Written by MHOUSE, the team behind the LINKED Collection.
23 STEPS: HOW TO RESEARCH, BUY & INVEST IN NFT ART
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The road to crypto art investment can be a rocky one.
Investing in any form of art comes with its own range of risks. None more so than investing in digital art and NFTs. If you don’t have a strategy in place, you might end up in a world of worthless 2D images of cartoon animals. It’s important to take the time to understand the risks associated, before investing and chasing the huge returns on offer from NFTs.
This guide sets out what experienced NFT investors look for, and what they try to avoid.
1) DO YOU LIKE THE ART?
The Golden Rule in NFT investing is buy what you like.
This is a turbulent market that is dominated by technology, innovation and personalities. Projects can hit rock bottom out of the blue so it’s important to invest in people, projects and NFTs you love. Is it something that you would proudly display in your home? If the answer is no, it may be a risky investment.
The NFT world is often characterised by constant flipping of artwork to acquire more crypto currency, but there are more and more artists creating ‘forever’ pieces that will suit your tastes. Collectors are starting to realise that now is a great time to begin collecting crypto art by incredible artists. Owning the first NFT by an established artist, or finding a rising star with an amazing blockchain art portfolio is not only exciting, but can be lucrative in the long term.
As more and more collectors come into the NFT space, these first important works will become more valuable as the demand increases. Right now, there is definitely a first-mover advantage in this space.
2) QUALITY OF ART
Like traditional forms of art, great digital art should scream quality to you. Is it evident that the artist has put their heart and soul into the work? The meticulous detail of digital art should be as evident as the brush strokes of a master painter. Crisp lines, detail to colour and shadows. Even some blue-chip NFT projects are missing crucial details and layering in their art.
If movement is a part of the artwork, does it add to the piece and give it extra dimension. Some artists add gradual and slight animated movement to assist in the story telling. This movement adds an infinite amount of time and labour to a project that also demonstrates quality art.
If the art is part of a collection, has it been curated? If so, is it someone experienced in curating and have they had success? This takes away some of the risk for a collector to know that a curator has put their reputation on the line. In general, carefully curated collections of crypto art tend to achieve a higher price than uncurated collections from the same marketplaces.
Whilst the media used in digital art may differ from traditional art, the principles of quality and attention to detail remain the same.
3) THE ARTIST
Whilst anonymity is certainly not unknown in the traditional art world, it is far more commonplace in the NFT and Web3 space. This brings a new set of challenges, making it important to determine whether the creator is an actual artist and what you are buying is original. Do they have proof-of-concept sketches? In extreme cases, Fiverr freelance artists have been employed to help create low effort art projects, so it’s crucial to determine who is behind the art and carrying out the vision of the team. This is especially important when looking at small scale collections and 1/1 art. Reputed artists in the space share video footage of them at work.
Payment of artists is also a hot topic in the NFT space. Sometimes an artist is brought into a project and paid a small fee to create the artwork, but actually isn’t part of the overall management team. This can raise flags in a collection, although some projects choose to keep artists anonymous.
Like the mainstream art world, check for previous sales from an artist. The blockchain never lies, so you can always determine the sales history of an artist to see whether the current valuation matches their past sales.
4) KNOW THE TEAM
Avoid investing in a blind project. NFT projects are often made up of a team, including digital artists, developers and Web3 specialists. Check their track record. Have they delivered a successful project before with a great ROI? Did they follow their roadmap, and are they known for innovation?
The NFT world greatly respects when a team doxes themselves. This is when they share who they are and their previous work history. It adds a layer of accountability and should be respected. The perception is that a doxed team is less likely to run off with project proceeds and destroy the value of the NFTs.
When you research the team’s history, both Web3 and real world, have they been successful? Has the artist held exhibitions previously? Did they study at an art school? Have the developers that are creating the project worked in the space before and delivered on time and budget? You’d be surprised how many NFT projects are run by a couple of code jockeys and an amateur artist.
Your instinct is key here. If the team feels like they are enterprising, on-trend and have delivered successful projects before, it passes the Team-test.
5) HOT OR NOT?
Collectors have been following trends in the art world for centuries, and digital art and NFTs are no exception. Whilst serious blockchain and crypto art is quite established and seen as being the next period of contemporary art, growing out of the post-internet art movement, some types of NFT art are much less stable.
