The Mirage of the Inflated Market: The Harsh Reality You Must Understand Before Trying to Get Rich with NFTs

In the current cryptocurrency market, there are only two types of investors left, those who believe in NFTs and those who don't. Within these two groups, there are both idealistic and investment-oriented communities.

The believers in NFTs are often idealistic and focus on terms like Metaverse and GameFi to discuss the importance of NFTs in the future virtual world. They may also be native digital artists who, based on the uniqueness and financial attributes provided by blockchain, find new profit markets for their work. From an investment perspective, BitMEX co-founder Arthur Hayes has outlined seven ways to profit from trading, illustrating that there are indeed money-making opportunities in the NFT investment market. He straightforwardly states that people can enjoy NFT trading as they would stock trading, rather than just trading image files.

The non-believers in NFTs typically doubt the non-fungibility, aesthetics, and value of digital works, and consider most of it to be speculative behavior. Investors in this group may criticize false trades, low liquidity, and lack of fundamental value.

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Nevertheless, NFTs have become one of the most well-known blockchain applications among the general public, even more recognized worldwide than DeFi decentralized finance. In the world of blockchain, the trading volume of NFT marketplace OpenSea on Ethereum surpasses that of decentralized token exchange Uniswap by a wide margin.

However, before entering the NFT investment market, there are still some harsh realities you need to be aware of.

Valuable but Illiquid: NFTs That Can Be Resold Multiple Times Are Few and Far Between

The CEO of NFT data company NonFungible has stated that perhaps 90% of digital collectibles are completely useless and meaningless.

Whether it's a Bored Ape NFT auctioned by Sotheby's for $24 million or the Doge meme sold for $180 million, making money with NFTs may seem easy, but the data tells a different story.

According to Bloomberg, 73.1% of NFTs sold on OpenSea have no record of being resold 90 days later; only 19.4% have been resold once, and a mere 2.4% have been resold four times or more.

The CEO of NonFungible remarked, "This is really just a tiny part of the community, and only a few extremely lucky and well-informed individuals have benefited. " Bloomberg comments that most end up stuck with items that no one wants to buy, with 97% of OpenSea's trading volume concentrated in the top 3% of the most active collections.

More NFT Projects Losing Money

According to Bloomberg, in the past 90 days, among at least 100 NFT collectible series that have successfully traded, 42% have decreased in USD value, while 39% have doubled or more.

Bloomberg notes that unlike previous speculative trends, NFTs lack clear economic value, and anyone can mint them, creating unique ownership on the blockchain. As the cryptocurrency market fluctuates, the question arises whether this craze will fade, leaving many trapped.

It is worth mentioning that during the era of ICOs issuing cryptocurrencies without practical economic value, anyone could issue coins. However, NFTs typically do not require organizing a team to write a whitepaper, devise a "save the world" plan, settle investors, or market-making. There is also no issue of accountability to investors, as what you are buying is a "collection."

Following the Crowd Can Lead to Profit, but Don't Be the Last One In

Many NFT trades are based on community recognition, with the market determining the value of NFTs mostly not based on the works themselves, but on which celebrities own them. This is known as "following the crowd" - following the lead of influencers and the community in buying and selling can be a major motivator.

In the NFT trading strategy described by BitMEX founder Arthur Hayes, minting and quickly reselling Mint to Flip, and influencing others, are essentially about actively engaging in the community, obtaining the latest information, investing at a low cost during the initial NFT minting, and quickly exiting when the market is hot. Here, you may end up paying excessive network fees due to competitive trading. Additionally, you can promote or recommend your target NFT project to opinion leaders to increase community recognition and secure a profit base.

Of course, with the right strategy and timely exits, it is possible to make money in the NFT market. However, if your goal is solely short-term speculation for profit, be sure not to be the last one in.

Self-Enrichment and Price Manipulation Are Common Practices

Although wash trading is common in the cryptocurrency market, it appears to be even easier in the NFT market, where inflating prices by selling to oneself, creating buying interest, and waiting for unsuspecting buyers to take the bait is prevalent. While the transparency of blockchain addresses can reveal such events, those with ill intentions can easily conceal wash trading traces. Moreover, many first-time NFT buyers may be newcomers to blockchain and not investigate too deeply.

The NFT data website NonFungible found that from May 2020 to February 2021, in a certain NFT trading market, such false transactions accounted for 28% of trading volume, with an additional 10% labeled as suspicious.

Furthermore, it was recently reported that the product lead at OpenSea resigned after profiting from trading an NFT project prior to its public promotion.

Bloomberg also mentioned that trading bots deliberately publish a large number of low-priced quotes to purchase from uninformed sellers and resell at higher prices.

Attention: Most NFT Prices Are Not High

According to Bloomberg's price analysis of NFTs, the majority of NFT series projects are priced relatively low, with most average purchase prices below $500. This can serve as a reference for general users who collect based on price:

Speculating on NFTs May Turn You into a Devoted Collector

For top NFT projects, the average value continues to rise, making it a visible trend. The CEO of NonFungible believes that 99% must be in the right community and have the right information at the right time to have a chance at investing in a project that will make them rich.

However, anyone looking to invest in unknown projects touted as the "next CryptoPunk" with a speculative mindset must be prepared to transition from short-term investors to loyal collectors. After all, unlike spot trading, there is no chance to sell at a low price. In a market with low liquidity, the Floor Price may drop rapidly or never see another transaction. This may be a riskier investment path than futures trading.

Buying only what you truly like and want may be a strategy you won't regret.