What I learnt 2.5months into trading NFT's - Part 1

Edit (12/1/2022): Had to add this, since I shared a number of exciting project in the below post - AP - The Associated Press (https://apnews.com/) - one of the longest standing independent news cooperative (170+ years), just launched a new market place where you can own a part of history. Really curious this will play out with the more "controversial" historical moments caught on camera - check it out! - https://apmarket.xooa.com/p/join-waiting-list?q=P5Ec6 (invite link - if you do subscribe, I get the benefit of a higher position to access if you join - just for added transparency)

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Things I’ve learnt in the last 2.5 months of NFT trading: (written 11/1/2022)

Quick definitions:

• WL - White list - the ability to 'mint' (buy) into a project early before it goes into the public secondary market.

Before you jump into it: Yes, the stories of people making instantaneous millions are plentiful, especially if you’re looking at long standing projects such as “Bored Ape Club” – 72ETH floor price (https://opensea.io/collection/boredapeyachtclub), “Crypto Punks” – (https://opensea.io/collection/cryptopunks - highest sale ETH 124,457.0675), recent projects such as Jay Chou Backed “Phanta Bear” project – 7.9ETH floor (https://opensea.io/collection/phantabear) and “Doodles” – 10.1ETH floor (https://opensea.io/collection/doodles-official ). This raises “fomo” (fear of missing out) and seems to give the impression that there are clear winners in this space that are obvious to pick and benefit from.

?This is only partly true – Here is why NFT’s are risky: NFT’s beyond the pure basics of being a “non-fungible” token, or just simplifying it as the proof of digital ownership of the asset you purchased, are incredibly non-liquid. This means that you can only really benefit from them if there is demand. If not and no one wants in, you’re stuck holding it forever and the floor price drops to close to zero – where “listing it” (which costs “Gas” – i.e. processing fee’s) exceeds the price of the sales value. Also note that there are fee’s for Open Sea (the platform I use, but there are many) – of 2.5% + whatever royalties the artist charges (can be up to 10%) – so take this into consideration when you “list” your assets for sale, as it will eat into margins. Even though in the beginning of NFT project launches, it was easy to maintain oversight when there are less than 10 projects launching a day, at 120+ now - not only does this mean that the idea of “rarity” and “limited” across NFT’s doesn’t exist – the supply is added to daily, and a projects survival ultimately comes down to the sustained “hype” and excitement that a community has around it. If you miss one project- don’t fuss – chances are that there is another significant launch around the corner in the days preceding it.

?What do you mean by “community”? – Communities usually start developing over discord – a communication platform primarily used for gamers in the past, that has now become the NFT market’s go-to platform for any updates and community building aspirations. There are most common way that they launch is to create interest using twitter, where discord links/ website links are shared. Twitter is the main social media platform for new project launches and loads of projects give away “free NFT’s”/ prizes/ “whitelists” and discord entry privileges - just to build up the overall organic exposure of a project. At the time of writing this, you can check out https://twitter.com/WGMInterfaces (no discord launched + only has a 1 landing page website, but has created hype around continuously sharing designs) Or Invisible Friends https://twitter.com/InvsbleFriends (another project that is incredibly popular in the NFT circles right now and has a discord already).

?What I’ve learnt is that Communities do in fact make or break a project, as the sentiment within them are very closely aligned with floor price. If an announcement is made that is exciting in regards to benefits that a user can attain in the near future of holding an NFT of that project - the floor price sustains & usually goes up.

An exciting project I'm currently in was launched by Ben Mezrich’s (the guy that wrote social network) - https://opensea.io/collection/ben-mezrich-project-meme-stock - Where holding 1x NFT across a 3x different collections will enable you to get a ‘kick back’ off the screen play he’s currently developing, - the project floor price sustains and tends to go up. This doesn’t only incentivise holding your NFT’s for the long-term benefit, but sustains excitement, as there is a 1–2-year timeline on this (at least with this project). Plus in what world are you able to talk to one of your favourite authors on discord and get a front row seat in screen play writing AND contribute your own ideas in the process (absolutely incredible!!!).