Whilst there aren’t necessarily ‘schools’ of NFTs, there are themes and styles that attract attention and price rises. Animated PFPs like the Bored Ape Yacht Club and Gutter Cat Gang have been dominant since the start of the NFT boom. At the time of writing this article (April 2022), a hot trend is collections with animé art.
Luckily, all the information you need is stored on the blockchain and accessible via marketplaces like Foundation and SuperRare. Following trending projects and artists can give you an edge as an investor and offer you insights ahead of less diligent collectors.
6) IN A BEST-CASE SCENARIO, ARE HUGE FUTURE GAINS REALISTIC?
Your aim should be to determine if high future gains are possible with the project. What plans do they have in the future that will increase the value of the art? If they don’t, then it’s time to start questions. Are there upcoming exhibitions that the artist will be at, has the artist got future collaborations in the pipeline? Even though NFT art appears in the digital world, meetups with like-minded collectors are important.
Are there any extra utilities that will bring in additional gains? Ultimately, investors want to make a higher return than traditional banking or other investment vehicles, so is this possible and what makes you believe that it will happen?
That being said… proceed with caution and separate out hype from reality.
7) DO YOU LIKE THE COMMUNITY?
NFT projects live and die by their communities. Unlike other art styles and movements, you have the whole community at your fingertips via Discord and Twitter. Watching their activity and how they relate to each other can be telling for the long-term outlook of a project. This idea of community is super exciting for collectors of crypto art who can now meet the artists and the team members in Discord town halls, Twitter Spaces conversations and metaverse events. Make sure to ask questions, learn more about the project, build relationships and find out if you can see yourself contributing to the community.
Before a project mints, or is created, the Discord community’s activity can be at fever pitch. Whitelist games can activate thousands of people to provide early access and it feels like you may have stumbled across a winning project. But once the mint occurs and some collectors miss out or the floor of the project drops, the Discord and Twitter chatter can fall to a minimum. This is evidence of an un-invested community.
Find projects with communities that are active, supportive of newcomers and have similar interests. Look for a tribe that you are happy uniting with and checking in with regularly. Does that aspect appeal or are you looking more for 1-of-a-kind artwork and only interact with the artist periodically?
Something else to look for is that Discord channel numbers can be misleading. Bots can be boosting numbers and can be a tell-tale sign of a struggling project. A strong community purges bots regularly to not inflate numbers. For example, if a Discord has 20,000+ members and only a few comments per hour, that could be either an uninterested community or a Discord full of bots.
8) IS THE SMART CONTRACT WELL WRITTEN?
An NFT project’s code lives on the blockchain, so it is available for the public to see. Whilst you may not be able to read code and blockchain nuances, many NFT investors and the community can. Find out what their opinions are on the code of the project. Is it clean and well-written? That’s a good sign of experience and care taken from a team. Is the developer on the team doxed? Do they have a Twitter profile or Linkedin that you can check out some of their work? It’s a great sign if they have written code for successful projects before tackling the NFT space.
Often projects bring in trusted developers to review and audit the project code and share their thoughts with the community. This is a great sign of transparency and should be seen as a positive.
9) HOW MANY NFTS ARE IN THE COLLECTION?
Unlike traditional art, NFT collections can be made up of thousands of individual pieces of artwork. Contrary to mainstream art, this is seen as a positive as it creates more unique holders and stretches the reach of the project. In the NFT world, publicity means liquidity in the market and potential for gains.
A healthy project will have a good amount of buyers and sellers, active on secondary markets like OpenSea. A dormant project will have no activity and a stagnant floor price. This could indicate that interest in the project may have passed and it’s something to avoid.
10) HOW IS RARITY MANAGED WITHIN NFT COLLECTIONS?
Rarity is a crucial aspect of some NFT collections and the fair and equal distribution of rare traits is paramount. Rare traits distinguish NFTs within a collection and have a huge impact on the value of similar looking NFTs.
When minting a project, did everyone get a fair and reasonable chance at minting rare traits? Or did the developers and influencers all ‘happen’ to receive the rare and highly prized NFTs? This is a bad sign of a project, is often called out and can sound the death knell for a project.
