NFT Trading Strategies to Avoid Getting Rugged
Crypto Basics

NFT Trading Strategies to Avoid Getting Rugged

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If you think NFTs will disappear, you're mistaken. Their utility and use cases will change and expand, but NFT trading is here to stay. Let's learn how to trade this emerging asset class!

NFT Trading Strategies to Avoid Getting Rugged

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Yes, we know. Who wants to hear about the top NFT trading strategies when we're in the midst of a bear market?
Look, by the time you're reading this, we might be full-on bullish again. And then you’ll be thankful for this guide. So today, we're covering the following:
  • Investing in NFTs
  • Why an NFT trading strategy before you invest is imperative
  • The top NFT trading strategy and what to look for before investing in NFTs

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Why Invest in NFTs?

Ok, so you probably heard a bunch about crypto scams like OneCoin, but NFTs have been alleged to have had their fair share of exit scams and rug pulls as well. So why do people invest in NFTs if they're so risky?
Two reasons: it's a growing industry (fundamental) and FOMO (emotional).
First, NFT trading isn't going anywhere. Yes, trading volumes have collapsed from the height of the bull run, but they're still up significantly from where we started (which was zero, to be precise).
If you think NFTs will disappear, you're probably mistaken. Their utility and use cases will change and expand, but most believe that NFT trading is here to stay.
That is because of the second reason, good ol' plain FOMO. People are predictably greedy, and the NFT market has shown itself as a place for making profits (and losses). A growing market with more greedy participants means those with a plan have an advantage.

Do NFTs Promote Original Creators?

You bet they do!

You may only know the most famous NFT collections or borderline scammy ones, but there are actually lots of examples of NFTs by original creators and independent artists.
For instance, NFT Africa is a Twitter account promoting the use of NFTs in the continent. Though still tiny, there are examples of African artists using NFTs to promote their work, like Kenyan hip hop star Octopizzo:
Another example is Cuban artists from the project CryptoCubans that use NFTs despite sometimes getting censored by centralized marketplaces.

Other examples include:

Considering NFTs are only in their infancy and creators are still experimenting with use cases, we can safely say that a lot more growth is still to come.

Why You Should Have an NFT Trading Strategy?

Unless you're a reckless gambler (please don't be), NFTs are just another form of investing your money. A risky and speculative investment, but one nonetheless.

That's why people need an NFT trading strategy for the same reason they need crypto portfolio management: to maximize profits and minimize risk.
You cannot really dollar-cost-average (DCA) into NFTs like you can with regular tokens. But you can apply other strategies like:
  • Diversifying your risk by investing in different collections and different NFTs within them.
  • Tracking your investments.
  • Having an exit strategy and clear targets for taking profits.
If you don't have an NFT trading strategy, you're guaranteed to make beginner crypto trading mistakes like buying (or selling) when you shouldn't.

What to Look for Before Investing in NFTs?

NFTs are notoriously difficult to value. Some might remark that is because they have no intrinsic value, but that is up to you to decide whether that's true. However, there are a few common denominators to look for before investing in NFTs.

Market Capitalization

The market cap is the cumulative value of a collection. Since NFTs on an NFT marketplace like OpenSea depend on the floor price and can be illiquid, the market cap is an imperfect estimation. However, you can track it in our NFT collections listed by sales volume tracker.
The higher an NFT project's market cap, the more established and trustworthy it is.

Trading Volume

Very similar to the market cap of a collection, a more valuable collection will likely also have a higher trading volume. Sometimes the NFT market goes crazy and a project generates a lot of volume before ultimately falling in value. But usually, the most solid collections have the highest volume.

The Reputation of the Team

Just like for crypto tokens, you ideally want a doxxed team with a good reputation. That is not a hard rule, but a doxxed team is less likely to run an exit scam.

So when in doubt, find them out (as in, google them).

Utility

Ok, this one's a bit tricky. Most NFT projects promise caviar and deliver fast food (if they deliver at all). The utility is hard to assess, but look for things like community enthusiasm, long-term plans in the roadmap and active updates after release. Since utility in the NFT space is highly subjective, it's best to focus on teams that actively keep developing.

The Number of Unique Holders

Unique holders can go both ways. Some say having a few whales that never need to sell is the best. Others maintain that you want as many unique holders as possible to have a diversified fan base. The truth is you want both whales and many unique holders. That way paper hands can be (somewhat) prevented.

NFT Scarcity and Rarity

Within a collection, the easiest way to determine value is to look at the rarity of an individual NFT. All serious collections have rarity tools, so the rarer your non-fungible tokens, the more valuable they are.

NFT Trading Strategies

This is the part you've been waiting for. Most articles will give you basic advice like buying the floor and looking for underpriced NFTs.

Like no kidding, Sherlock. And I thought I should look for overpriced NFTs!

So here are the actual top NFT trading strategies.

Mint Non-Fungible Tokens Early and Mint at Least Two

There are two schools of thought on NFT trading: minting and buying on the secondary market.
The first strategy is minting at least two NFTs of a new collection. That way, you can sell one if it doubles and cover your investment. The second you keep as a moonshot. You can, of course, buy more than two if you're convinced by a project, but always look to cover your initial investment.

And how to find promising collections?

We gave you some advice on that earlier.

The other strategy is waiting for a collection to be released and scooping up good deals on a marketplace like OpenSea. For this strategy, you need a good grasp of NFT Twitter and understand which influencers back a project. Some NFT projects get hyped up fast, so if you follow the right people, you can still get "underpriced" collections early.

Buy Fractional NFTs

Of course, the best NFT trading strategy is to buy the most valuable NFTs. But not everyone can afford a Bored Ape or a Crypto Punk. However, some protocols allow you to buy a fraction of an NFT from a valuable collection. That way, you limit your downside by buying an established collection but can still benefit if the floor price rises.

Engage in NFT Lending

Source: arcade.xyz

An indirect way to trade NFTs is to lend to NFT holders. We previously covered some NFT lending protocols, which let you borrow against your NFT. You can also take the other side and lend to NFT holders to possibly get their NFT at a bargain price if they get liquidated.

Buy Tokens of NFT Collections

So far, only Bored Apes have an ecosystem token called ApeCoin. However, with APE a top 40 token by market cap, future collections will surely follow that example. You could get exposure to the NFT market without directly buying non-fungible tokens.

What's the Best NFT Trading Strategy?

Short answer: it depends on you!

Do you have a big budget?

Buy an Ape or a Punk and chill.

Do you know the market well?

Mint early and mint many.

Do you want a hands-off investment?

Lend to NFT holders or buy NFT-related tokens.

There is no best NFT trading strategy, only the best for your preferences.

Conclusion

Blockchain and cryptocurrency have revolutionized investing. An NFT collection on Ethereum can easily have a floor price of more than $1,000, even if it is fairly little known! With this guide, you will be well-equipped to step into the trading arena and benefit from the NFT frenzy.

Safe trading!

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