How to Invest in NFT Art

Here, we look at how and why cryptoart collectors get in the NFT game.

Nobody knows how the future of NFT art — or of NFTs in general — will play out. Non-fungible tokens, or NFTs, became immensely valuable in 2021, but the subsequent steep drop in cryptocurrency values also did a number on the NFT market.

So far in 2022, the NFT art market is still down — but it’s not out. NFT values have experienced a “crypto winter” before, remaining low for months at a time only to come roaring back. If you’ve got NFT art collecting on the brain and nothing to lose, now may be the time to buy.

Are NFTs a Good Investment?

First of all, let’s be clear: Non-fungible tokens are not strictly speaking an investment.

The Securities and Exchange Commission (SEC), which oversees stocks and other investments, doesn’t consider NFTs to be securities. While that means you don’t have to pay capital gains taxes on any profits you realize from a sale, it also means that if you get scammed, there’s little you can do about it.

The SEC has been making noise about regulating NFTs, so it’s likely to happen eventually. The mere threat of regulation can drive down the price of speculative assets like NFTs and cryptocurrencies. Look what happened to Bitcoin — just the discussion of regulation in China was enough for the price to tank by 22 percent overnight.

In the meantime, NFTs are considered alternative investments because they’re collectibles that have no intrinsic value. Their price is largely determined by the tastes, perceptions and proclivities of buyers and sellers, which means investing in them is quite a gamble. Down the road, your NFT collection may end up a worthless relic of a passing fad (think Beanie Babies).

The other side of the coin is that people can earn millions of dollars unloading NFTs they bought for a fraction of the sale price. It happens, but it doesn’t happen often. Will it happen for you? There’s absolutely no telling, which is why if you’re going to invest in NFTs, you need to do it for the right reasons.

Why Do People Invest in NFT Art?

The prospect of making a killing is the wrong reason to invest in NFTs. As with any speculative purchase — including physical art, first-edition books and signed sports memorabilia — it’s entirely possible you’ll never get your money back.

So why should you invest in NFT art?

Because You Want to Support Artists

Some NFT collectors are driven, at least in part, by an affinity for the digital form and the desire to support artists who work in it.

One of the great things about NFT art is that creators can make a commission every time their NFT artwork sells, both initially and on the secondary market, if that’s written into the smart contract. And there’s no middle man to take a cut.

Once an NFT is minted to the blockchain, provenance is established and cannot be altered. The smart contract associated with the NFT contains the terms of a sale, and these execute automatically when the NFT changes ownership.

Because You Enjoy Collecting Art

If you love art in general and find great joy in the weird and wonderful world of NFTs, you may eventually find that looking isn’t enough. You want to own a piece of it — and partake in the novelty of it and the culture around it.

Because You’re a Hopeless Technophile

If you’re someone who finds great satisfaction in living on the cutting edge of technology, you probably like the thrill of being on the ground floor and the status that confers in some circles. NFT art is one way you can experience Web3 technology, in addition to purchasing virtual land in the Metaverse, digital trading cards, designer outfits for your avatar and event tickets.

How Much Can You Make Selling NFT Art?

Average sale prices don’t mean much when discussing selling NFT art, because a few eye-watering numbers jack up the average — like the cool $69 million Beeple netted in 2021 for his NFT The First 5000 Days. A graph plotting the numbers of works sold against prices realized shows a steep downward slope, with the overwhelming majority of NFT artworks going for between $200 and $700.

It’s impossible to predict how much you’ll make selling NFT art. Or how much you’ll lose. Life moves fast in cyberspace and in the back rooms of tech startups. You never know what you’re going to wake up to, and that, for many NFT art investors, is a huge part of the thrill.

If you’re so inclined, take a crack at increasing the value of your investment by raising its visibility. Promote your NFT art collection far and wide to drum up interest and keep it alive in the collective cyber-consciousness. (The artist will be eternally grateful, too.)

How to Invest in NFT Art

The cowboy — New Normality #016 by J’erre

Nobody’s written the rule book on investing in non-fungible tokens. In the Wild West of NFT investment strategy, the watchword is an acronym: DYOR, or Do Your Own Research. It’s imperative if you want to make strategic buying choices, stay on top of trends and avoid scams and bum deals.

Here’s how to proceed if you decide investing in NFT art is for you.

Understand How NFTs Work

The better you understand how NFTs work, from minting to dropping to selling and reselling, the more likely you are to make wise investment choices.

Look for Red Flags

Despite the security of the blockchain, deceitful practices exist in NFT marketplaces. Pump-and-dump schemes, also known as “rug pulls,” are legal in the NFT world. Scammers build interest around the NFT to drive up the price, and then they sell it, making off with the cash and leaving nothing of value behind.

This and other scams are perpetrated by clever people, and spotting them requires you to DYOR and pay attention to the details. Here are a few ways to protect yourself from such schemers:

  • Look at the project team. Who are they? How long have they been part of the NFT space, and how do they interact within it? Look for signs of legitimacy, like a solid following, community engagement, a track record of sales and an established account.
  • Visit their social media. Short-timers on social media who have an extravagant following are probably not on the up and up. You can’t be certain just by looking, however, because overnight smash success does happen. Use Twitter Audit to determine how many of a user’s followers are real and how many are bought and paid for.
  • Read the project roadmap. A roadmap is a blueprint of an NFT project, detailing its features and goals, related events and perks. Although it isn’t legally binding, a roadmap that’s clearly written, live and regularly updated is likely legit.
  • Shop on reputable marketplaces. Fraudsters have been known to create phony marketplaces and bilk buyers with fake merch. Use reputable marketplaces with a solid reputation, like the 1stDibs NFT marketplace. An NFT art platform should require identity verification and provide buyers with stats, prices and historical trading information.

Watch the Trends, but Buy What You Like

Familiarize yourself with the NFT market. Learn who the well-known and up-and-coming artists are. Engage in NFT art communities on Discord or Telegram, and stay on top of trends and trending creators. But only buy NFT art you like. After all, the bulk of the value of an NFT is in the eye of the beholder.

Go in with a Budget

Decide how much you’re going to spend, and stick to your budget. Act like you’ll never see the money you invest in NFTs again.

How to Buy NFTs

The steps for buying NFT art are pretty simple: Get a crypto wallet, fill it with ETH (or whatever token the blockchain you’re using takes). MetaMask is a popular wallet for NFT artwork.

DYOR into the type of art you want and where it may be sold. When you find a work you like, put in a bid at auction or buy it outright. As soon as you complete the transaction, the purchase price comes out of your wallet, and you’re the proud owner of an(other?) NFT work of art.

Show off your latest investments on social media, and take advantage of any exclusive perks and communities that come with them. It’s a great way to engage in the NFT art community and promote your collection. Stay on top of the NFT buzz, and get to know other NFT art investors you can swap stories with and learn from.

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