A good sign is if whales or experienced collectors are chasing rare traits and paying a lot more than floor prices for a specific trait. This shows confidence in a project and leads to the NFT conundrum; would you prefer 2x NFTs with non-rare traits or 1x NFT with rare traits? There is no standard answer and the answer can even change within a project from week to week.
Secondary markets have tools to help you monitor floor prices on individual traits. For example, laser eyes in the Bored Ape Yacht Club collection vastly increases the value of an ape due to their rarity.
Lastly, it’s important to consider whether you are looking at a closed collection or will more NFTs be added at a later date. This will dilute rarities and affect the price accordingly.
11) IS THERE AN INCENTIVE TO HOLD THE NFT?
Many NFT collections offer utility to holders of NFTs that might be of value. Similar to how a club membership works, it might be the actual reason to purchase the NFT rather than the art. Community connections, concert access, golf course tickets or exclusive merch from luxury brands – look beyond the artwork to find the true value of the NFT.
Projects like The Metakey and House of Kibaa offer genesis memberships that provide holders with NFT art drops that can be worth a considerable amount of money. Good projects can potentially reward holders with more value than the NFT is actually available for.
12) HAS IT BEEN DONE BEFORE?
With more and more people flowing into the NFT space, the initial projects and marketplaces are seeing so much demand that the prices are escalating beyond what the average collector can afford.
This leads to credible new initiatives that are taking the best things from the original projects, adding in some even better features and bringing these to the market.
Like they say; If it ain’t broke – don’t fix it. Web3 is revolutionising almost every industry on the planet and there are projects that are choosing time-tested traditional art concepts and applying these to the blockchain for the first time. These could be a good first move for traditional collectors who can invest in a project that combines “something old and something new” in a truly innovative way.
13) WILL THE NFT COLLECTION OUTPERFORM ALTERNATIVE INVESTMENTS?
Investing in NFTs also means that you are investing in the underlying asset of the blockchain which often is Ethereum, the crypto currency that most projects are sold in. So in actual fact, you are investing in two very distinct categories. An NFT project can rise in value and if the same happens with Ethereum it could be a win-win.
That being said, in the same way as a property investment or a pension scheme…if you are looking at NFTs as a pure investment, you need to be satisfied that the collection you are buying into will outperform the crypto markets, inflation, mainstream art and other investment vehicles.
14) ARE YOU EARLY?
This is potentially the most important aspect of NFT and digital art investing. Discovering a project early means you might be added to a whitelist, which provides exclusive access. You may be able to mint an NFT earlier than the general public, which can save you on expensive gas fees. It could even mean you get access to a Genesis collection that only appears in small numbers. The early money certainly wins in the NFT space.
Alternatively, if you are buying off the secondary market, be sure to check if you are receiving full rights that are associated with your NFT. Has an airdrop been accessed already or has an extra one-off feature already been used? Do your own research to ensure you don’t miss out.
Look out for the option to buy collectors passes or mint passes that give you early access to NFT art drops.
Collectors that buy these passes give the project positive cashflow that can be spent on marketing ahead of the art drops. In return, the collectors get the opportunity to mint the art before the general public.
Often, because of demand from serious collectors, the art will not even make it to the public mint and only the early collectors will have access.
The moral of the story…
…if you like a project and you see a Collectors Pass – get one!
15) HOW ARE THE FUNDS GOING TO BE SPENT DURING THE MINT PHASE?
The mint phase is when NFTs are created and sold to the public. Minting usually occurs on a marketplace such as OpenSea or via the project’s own website. The minting period can be timed or is open until the project sells out. A project that is highly anticipated might mint out within minutes so it’s important to know the exact time it begins and to have your funds ready in a crypto wallet such as MetaMask that is compatible with the marketplace you are purchasing from.
Some projects work by generating a huge amount of hype and having all the NFTs ready to mint in one go. Other projects have a longer term process for generating NFTs over time…through user interaction, artist curation, etc. Whilst a quick mint can be a good sign, a slower mint phase means that the team can continue to work and add value with a sometimes steady stream of funds coming in.
Ask the team what they are doing with the funds. Are they expanding the team with new hires? Paying marketing staff? They could be holding exhibitions in galleries, pop up art shows, curating online galleries, commissioning exciting new art projects or even writing resources to help artists.
