The recent introduction of Non-Fungible Tokens (NFTs) has revolutionized the way we view art, and most investors are taking notice of this. NFTs are currently at the forefront of the crypto space; the unique cryptographic tokens allow creators to develop real-world scarcity virtual objects. The NFT industry exploded in 2021, generating over $25 billion in trading volume, and this year, the market is poised to achieve even more tremendous strides.
Given the widespread attention, NFTs have garnered in recent years, most investors and enthusiasts are rushing to get involved in the NFT industry with hopes of actualizing some profits. In some instances, this has resulted in fatal mistakes, as some people have fallen victims to fraudulent activities in the space. Therefore, it is vital to fully understand the NFT industry before investing your hard-earned money in the space.
In this article, we will explore some of the common mistakes investors and NFT enthusiasts commit while entering the NFT space. This will guide you as you proceed to enter the booming cryptocurrency industry!
Purchasing Random Cheap NFTs
Most NFTs listed on NFT marketplaces like OpenSea are remarkably expensive, with some having a floor price valued at hundreds of Ethereum. Most of the popular NFT projects hosted in the industry are remarkably expensive, such as those held by the Bored Ape Yacht Club (BAYC). This has led to the introduction of newer and cheaper NFTs, many of which are scams or fronts for fraudulent activities.
Before buying an NFT, ensure that you conduct diligent research on the NFT project. You can learn about the project on Twitter using their Discord channel and road map. While on their Discord channel, ensure that you interact with other community members and consider the number of persons who are in the community. You can utilise NFT pages such as rarity.tools to discover upcoming NFT projects.
You can purchase your NFTs on Immutable X or Solana. These platforms offer cheaper NFTs, and you would save you would have spent on gas fees. These steps will guide you while buying your NFTs.
Avoid Day-Trading NFTs
One of the most common mistakes investors make is purchasing an NFT with the hope of flipping it for a quick profit. While this could end up working out for you, you may also end up getting rekt in the process. NFTs generally experience insane amounts of price fluctuations, with some NFTs going from barely .01 ETH to one Ethereum and back again in just a few weeks.
These fluctuations can often trick you into thinking that if you buy an NFT and keep it for some weeks, you can quickly flip it to make some profit. While this can be true, it can also be damaging in some cases and is generally considered a bad idea.
Day-trading your NFTs comes with lots of risks as many hyped NFT projects also suffer price fluctuations. Instead, consider purchasing an NFT if you admire the project’s artwork or wish to learn more about it. Afterwards, assume the value of the NFT is worthless pending when the market tells you differently.
Investing in Illiquid NFT Projects
An NFT collection is designed to offer value to investors who earn profits from investing in the liquidity or potential of the project. However, an NFT collection can claim to have numerous applications, appealing and unique art pieces, and benefits without attracting any investors.
If you invest in a low-interest collection, you will discover that such projects hold no investment attractions, and no one will buy them even when their prices drop.
It is also possible that you acquire a rare piece of an NFT collection, and afterwards, the price significantly increases, affecting the value of your piece. To avoid such instances, ensure you only invest in value-based NFT projects and not based on the hype around them
Avoid Using Scam Links
Scammers and fraudsters are listed all over the digital space, and the NFT space is not an exception. One significant mistake you must avoid while investing in NFTs is buying your NFTs from scam links. Fraudsters exploit the enthusiasm and excitement around an NFT collection and put out fraudulent links to sell or mint the NFTs. Unsuspecting and innocent investors often swarm the links and end up having their wallets depleted.
Ensure that you use only links sent out by the NFT’s project team on their official website and social media accounts. Avoid entertaining discussion with random members of a Discord channel asking you to use a link they sent.
Not Securing Your NFTs
Many NFT investors have been defrauded or hacked out of their valuable investments. Avoid making this mistake. Investing in hardware or software wallets like MetaMask, Trezor, or Ledger Nano can make the difference in keeping your cartoons and JPGs secure. Wallets enable NFT investors to buy and sell their NFTs quickly and conveniently.
These wallets can, however, be prone to hacks through social engineering. According to research,
Some of the ways they can be hacked include:
- Clicking on nefarious links received through direct messages
- Members of the so-called support team who call wallet holders demanding their wallet details through screen share.
- Graphics that install harmful codes on your phones or computer
- Minting an NFT project only for it to get hacked or the developers disappearing with early miners’ funds
Always protect your assets against such cases by purchasing any of the wallets listed above. Then, only a person with direct access to your device, your seed phrase, or your details can transfer your tokens from your wallets to theirs.
Transfer more valuable NFT assets to your hardware wallet and mint using a software wallet. This creates a firewall between your short and long-term investments. Also, invest in VPN software and antivirus.
Investing in Your NFTs for Short-Term
Most people going into the NFT space enter with an outlook for the short term. If you are confident and believe in an NFT project, holding your assets for the long term can produce remarkable results in the end. Most forget to consider the example of the extraordinary rise of Bitcoin, which has grown to have an all-time high value of over $68,000 during the first quarter of 2021.
Avoid panicking when prices fall, as even the most valuable NFT collections are prone to price fluctuations. Your collection could become a future bluechip project, and one successful bluechip NFT could help you cover the cost of dozen others that tanked.
NFTs are the current craze in our digital world, with many financial prospects and opportunities. Like in every aspect of life, ensure you carry out thorough research before investing in an NFT, as most projects are not what they seem to be. The mistakes discussed above are common mistakes all NFT investors and enthusiasts should avoid while venturing into the space.