetite for risk and are suffering for it.
Your quality of life should be improved by investment and your investments should, generally speaking, never be a source of crippling anxiety. If you put your heart instead of your brain alongside your money into the market, you’re only priming your emotions for a roller coaster ride you may not be equipped to handle.
Consider Making Your Own NFTs
If you’re thinking of putting some money in enough to use in the hopes of watching them grow, it might be worthwhile to consider, rather than betting on someone else, to bet on yourself and see what kind of NFTs you can provide the market. Even if you’re not an artist or 3D model or developer, there are ways to digitize numerous goods. Kind of like starting our own company rather than investing in someone else’s, you can experiment with out of the box ideas in the hopes of discovering a golden ticket of your own.
Who knows, maybe you’ll make the next Nyan Cat.
Related: How to Make and Sell NFT Art
What do you make of the NFT market? Nothing but respect your bubble waiting to burst or the dawn of a new commodity?