Investing in NFTs: What Makes a Good NFT Project?


We’ve talked a lot about how artists can create and market their NFTs, but it’s time to take a look at another side of the coin. Crypto art is very hot nowadays and navigating this mess is definitely not easy. Since anyone can post their NFTs, how do you know which one to buy? What is the difference between an NFT that can bring you money versus a useless NFT that will lose its value overnight? Is it even worth it? Here is some of the information I could find that, hopefully, can help you to make a more informed decision.


A word of caution

NFTs are still pretty new so nobody doesn’t quite know what’s going on. Since nobody can say for sure what projects are successful and which are not (even though there are some good indicators that I describe below), some people are bound to get hurt while some can make quick money. Please keep in mind that this is not financial or investment advice.

The Good and the Bad of NFT Projects

NFTs can bring your value and money, or become a useless investment. New NFT projects drop almost daily, so it’s getting harder to identify the solid projects from the not-so-solid money grabs. With so many project launching, it’s your job to do your own research and proceed with caution. Just like with other overhyped things, there are a lot of risks involved.

The good

Communities

The future of NFT is not only crypto art. NFT projects such as CryptoPunks, Bored Ape Yacht Club, and CyberKongz have great teams and online communities. A limited number of NFTs per collection is nothing compared to the potential membership base, thus the value of each NFT is only growing. Most of the NFTs with strong existing communities have some sort of utility and even reward holders, which also results in passive income.
When a project has a strong community built around it, existing holders are unlikely to sell their NFT unless someone offers them a really good price. It’s the same concept as brand loyalty — a positive association that a customer feels towards a specific brand or product. People are ready to pay more for an iPhone or Tesla not only because they bring value but also because they are cool. NFTs take this one step further. A simple image becomes not only a valuable asset but also a membership card to an exclusive club. This is why there are so many NFT profile pictures — people are proud to own them.


Utility-based NFTs

Some NFT projects, such as a Space Traveler Club, offer not only virtual but also real-life rewards. By buying their tokens, you become a member of an exclusive club and enjoy some real rewards such as traveling.


Utility-based NFTs always bring some sort of value. There are many projects that offer some kind of incentive to their holders — another example is a Shadowy Super Coder (SSC) collection by GenesysGo. For these projects, providing incentives for their NFTs and rewarding those who contribute is essential for strengthening that community. Thus, rewards and a strong community go hand in hand.

Exposure

A lot of hype around some NFTs leads to constant value accrual. CryptoPunks, for example, became so popular that individual images have been auctioned off at Christie’s and Sotheby’s; a lot of NFTs made it to Art Basel in Miami this year too.

Accessibility

At first, when NFTs were not that popular, everyone could get in. Axie Infinity is a good example because it was affordable and a lot of people made money selling those.

Gaming Projects

Gaming NFTs can represent anything from an in-game character or an item to a piece of virtual land, property, and playing card.
New NFT games of varying quality pop up almost daily but it’s safer to invest your time and money in simple games. Gaming projects taking on a graphically simplistic approach have a higher chance to deliver on their promises.

The bad

Price

The best NFTs are still too expensive for regular people to buy. The high price label is also the reason a lot of copycats emerge and it’s getting increasingly difficult to find quality stuff.

Hype

Remember that hype can take away common sense. If something is overhyped today, it doesn't mean that it won’t go to zero tomorrow. Even if you see an NFT on a popular Twitter or Instagram page, it usually doesn’t mean anything. In fact, it costs only $100 to get a few posts on their page and even become a featured artist. I checked.

Big Names

The biggest red flag is when an NFT has a big name attached to it. Tokens from celebrities proved to be one of the worst investments in the NFT space. The artwork by Grimes, Snoop Dog, A$AP Rocky, and others are examples of shameless money grabs that simply abuse the famous name. If everyone knows the creator of an NFT, it still doesn’t mean that this NFT is good. “Earth”, one of a few NFTs by Grimes, has seen a stunning 84% drop. Likewise, a piece rapper A$AP Rocky sold for $2,000, showing him spinning around in space, traded for about $900 after only a short period of time.

Mints

Projects that have already done a couple of mints are less likely to provide a high-quality experience and community.

Seller vs buyers

The NFT market is not very liquid. There are more sellers than buyers, and according to some online sources, more than 70% of NFT projects silently crash and lose their value overnight.

Unpredictability

The Crypto market has always been unpredictable, so you should never forget about the risks involved. We’ve seen it with other crypto before, even with extremely popular coins like Bitcoin or Ethereum.

Scam

When people think they can make easy money, you are bound to have scams and pump-and-dumps. Take Evolved Apes, for example. After it was sold on Opensea, the head of the project vanished along with 798 Ether (roughly $2.7 million).