Some projects start off as hobbies or experiments – for example a dev writing their first profile pic project or an artist learning to code and launch their first NFT collection. In this case, there is no immediate gold rush. The gradual income will support the teams over time, allowing them to progress and take their next steps. As a collector you can become part of their journey which is really exciting. Over time, if they commit to crypto art / Web3 and grow their reach organically, the value of their genesis pieces will grow.
To date, time has shown that the genesis pieces for projects end up being the most valuable.
16) HOW ARE THE FUNDS GOING TO BE SPENT AFTER THE MINT?
The hard work for the team starts after the minting phase has concluded. With ETH in their accounts, what’s their plan to deliver more value to the project and help raise the floor value? Is the roadmap achievable and likely to bring sustained value for holders? The Web3 era is all about communities working together to achieve success, so look for teams that don’t leave with their funds straight away.
Ask them what their plans are. If they respond with detailed plans, it’s a great sign. Philanthropic aims are quite popular for NFT projects and can create good community spirit and camaraderie. Games, quizzes and competitions for NFT holders with prizes can demonstrate a vibrant community that may stay around.
Also, does their vision / mission align with your own goals? Is it going to keep you interested in the long term or will you fall out of interest and take your eye off the ball? Are there going to be any secondary drops? Will these require any additional funds from you? Is there a reason for you to supply extra funds? Secondary drops can be lucrative for both the collector and collections – make sure that you are on the right side of the ledger.
17) WHAT ARE THE MARKETING PLANS FOR THE COLLECTION?
Unfortunately, marketing can be an afterthought for many NFT collections. Some people suggest that it should be looked at after the mint but sometimes this can be too late to keep project momentum going. Marketing is important to bring secondary market buyers to the project. This in turn props up values and if sustainable, can help lead a project to success.
Look out for projects that offer collectors passes pre-mint to generate cashflow to spend on PR and marketing. As a collector, you have to be realistic. You are coming to the party with ETH. The team is coming to the party with some of the best minds in the world. This is a joint relationship.
If you bring in the funds before the mint and then the team uses them to create global awareness then everybody wins. Of course, it could be a scam and you might get rug pulled…so choose carefully. Refer to Step 4.
Have a close look at the efforts and budget a project contributes to its marketing. Are they engaging popular NFT and crypto influencers to share news with their audiences? Are they speaking at NFT / crypto events and building a name for themselves and their project? Do they have an IRL presence or a local geographic community? Project partnerships can be a great indicator of long term success as can marketing initiatives such as competitions, games and activities.
18) WHAT BLOCKCHAIN IS THE NFT ON? DOES IT MATTER?
Ethereum is the pre-eminent blockchain for NFTs and still dominates in terms of liqudity. Most of the activity and secondary sales appear on it and it has the biggest community by far. If you are purchasing a valuable NFT, you want to be sure that the blockchain you are buying it on will be around for generations as well. Other blockchains like Solana, Flow and Avalanche are making in-roads and feature their own legacy collections that have large support. But ‘diamonds in the rough’ might not suit your risk appetite.
How long are you holding your NFT art? Holding for one year won’t affect your blockchain decision. But five years is a different story. 30% of businesses fail within the first 5 years. What about 50 years? Does the blockchain have the vision to progress with technology and adapt to a future with quantum computing?
19) DOES THE PRICE MAKE SENSE TO YOU?
It’s important to not look at the price of a collection in isolation. Does the mint price make sense compared to other similar collections? An inflated price without extra utility can be deemed as a money grab by a project and might be worth avoiding due to the team’s short-sightedness. A PFP project of generated animal traits should not mint for the same price as a genesis membership that contains utility. Unless of course that project has delivered blue-chip returns to their community.
For example, if an artist is selling their art in real life for $10,000, then a 2ETH sale of digital art is understandable and a good valuation. However if this is their first piece of art, or are experimenting with NFTs, a lower price will be more appropriate. Have they sold other NFTs and what is their valuation looking like? Like traditional art marketplaces, it will give you a good price indication. You could potentially find a bargain if they haven’t marketed their previous collections well. You may be able to collect NFT art from a range of different marketplaces and help them reach the true value they deserve.
An NFT trader’s rule of thumb is to buy x3 from each collection. Then the first one is sold when the price rises to recoup the mint cost, the second is flipped for 2-3x the investment and the last is to hold long-term. This provides you with enough liquidity to stay in the market and benefit when a project skyrockets out of nowhere. Does the mint price make sense for you to do this?
