What the Most Valuable NFT Collections Have in Common
Dr. Michael Gebert
Believing in a bright future and our ability to build it together.
Finding the Next CryptoPunks...
Can studying the NFT blue chips help us find the next big winners?
The NFT technology is enabling digital ownership and having a profound impact on art, gaming, music, and really our daily lives, economy, and culture at large.
As Coinbase expects to launch its NFT platform later this year, a wide number of people have already expressed willingness to try the offering. A few days after Coinbase started its NFT waitlist in October,?more than 1 million people had signed up?for the platform.
The number of applicants has continued to grow rapidly, with Coinbase reportedly receiving over 2.5 million emails seeking to sign up for the marketplace so far. This is just a tiny portion of Coinbase’s total 68 million verified users and 8.8 million monthly active users as of Q2 2021.
Studying and participating in all this is exciting in and of itself, but it’s also creating some great investment opportunities and certain NFT collections have made some people very wealthy in the last few months.
While I still believe?CryptoPunks,?Bored Ape Yacht Club, and?Cool Cats?are great investments at their current price points, they’re also well out of reach for most people. That’s why I’m now searching for the?next?blue-chip ‘generative trait’ project.
Having studied these and other successful NFT projects, and listened to the experts in the space, I’ve made a set of loosely defined criteria that I’ll outline below. This is by no means a guaranteed formula for long-term investing success, a quick-flip guide for instant profits, or financial advice of any kind. I’m just offering my humble and ever-evolving perspective and educated guesses as to what makes for a good long-term investment in this space.
#1 Interesting and unique artwork
The artwork is typically a potential buyer’s first touchpoint with a new NFT collection, so it needs to get them excited. I’m looking for art that’s?interesting?and sufficiently?different?from what’s already out there, not necessarily something that would be considered artistic masterpieces. The simplistic pixel art of CryptoPunks and?CyberKongz, and even the hand-drawn artwork of Cool Cats,?SupDucks, and?Gutter Cat Gang, are all great examples of this.
Cool Cat #4713,?CyberKong #3018,?SupDuck #6383, and?Gutter Cat #1083, each valued at $11,000 — $47,000
Not only does good artwork lure people in, but it also makes them much more likely to want to own it long-term and showcase it publicly, thus acting as promoters, attracting new investors, and strengthening the overall brand and investment case of the collection.
For projects that are more focused on?utility?than?aesthetics, which I’ll cover below, the art naturally doesn’t matter as much.
In summary
#2 Clear mission or purpose
The projects in this space have wildly different missions. I personally classify them into four overall different categories:
There are already plenty of success stories across the spectrum, and most NFT projects fit into multiple categories at the same time. Furthermore, a project can easily evolve over time, for instance starting out with its sole focus on amazing art, a deeper purpose, or historical significance, but later utilizing its funds, IP, and community support to create a game, an animated series, staking, additional airdrops of new NFTs, or a million other things.
Because of the possibility to evolve, I’d much rather see a strong community formed around amazing art, a shared cause, or historical significance, than some concrete utility.?World of Women, The Creature World by artist?Danny Cole, BAYC, and CryptoPunks are all great examples of this.
A few of the amazing pieces from the World of Women collection (source: OpenSea.io)
One of the newer and still affordable examples of historical significance is the?OnChain Monkey. They call themselves the?first-ever avatar series that’s fully on-chain in a single transaction. I’m curious to see how much significance and value people will assign to them in the future.
In summary
#3 Strong and dedicated team
The bare minimum for me to buy an NFT is that I trust the people behind the project to not run away with my money. In a world of pseudonymity and people hiding behind avatars, having this trust is harder than it sounds.
For new creators, it’s always extremely valuable to be backed by known and trusted figures in the space. If someone like?Beanie,?Zeneca, or?Pranksy?vouch for a new team, that’s usually good enough for me. Active social media accounts and a bit of background on each team member also go a long way. Video or audio interviews are great as well, but not required.
