How to research and evaluate the best non-fungible tokens.
In this in-depth step-by-step guide for beginners and advanced, I will show you how to find and research promising NFT projects with high-value growth potential.
But before we begin, please note the following.
Disclaimer: This article is only for educational purposes. The NFT projects mentioned here are meant as examples and should not be treated as financial advice. As always, do your own research!
With this out of the way, let’s get going!
What Are NFTs?
NFTs — non-fungible tokens — are cryptographic tokens based on a blockchain. Different from fungible tokens, each NFT has a unique identification code and metadata that makes it not replicable. One of the earliest examples of NFTs is CryptoKitties on the Ethereum blockchain.
NFTs can be used to represent anything that is unique and needs provable ownership. For example, a piece of music or artwork, an in-game item, a research paper, a domain name, etc.
There are a number of advantages of blockchain-based NFTs which gives the technology great potential:
- Verifiable ownership
- Transactions can be tracked
- Transaction cost is low and storage is secure
- Interactions with other assets can be programmed
- Divisible, where one can own a fraction of an NFT
What Types Of NFTs Are There?
Major types of NFTs include but are not limited to:
- Art NFTs: especially digital art which is the most popular form of NFTs right now, such as BAYC and AZUKI.
- Collectibles: such as baseball cards and CryptoPunks.
- Game NFTs: players own the character and equipment in the game.
- Sport moments NFTs: short video clips of memorable sport moments are represented as NFTs.
- Music NFTs: enable musicians to interact directly with their fans and tokenize their work.
- Domain Name NFTs: use NFTs to represent domain names, URLs, payment addresses, etc.
- Fashion NFTs: fashion brands such as LV, and Gucci issue their own NFTs.
- Financial NFTs: a combination of NFT and DeFi.
- Physical backed NFTs: such as real estate, gold, antiques, etc.
For more details on the different types of NFTs, check out this video from Coin Bureau.
With this, let’s get down to business and see what you need to know in order to invest in NFTs.
Part 1 — The Basics
If you are new to crypto, you shouldn’t right away jump into buying NFTs. First, you need to understand what you are investing your money in. And for that, you have to start with the basics.
1. Essential Crypto Knowledge
- Learn about blockchain technology. What it is and how it works. This includes an understanding of wallets, addresses, private and public keys, how transactions work, etc.
- Gain experience with buying, holding, and selling cryptocurrencies.
This is the foundation you need for dealing with NFTs. But it’s not just about knowledge, it’s also about mentality.
2. Crypto (NFT) Investment Mentality
I assume that most of you are in the NFT space to make money. That’s why before we get to the actual research part of this guide, I want to share some tips about the mentality you need to have in order to make money with NFTs.
Here’s what you need to know.
- Most NFT Projects Will Fail. NFTs are at a very early stage, similar to crypto ICOs in 2017. Most ICOs failed in the sense that they lost 95%+ of their initial value or simply vanished. It will be the same for most NFT projects. That’s why you need to set realistic profit targets. Sell when you are in profit and do not play the ‘diamond hands’ game.
- Do not invest more than you can afford to lose. This is one of the oldest and truest investment rules. NFTs are risky investment. Limit your risk by only investing parts of the funds available to you.
- The best time to buy an NFT is before it gets hyped. Do your research and choose wisely. When the hype starts, sell and take profit.
- Do not chase prices. Don’t worry if you missed the boat on an NFT project. There are numerous new NFT projects every day offering you new opportunities.
- For more established NFT projects, do not chase the highs. Wait patiently for a correction before you buy.
- Keep on learning. To be a successful NFT investor, you need to understand why you have made profit, or why you have lost money with a project. Pro tip: Write down your progress and everything you have learned.
- Take time off when you feel too stressed. This ties into all the points I just made. Stress causes you to make bad decisions. It harms you. So when you feel that things are getting too much, take a step back. As I said, with crypto and NFTs there are new opportunities every day. It’s OK to miss some of the action once in a while.
In our next step, let’s get to the meat of this guide and focus on the research process for NFTs.
Part 2 — Where To Find NFT Projects
There are many platforms which list NFTs. Start here to get an idea about what kind of NFT projects there are and to get a feeling of the market.
Check these websites for new NFT projects:
These sources should give you a good idea and overview of what kind of NFTs are out there.
Next, we’ll look at the different steps of researching an NFT project’s fundamentals.
Part 3 — How To Research NFT Projects
The beauty of NFTs is that everybody can make and sell them. But that doesn’t necessarily mean that they will be any good. That’s why for you as a potential investor it is important to know how to analyze.
The following areas are of special importance here.
The people behind an NFT project are one of the most important factors you need to research. Because only if the team understands the community well enough and has the right skills and knowledge they can realize their plans.
Find answers to the following questions.
- Do the creators have a good track record? Are they newcomers or did they already have (successful) NFT projects at an earlier time?
- What can you find out about their backgrounds? Do they have experience with crypto? A lot also depends on the nature of the NFT project you are researching. For example, for an art NFT you’d want that the creator combines artistic skills with a deep understanding of the crypto-sphere.