?Another project that did this well is “nanopass” (https://opensea.io/collection/projectnanopass) – where each week, holders of the nanopass will get a “black box” – which gives you either fragments (used for phase II project to evolve your ‘agent’), WL spots for other projects or even other NFT’s) – They even gave out a “hapebeast” white list in the New Year box.

On the contrary - CBS - https://opensea.io/collection/crypto-bull-society (the bull picture to the left of the image above) - Had a really amazing launch with floor price almost reaching 2.8ETH. Due to the inactivity of the founders and delays, people in the discord got frustrated (started "fudding") - as we were supposed to get "free bears" on the 2nd of January, which has now been further delayed to 10th of February to ensure their quality.... Some people are over the wait, but diamond hands (long term holders) in this project remain optimistic --- Time will tell whose right.

?Communities can also ‘tear down’ floor price and is often quite visible across “rug pull” projects or projects where “FUD” (fear/uncertainty/doubt) is incredibly high. I’ve been part of “rug pulls” – which are projects where the founders essentially get everyone excited to buy in, overall trade volume increases and next thing you know the developers/ project founders disappear and the project is left in turmoil (https://opensea.io/collection/theapingdead & https://opensea.io/collection/babyxavatars). When this happen a chat can quickly change from super hyped & optimistic, to damn near toxic and relentless (a falling floor really brings out things in people when money is at stake).

This happens so much these days, that there are a few fundamental elements you can pay attention to, to reduce your risk. At the time It’s super hard to resist, when you have up to 20,000+ members in a discord essentially blind hyping the project with LFG (“lets fucking go”), to the moon, “I’ve been in this a long time, this project is different”, wen lambo? … blah blah blah It’s hard to resist– DO NOT fall for this and keep your emotions in check.

It's also common to see FUD from people that missed the mint date, to drive down floor price, so if this takes a chat over, the project can often suffer because of it. (this can happen to legitimate projects) - nanopass suffered from this, but all the "paperhands" (quick flip traders) have more or less exited the project. This means that the project now maintains a pretty good floor consistency, as holders are more longer term orientated (diamond hands) and don't list their NFT's for sale to benefit from the ongoing utility (the 'black box' i mentioned earlier).

?My Personal checklist prior to investing (to reduce risk of rug-pull):

?1)????Is the owner “Doxxed” – meaning have the founders/ main developers of the project shared their identity – this drastically reduces the chance of a rug pull – (it’s easier to screw someone over when you’re anonymous).

2)????Does the project have utility beyond the art work (and how transparent are they with timeline). Yes there are delays, but there should be certain range targets highlighted. Frequent AMA's (live discord/ twitter sessions) where founders share updates are LOVED by the community and keeps everyone positive.

Edit: Just because there is no utility, doesn't mean that a project won't be successful - there are tons of art projects that do well - but this depends on the artist. Usually there should be roadmap additions when it comes to limited edition merchandise and WL for any projects proceeding the one you're holding/investing in. Thanks @Adam.

3)????Generally speaking – the harder it is to get on a WL, the more successful a project will be – Some just set targets for invites OR levelling up on discord to a certain level (by engaging in chat’s and writing messages – you level up).

a.????Positive signs: WL only given away IF you are recognised by mods (the "hallway monitors of the discord channel) or members of the community for something ‘outstanding’ – whether it’s being a helpful member of the community, submitting artwork, sound bites, creating memes etc. This requires continuous activity in the discord channel or flexing your creative abilities to get noticed through creative submissions.

b.????Meta Eagles (https://twitter.com/galyverse) set the requirement to attain a WL to “lvl” 55 (which translates to roughly 120+ hours of “grinding”- sending messages through discord) – This almost just forces you to become part of the community and anyone who has that dedication, deserves the WL. There are some individuals in these discord channels that legitimately pull all-nighters and spend many sleepless nights, typing away engaging with each other. Being stuck in a discord with a few individuals over days leads to more in-depth conversations and I've seen people give advice on parenting, investing, reminisce about travel and even give relationship advice. I understand how people can be sentimentally connected to the project and the community they are a part of (this is what also makes NFT investing so addictive - especially during COVID where loads of people feel isolated).

c.????Warning signs: Invite only targets – 3-6 invites and you get white-list – these are generally outdated and SUPER easy to get, if you have a few NFT WhatsApp groups or “alpha groups” (groups in discord that share new project launch information and juicy intel that can give you an advantage over the regular trader). I’ve also seen projects with zero requirements, where simply just joining a discord enables you WL.