20) ARE THERE ANY IRL OPPORTUNITIES?
Web3 is all about collaboration and as a member of an NFT community, you might see a great IRL opportunity that would make sense for the project. Alternatively, as an investor or business owner, you might have an opportunity that is a good fit for the project. Share it with the team!
Imagine if you ran a popular art event (e.g. Art Basel). You could invest in an NFT project at a lower price then speak with the team and offer all of their holders a special utility (free access / VIP access). This would suddenly make the NFT more valuable, raise the awareness of your IRL event and increase your holdings. By contributing to the community, you are raising the value of your art investment.
Many NFT projects add utility to their collections with IRL potential that can boost value accordingly. Are you interested in the benefits beyond the NFT such as event and expo access? Some collections and DAOs are purchasing golf clubs, restaurants and hotels. Does this inflate the value of the NFT and is it of interest to you?
21) IS IT A SUSTAINABLE PROJECT?
Look for projects that consider their place in the world and how they can make a positive change. The birth of Web3 and NFT projects are creating the businesses of the next generation, and some projects see their role as making society a better place. Look for clues in Discord channels about the aims of the project, and whether or not it’s just a revenue raiser.
Some NFT projects have goals to be carbon neutral in the future via their choice of blockchain, so look for projects that match your own values and investment morals. One way for NFT projects to offset their carbon usage is to choose “ready to go” pieces of software, rather than creating their own tech.
Do some research to find out if the projects are supporting the crypto climate accord which aims to develop ‘proof of green’ solutions.
22) IS THE PROJECT TAKING SECURITY SERIOUSLY?
Investors need to tread carefully in the Web3 and NFT space. Privacy and security can be a real problem if the project doesn’t take it seriously. Malicious actors create sophisticated scams that can empty collections, steal project funds and compromise precious private data. This is an area that must not be underestimated so look for projects that protect their communities from attacks.
Good Web3 security starts in the way they implement and protect their smart contract, blocking channel spammers and ensuring their Discord channels remain safe. An open, transparent project team with the best interests of investors at heart is easy to spot and is worth investing in. Be mindful of fake collections on secondary marketplaces and only click on verified links from project teams that you trust.
An important first step is to search for the project’s official, verified twitter account and from that, find their official Discord and website. People sending you these links should not be trusted.
Most projects have an official links channel in their Discord. This ensures that you are using the right links and not being scammed.
…And remember, NEVER GIVE ANYONE YOUR SEED PHRASE. Ever
23) DOES THE PROJECT HAVE A WHITEPAPER AND DO THEY STICK TO IT?
An NFT project’s whitepaper is their roadmap to success. It should clearly outline the goals and aspirations of the project, and the measures they will take to achieve success. It acts as a plan for the project and allows NFT holders to track the success of the team. Look for projects that have detailed plans and papers and are transparent about their progress in satisfying each step that is outlined.
After the minting process is complete, the team will have the funds to carry out their vision. So keep an eye on whether an expanded team is in place to carry out this vision. Do they have the legal, accounting, business and marketing bases covered to deliver their vision? Teams that onboard external suppliers quickly and promote the hires using the mint funds are worth following for exciting future innovations.
SUMMARY
Art is a long-term investment. So too is digital art and NFTs. The adage of being early in the space cannot be underestimated. Popular artists and collections will remain popular as the space gets bigger but there are traps around every corner.
However, if you are reading this guide, you are early and as the NFT community says – WAGMI (We’re all gonna make it).
ABOUT THIS GUIDE
This guide was created by the team at MHOUSE with input from collectors in its network. It does not constitute financial or investment advice and you should always do your own research on any project. For crypto art projects this can include consulting with art curators, polling artists, speaking with experienced crypto investors and engaging with a supportive community.
ABOUT MHOUSE
MHOUSE is a global members club for web innovators.
MHOUSE aims to provide the resources and networking that people across the world need to achieve their web3 goals, for free and in every language.
Members include: Artists, Businesspersons, Collectors and Developers.
Apply now – https://mhouse.club
THE LINKED COLLECTION
Have you seen the LINKED Collection by MHOUSE?
It is a unique crypto art collection featuring 1000 of the best NFT and blockchain artists from across the globe.
Find out more – https://mhouse.club/linked/