After that, I’m looking for talented people who I believe will deliver high-quality work. A lot of the groundwork is obviously done by the artist, but they usually need a skilled team around them to succeed.
The more a project is focused on?utility, the more you’re betting on the team to deliver on its promises. However, even collections that aren’t about utility still need great marketing, branding, and community management, as well as the ambitions and ideas to keep bringing value in the future.
The team needs to be active on Discord, post frequent updates, and show a real interest in their community. This means communicating with respect and a welcoming tone, answering any questions that may pop up, and?listening?to feedback from the community. It also means communicating about the?project?and what it stands for, rather than?money!
In fact, I typically avoid projects where the team only seems to care about the price of their NFTs, raising the floor, and “going to the moon”.?Some?attention to the finances is healthy, but it shouldn’t remove focus from the project’s fundamentals in favor of a short-lived pump-and-dump. How and how much the team talks about this topic also has a massive impact on the type of community they attract. More on that below.
领英推荐
In summary
#4 Large and engaged community
For a new project to sell thousands of NFTs and be a long-term success, it needs to have a large and engaged community. Depending on?when?in a new project’s life cycle you join their Discord, and the size of the collection, the number of members to expect will vary. You will most likely need?thousands?of members though, but numbers can be deceptive. It’s very important to assess the members’ behavior.
If all 10,000 Discord members are buying an NFT for a quick flip, there is no community.
The conversations on Discord need to revolve around the artwork and the project’s mission as I outlined above. You need people to demonstrate a love for the art, a long-term view, a genuine interest in the project, and a focus on strengthening and growing the community.
For collections that already launched, another positive sign is a low number of sales listings relative to the size of the collection. Ideally, the ratio is less than 1 to 5 (or 20%), meaning that fewer than 2,000 NFTs are listed for sale in a collection of 10,000, for instance.
Only 1,325 out of 10,000 Cool Cats are listed for sale on?OpenSea
Another good indicator of strong hands in the community is how many?bids?are being accepted. Bids are usually placed?below?what an owner would/could list the item at, so a high number of these bids being accepted indicates that owners are willing to settle for less to quickly get out of the project. You can easily see all sales in real-time on a marketplace like?OpenSea?where accepted?bids?are marked by a pink ETH symbol (see screenshot below).
Real-time sales of Cool Cats on?OpenSea. I have highlighted the sales that came from accepted bids.
I’m also looking at the number NFTs per owner. I want the owner base to be as large as possible, with the average owner holding no more than 3 NFTs. If you own just?one?NFT in a collection you’re much less likely to sell than if you owned ten and wanted to reduce your position. Thus, a large community is both beneficial for the project itself and for the NFT as an investment.
In summary
Timing your purchase
If a pre-launch project checks all the boxes above, I will try to ‘mint’ an NFT when they launch. The mint price is hopefully the lowest you’ll ever be able to buy the NFT at. Proper due diligence is even more important with a brand new project with no track record, and you also need to be aware of gas fees when minting a popular project in the?Ethereum?ecosystem. That being said, getting in as early as possible can certainly pay off.
For projects that have been around for a while, I always try to assess where I think the price will be in a few days. If the price has just skyrocketed, it may be due for a correction. On the other hand, if there’s a positive catalyst or the rumor of one, it might be time to pull the trigger.
0N1 Force?provides a great example of a massive price pump followed by a big correction and consolidation
For projects with some price history, I generally like to see the average price having stabilized for a few weeks. This tells me that the team and community have found their footing after launching and that the price is no longer driven by short-term speculators. This significantly reduces the downside risk, which is especially important when you’re buying a higher-priced NFT.
In summary
Closing thoughts
I wrote this article to help process my own thoughts, create somewhat of an investing template for myself, and hopefully provide you with some inspiration as well. Maybe it can even start a dialog that benefits us all. To sum it all up, here’s what I’m currently looking for in new NFT projects:
If a project checks all these boxes, I know we’ll get plenty in return for the time and money we invest — even if the ROI is more experiential and emotional than financial.
Happy investing!