And another point - not necessarily 'rug pull' avoidance related, but something I noticed;

d. If you're buying from secondary/public market - this means after the original mint - look at the price fluctuation. Just after mint, there is usually a hype rise, followed by a drop, pre-reveal (loads of projects don't "reveal" your NFT's until all NFT's in primary market are sold). What usually happens is that there is another big drop after, as individual NFT's have "rarity" components that can add to it's value - people that do not score rare ones, usually sell theirs off cheaply --- this is the best time to join the party - especially if you miss the WL - cause just like many of you - i don't have time to live on discord :) I prefer longer term utility projects for secondary buys - but that's more of a personal reference. The risk on stand alone collections (without utility or additional benefits) is higher.

?What’s the deal with WL? Being on the Whitelist (WL) enables you ‘early access/buy’ privileges at lower minting costs (minting means initial purchase prior to NFT going to "public market"). You usually “mint” a project through the main NFT collection's website and once done, the images are automatically uploaded into your OpenSea profile. This is advantageous, as the mint price is usually the cheapest entry point of a project, before you need to start buying off secondary market, where prices are 5x-10x higher (if the project is good). So if you’re late – not only is it costly to get in, but more importantly, it is harder to make a return on your investment, as the risk to secondary market buy-ins vs white list buy-ins is WAY higher!

Let me show you what I mean:

-??????Crypto Bull Society (https://opensea.io/collection/crypto-bull-society) ?- Mint Price 0.22+gas - 1.7ETH floor (hit an all-time high at 2.8ETH late December). There are plenty of users that bought in above 2ETH - that are watching the floor religiously now and hope that additional updates will drive the price beyond this.

-??????Bored Ape Club (https://opensea.io/collection/boredapeyachtclub) – started at a 0.08ETH (USD 251.28) - now has a floor of 77ETH (USD 241,853.15)

Just imagine buying 5-6x of these Apes at floor price with that return of investment! – not bad for 11 months investment.

What does the future hold: Many people are saying we are heading to a bubble – which may be true, but NFT’s are here to stay in my opinion. Whether they are sold as pfp (profile picture art), utility projects within “earn to play” category and metaverse ‘real estate’ ownership – this will only get bigger, as more brands adapt to getting into this ‘hot space’. Nike, Gucci, Redbull, Pepsi – they’ve all done it…. But the market is evolving.

For any brand trying to get involved now – it is crucial to understand the ecosystem around successful projects – especially when it comes to community (Pepsi didn't even bother building one). This can be a "scary" place, because ultimately you are in a chat with potentially hundreds of thousands of people, that can switch to being hyped to fudding within a matter of minutes. You need A-grade community leaders in this space and a strong/ transparent team when it comes to roadmap development.

I recommend using “hapebeast” as an example (https://www.hapebeast.com/ ) – Planned Launch (Mint) on the 19th of January (same date as the artists birthday) and they expanded their discord 3x times from the 250k limit to the 500k+ limit and doesn’t seem to be slowing down. But what they did successfully is continuously being transparent with their community, turning the community into allies, creating phenomenal art with exciting benefits for their holders – it is yet to see where this project will end up, but if we will ever see another project follow in the footsteps of Bored Ape Club or Cryptopunks- it’s this one (not financial advice – just merely an opinion!).

Please note that I have no idea what I’m doing in this space and the above does not constitute as financial advice, but merely the lessons & ramblings of someone trying to still figure things out in this space.

If you found the above helpful – please like and share – I’ll be happy to take you along my journey and continue to share my trials and tribulations in the NFT space.

Let’s go to the Moon!

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