> Blog > NFT Investments: How to Pick NFTs

Published October 20, 2022

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Non-fungible tokens (NFTs) exploded onto the scene in early 2021, and are driving new developments and widespread adoption across the cryptocurrency industry today. NFTs are unique digital assets that can represent real-world or virtual objects. Investors can use NFTs to purchase, sell, or trade just about anything.

With so much variety in the NFT marketplace, it’s difficult to know where to start. This guide will give you tips on how to pick NFTs that are right for you.

Choosing an NFT Project

Three things to keep in mind when choosing an NFT project

Many people wonder how to know which NFT to buy and why some NFTs sell for such high prices. Beeple’s Everyday collection sold for $69 million and other popular collections like Bored Apes and CryptoPunks have generated billions of dollars since launching.  

But there are plenty of affordable NFTs on the market, too. Browsing any marketplace, like FTX or OpenSea, will show you the wide range of assets available today. In any case, successfully investing in NFTs requires foresight, strategic planning and a little bit of luck. 

Here are three actionable steps to help you find the right NFT project.

1. Do Your Research

How to pick an NFT? The first step is to do your research.

A good place to start is the NFT project’s whitepaper, which details the entire framework of the project. Potential investors should read a project’s whitepaper carefully, looking for discrepancies or red flags before investing.

After reading an NFT whitepaper, pay attention to these characteristics of NFT collections:

  • Roadmap: An NFT project’s roadmap establishes objectives, milestones, and basic activities to bring the collection to market.
  • Product: Does the NFT project come already with a usable product? Or are the features only planned in the roadmap and yet to be shipped? Do their products have an edge and be able to generate sustainable revenue?
  • Community: How engaged is the community around the project? Do people seem excited about it?
  • Rarity: How rare are the NFTs in the collection? The rarer they are, the more valuable they are likely to be.
  • Utility: What can you do with the NFTs in the collection? The more utility there is, the higher likelihood they will see an increase in value.
  • Liquidity: How easy is it to buy and sell the NFTs in the collection? The more liquid, the better potential for resale and increased value.

2. Don’t Invest More Than You Are Willing to Lose

NFTs are a new asset class subject to volatility and varying levels of risk. As with any investment, there is always the potential for loss. It’s important to only invest what you are comfortable losing.

3. Invest in NFT Projects You Like

The NFT space is still in its early stages, so you can expect some growing pains. But it’s also a time of great opportunity. By investing in NFT projects you believe in, you can be a part of this new and exciting industry from the ground up.

Today, NFTs cover a wide range of digital assets, ranging from art and collectibles to in-game items and digital real estate. With so much variety, it’s important to take the time to find an NFT project that you’re passionate about, or you can even create your own.

No matter what you’re looking for, there’s likely an NFT project out there to match your interests.

How Do You Know if NFTs Are Undervalued?

It’s impossible to determine whether an NFT is “undervalued” with certainty. The value of an NFT is based on the price set by the creator or the amount a buyer is willing to pay. Because most of what’s traded isn’t tethered to any fiat currency (such as gold), value measurement is largely subjective. This is especially true for new NFTs.

The best way to understand the value of an NFT is to research the project, pay attention to community engagement and compare it to similar projects. If an NFT project seems to have more going for it than others in its category, it’s likely that the market will eventually catch on.

What Makes Some NFTs more Valuable Than Others?

Different NFTs have different value propositions. Some are rarer than others, some have more utility, and some simply have more hype around them. The key is to find an NFT that you believe has good potential and invest early. As the project gains traction and adoption, the values of its NFTs are likely to increase.

Limited-supply NFTs are often more valuable than those with an infinite supply. This is because the limited supply creates scarcity, which drives up demand and price.

Of course, there are many other factors that can affect the value of an NFT. Pay attention to the overall hype around a project, as well as any news or partnerships that could drive up demand.

Marketplaces like OpenSea and Rarible provide easy-to-use tools that can help you make an educated decision when choosing an NFT project. By doing your research and investing early, you can increase your chances of finding an NFT that will gain value down the road. 

What to Look For in a Good NFT Project

Indicators of NFT project quality

Evaluate an NFT based on the strength of its community, associations (like a reputable list of backers), rarity, utility, and media coverage. Every project will have a unique combination of these, so it’s a good idea to familiarize yourself with multiple projects to find the right fit.

Trading Volume

A good indicator of popularity and value is the trading volume for an NFT project. If there’s a lot of trading activity, there’s likely strong demand for it. Users can check the trading volume for an NFT project on its website or on a data aggregator like Rarity.tools, TraitSniper, or Icy.tools as well.

Activity Trend

Another good indicator of an NFT’s popularity is its activity trend. Users measure this by reviewing the number of transactions or social media mentions over time. If there is a sudden spike in activity, an NFT could be more likely to gain popularity.

Community

Successful NFT creators leverage social media to boost project visibility.

Project communities of like-minded people with connections to celebrities and industry experts may be capable of influencing the project’s perception and the asset’s valuation.

A community-backed project may provide potential investors with assurance and a sense of belonging. Buying certain NFTs can grant you access to exclusive communities and events. You can also join existing members via various channels, including Discord, Twitter, Telegram or Reddit, to get involved in the project.

Project Stage

A roadmap for every cryptocurrency project serves as a guide and growth indicator for its broader execution. This makes it simple to track a project’s development at any point in time. With that in mind, joining a project at its pre-launch phase could increase an NFT’s profit potential if it catches on in the market.

Utility

An NFT’s value may increase or decrease depending on its utility in a particular scenario. An NFT tokenizing real estate or other physical assets may have a higher value than an NFT used in games, and vice-versa. Understanding NFT use cases and potential applications of NFT technology is crucial to accurately estimating its future value.

Getting to Know NFTs with FTT DAO

Now that you have a better understanding of how successful NFT investors pick their NFTs, you should be better equipped to explore the NFT space on your own and pick out your own NFT.

To learn more about NFTs, cryptocurrency, and blockchain technology, be sure to check out the FTT DAO blog for educational resources to kickstart your journey into the space.

Be sure to follow FTT DAO on Twitter and subscribe to the FTT DAO YouTube channel to stay up to date with the latest developments in crypto.

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