Non-Fungible Tokens (NFTs) have taken the world by storm, allowing creators to sell unique digital assets and collectors to own a piece of the digital world. These unique digital assets are verified on a blockchain and provide a new way for creators and artists to make money from their workpieces and for collectors to invest in rare and valuable digital art.
Reports from Dappradar reveal that NFT sales volumes totalled roughly $24.9 billion in 2021, seeing a massive rise from about $94.9 million in 2020.
However, with the rapidly growing NFT market, navigating and making informed trading decisions can be difficult. With over 25 million wallets trading in NFTs, it is essential to become acquainted with practical strategies to employ in trading various NFTs. Here are some approaches that traders can consider when trading NFTs. This article will explore some critical strategies for beginner NFT traders to help you get started.
What are NFTs?
Non-Fungible Tokens (NFTs) are an interesting sector within the world of blockchain technology. They provide a means of creating, buying, and selling unique digital assets that are stored on a blockchain; a decentralized and secure ledger. Unlike Bitcoin and other crypto assets, which are fungible and interchangeable with each other, NFTs are unique and cannot be replicated. This makes them a highly sought-after asset for both creators and collectors.
One of the primary features of NFTs is their ability to represent digital art, collectibles, virtual real estate, and other unique digital assets.
What Is NFT Trading?
NFT trading involves buying and selling non-fungible tokens (NFTs), which are unique digital assets stored on a blockchain. NFT trading allows individuals to purchase and own a piece of the digital world, such as digital art, collectibles, virtual real estate, and other unique digital assets. This form of trading is conducted on various online platforms, where traders can buy and sell directly with each other without the need for intermediaries.
What to Look at When Investing in NFTs
Before investing in NFTs, it is essential to consider certain factors to ensure a safe and profitable investment.
An NFT project with a high market cap shows that there are several NFT hodlers willing to bid a higher price to purchase the NFT asset from another.
Evaluating the project’s market capitalization is a good method to identify the right project. Unlike other crypto assets, the market capitalization of NFTs doesn’t move rapidly. Additionally, an ideal project would provide an overview of the market cap.
Scarcity of the NFT
Some NFTs may be one-of-a-kind, while others may be part of a limited edition series. How scarce an NFT is can play a significant role in determining its value and can affect the future price of the NFT.
Popularity of the NFT
Widely-known NFTs are more likely to attract more interest and command higher prices, while less popular NFTs may not receive as much attention and may not be as valuable.
Some NFTs may have a specific use case, such as representing a virtual real estate or being used as digital collectible cards, while others may be more general. Understanding the potential use cases of an NFT can give you a better understanding of its future potential.
Storage and Security
NFTs are stored on a blockchain, but you do not want to put your assets in a compromised chain. It is essential to consider the storage and security of your assets. This may include ensuring that your tokens are stored in a secure wallet and that you have access to private keys to your assets.
It is also vital to ensure that the platform you use to store and trade NFTs is secure and has a strong reputation.
5 NFT Trading Strategies
NFT trading strategies have become more and more critical with the increasing popularity of NFTs. Let’s explore five popular NFT investment approaches.
Purchase NFTs With Few Sellers
NFT collectibles with few sellers may be unique and rare, making them more valuable and desirable to collectors and enthusiasts. The scarcity of these collectibles can eventually lead to an increase in demand and, therefore, a higher market value. As the supply is limited, the scarcity of the NFT may increase its perceived value over time.
In addition, NFT collectibles with few sellers may have a solid and dedicated community of collectors, which can help to drive demand and increase the value of the NFT. If the demand for the NFT collectible with few sellers continues to grow, its value could increase, leading to a potential return on investment.
Buy the Floor
This is a popular strategy in NFT trading where the investor aims to purchase an NFT at a low price with the expectation that its value will increase in the future. The idea is to buy the NFT when its price is at or near its lowest point, and then sell it when the price rises.
Follow Market Trends
It is essential to monitor market trends when investing in NFTs. This includes keeping up-to-date with news and events related to the NFT market, as well as following the prices of similar NFTs. This can help you make better-informed decisions about when to buy and sell NFTs.
Buy the Ceiling
This term is commonly used in the NFT market to describe the strategy of purchasing NFTs at the highest possible price. This strategy assumes that the price of the NFT will continue to rise and that the investor will be able to sell the NFT for a profit at a later date.
Diversify your portfolio
Diversification is a crucial principle in investing, and the same holds true for NFT trading. Avoid putting all your eggs in one basket. Spread your investments across different artists, styles, and genres to reduce your risk. This will also give you exposure to a broader range of NFTs, potentially increasing your chances of finding undervalued NFTs that have the potential for significant growth.
NFT trading can be profitable for traders who are able to correctly predict market trends and buy low and sell high. However, NFT trading can also be a highly speculative market and comes with associated risks.
Additionally, it’s essential to keep in mind that these strategies mentioned above do not offer a guaranteed investment strategy. There is always a risk of losing money. As with any investment, only invest what you can afford to lose and always do your own research.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.