To dig up information about creators you should check in different places such as the project’s website, social media channels, press releases about the project, etc.
Roadmaps are an essential piece of information that shows what has happened so far and what an NFT project wants to achieve in the future.
Focus on the following things.
- What developments and other things does the project still have in its pipeline? What’s the potential for growth?
- In what time frame will these points be implemented?
- Are the stated goals and time frames realistic?
- How many goals or milestones have already been achieved? This is an indicator of how fast the project is growing.
Marketing is essential for any kind of NFT project. No marketing = not many people will see or know about the project = not many people will buy the NFTs = no growth in value.
An example of this is failing crypto GamiFi projects. If nobody plays the game the NFTs will be worth nothing.
Answer these questions to assess a creator’s marketing.
- What marketing channels does the team use? How many followers do they have? Is there a lot of user engagement?
- Do they have strong partners / brands to push their NFTs?
- How do they promote their NFTs? Is the copy professional? Do they address the community and its expectations?
4. More research
The above points cover some of the most important steps when researching NFT projects. For more details on researching a crypto project’s whitepaper, community, roadmap, and other points I strongly recommend you to take a look at this guide I wrote. It’s the most in-depth guide you can find on this topic for free on the internet.
How To Research Cryptocurrencies? A Step-by-Step Guide
Find crypto gems without having any special skills and prior knowledge
Part 4 — Assessing The Value Potential Of NFTs
To make money from NFTs you need to know why one NFT project is more likely to increase in value than another one. In the following, I will show you some key aspects that play a big role in defining the value of individual NFTS and whole NFT projects.
Utility refers to what you can use an NFT for. A lot here depends on the type of NFT you are dealing with.
Here are a few examples.
Art: Various factors such as the reputation of the artist and the art style play a role here. Note that especially when it comes to art and collectibles, the value of individual NFTs is very subjective.
Gaming: Some NFTs are used as items in games. For example, a sword with the attributes +5 on damage naturally outranks a sword with just +2.
Finance: Some projects offer holders of NFTs certain perks such as lower transaction fees.
Music: NFTs give holders ownership of a song.
Sports: Some sports NFTs grant collectors special perks such as access to VIP areas on match days.
In most cases, this is THE most important factor determining the value of NFT projects and individual NFTs.
Rarity is influenced by various aspects.
Supply — how many NFTs of a kind are there or will be minted?
Unique traits — what kind of features does an NFT have that make it different from others?
Here are some tools you can use for checking the rarity of certain NFTs:
These websites allow you to search for NFT projects and will give you different stats that show how rare individual NFTs are.
OpenSea’s properties section of each individual NFT lists out how many NFTs in the collection have the same properties.
OK, this one is a little tricky. In this case, hype refers to the community’s euphoric enthusiasm for an NFT project. It is a phenomenon that you can see quite often in the crypto space. And it usually doesn’t last very long.
How can you ‘measure’ hype?
You can’t. But if you see a lot of people talking excitedly about a certain NFT project on places such as Reddit, Twitter, etc. then you are probably on to something.
I wouldn’t put too much attention to this factor alone. But if an NFT project is accompanied by a lot of hype then it’s a good sign — or that the people behind a project know how to market it well.
4. Backing by Institutions, Corporations, and Celebrities
In 2022, companies and celebrities from outside the cryptosphere will increasingly jump on the NFT train. From the Italian fashion company Gucci to the clubs of the English Premier League, various companies are working on NFT projects.
Big names mean big money. For NFTs, the support or distribution by well-known brands, people, and companies will be a key value-creating factor in the future. Because of their popularity and marketing power, they will generate great interest in their NFTs. Investors who keep an eye on these developments have an advantage.
Part 5 — Analyzing Trading Metrics
Finally, check the most important trading parameters to get an understanding of the market for an NFT project and individual NFTs.
1. Floor price
The floor price is the lowest price of an NFT in a project. Your goal should be to buy a rare NFT at a price close to the price floor.
Here is a website where you can check price floor: https://nftpricefloor.com/
2. Marketcap, Transaction Volume, Liquidity
These will show you how much demand there is for an NFT. If the transaction volume is low, it could mean that it is difficult to sell the NFT. Also, remember that too many pumps and dumps are a bad sign.
3. Holders vs Numbers Of NFTs
What we want to see is a small number of NFTs and a large number of holders. A large number of NFTs per holder could indicate that the demand is not high and that when there is sell pressure the floor price will drop. OpenSea offers a simple overview where you can see the total items and holders of an NFT project.
To analyze various trading metrics, there are two analytics tools you can use:
- https://dune.xyz/home — There are different dashboards where you can find various indicators such as the overall floor price of a project, top holders, etc. Users can also create their own dashboards following the tutorials provided.
- https://nftgo.io/ — This platform provides all different kinds of market data. An important feature is the whale-tracking page: https://nftgo.io/whale-tracking/trade
And with this, we are at the end of this guide!
I hope you found the content useful. Feel free to share it with others and follow me for more crypto and investing content.
For more articles I wrote on how to research crypto projects, please check out my list: https://ren-heinrich.medium.com/list/how-to-research-crypto-projects-5fd393fd0be8