Navigating the (Warming) NFT Winter: Understanding Utility, Community, and Purpose
Although we may be quickly moving from an NFT winter to an NFT spring, it is crucial to acknowledge the current state of the NFT market, which has been facing declining prices, declining sales volume, and poor acquisitions that are not holding their value in the short, medium, or long-term. With so many NFT collections entering the market on a now daily basis, it can be challenging for speculators to determine which NFTs are good purchases. In this overview, we’ll explore several key factors that can help NFT buyers, sellers, and speculators make more informed decisions when purchasing NFTs.
First, it’s essential to remember that speculative purchases, especially overly purely subjectively valued assets, are inherently a gamble. Therefore, the best way to ensure that you’re making a wise purchase is by buying NFTs that you actually want to keep and hold for the medium to long term. Having conviction in your purchases will provide a buffer in the event of negative momentum, helping you make a more informed decision. For example, if you buy an NFT from a collection purely because you are feeling FOMO (fear of missing out), any negative movement may spur you to dump your NFT at a loss. Additionally, purchasing NFTs that you’re genuinely interested in and that you would like to hold onto can help you avoid the tendency to sell the asset at this first sign of negative momentum.
On top of that, with the continuing rise of freelance creators, and now AI-generated NFTs, projects should focus more on utility rather than just pure art. For some projects, the leading utility may be a strong community, but if the community dissipates as the asset loses value, it will quickly create a snowball effect of loss. While an NFT created by a renowned artist may be appealing, anyone can create a graphically pleasing collection, making it more challenging to determine its worth. The more quantifiable utility an NFT has, such as a gaming item with verifiable stats and usability, the easier it is to assess its potential floor price compared to a purely subjective piece of art. For example, if an NFT has a high demand within a particular gaming ecosystem, it is more likely to retain and grow in value over time.
One of the most vital considerations when acquiring NFTs is understanding the purpose of the NFT and the project it belongs to. It’s crucial to research the project and the team behind it to determine if they have a clear vision and a solid plan for their NFT. Additionally, it’s essential to consider the NFT’s usage within the project and its role in the project’s ecosystem. This will help you determine if the NFT has a clear use case and if it is likely to retain and grow in value over time. Some red flags to look out for are anonymous creators, unclear roadmaps, lack of utility, and fake social media followings/bots, just to name a few. If you are getting involved in a project like this, none of these factors will automatically rule out its potential viability, but it should be vetted much more thoroughly before you get involved. If it seems too good to be true, it usually is.
It’s crucial to keep an eye on the NFT market and the trends that are emerging. The NFT market is constantly evolving, and new trends and technologies are emerging all the time. It’s important to stay informed about the latest developments and trends to help you make informed decisions about your purchases. Additionally, keeping an eye on the market can help you identify opportunities and potentially valuable collections before they become mainstream.
Purchasing and holding NFTs can be a risky proposition, but by focusing on conviction, utility, community, purpose, and market trends, NFT speculators can make more informed decisions and potentially see better NFT returns. Remember, buying NFTs randomly or without thorough due diligence can be a big gamble, so it’s essential to do meticulous research before making any purchase. For example, keep an eye on the community and how an NFT can be used, as these factors can play a significant role in determining its value. By following these guidelines, NFT speculators can position themselves for success and potentially beat the average user’s returns in the NFT market.