After my last series of NFT Collection posts, which talks mostly about how to collect free NFTs without spending any money, I slowly explored the NFT space until I felt confident about actually spending money on NFTs. I already bought some ETH in January and after the catastrophic crypto crash, the value dropped. But 1 ETH is still worth 1 ETH, so might as well do some NFT trading to grow the ETH till the next boom.
Before I continue, just a disclaimer that this is not financial advice (NFA) and you should do your own research (DYOR).
I started buying into Ethereum NFTs in early May and I have intention to hold my assets (“diamond hand”). As such, I look for projects with mid- to long-term potential with real utilities, like gaming platforms, merch, software tools. But with a limited investment budget, I want to get the lowest price for the projects I buy in. Due to FOMO (“fear of missing out”), I bought too early, and as a result, my expensive NFTs (Ragnarok Meta, Imaginary Ones) dropped in significant value as the crypto market crashed.
Due to the crypto crash, the trading behaviour becomes more volatile and attracts more speculative players to flip for quick small profits instead of long-term holders. As a result, prices fell after a while even though the projects are touted as “blue chip” potentials.
While I wait for the prices to rise (a long-term hold), I started to study the activities of “Degens”. The term generally refers to people who trade in high-risk NFTs, but it also results in them spending excessive amount of time on the web3 space monitoring the trades, buying and selling. Because every second counts. It could mean profiting a couple ten bucks, or losing a few hundreds.
After observing the degens in action in one of the Discord channels, I have to say, there is easy money to be made. Every day, there are dozens of new NFT collections popping up, and these collections do not have any roadmaps or purpose other than letting people buy and sell image NFTs. Some have interesting original art, many are blatant copies of existing successful collections (these quickly get delisted by the NFT platforms), while few take inspirations from blue-chip projects and create derivative art which are tolerated.
Why would people willingly buy and sell the NFTs that have no meaning or roadmap? Because the buyers are speculating that someone would also want to buy these NFTs hoping that the price will go up so that they can sell for a profit. This cycle goes on until somehow buyers lose interest in the collection, then sellers will start to list the NFTs at a lower price to cut losses. If there are many sellers who lost confidence in the collection, they will quickly list the NFTs at a low price, resulting in a sudden price drop.
How does this benefit the creators after the collection is sold out? Well, for every NFT that gets resold, the creators get a percentage of up to 10%. Imagine if the collection generates a trade value of 100 ETH, the creators will receive 10 ETH. As long as people trade, the creators will keep getting paid. This is the reason why creators have every reason to want to keep the market interested in the collection and keep trading, regardless of the price. To the creators, it’s not just the value of the NFT, but also the trade volume. That means, creators would set a low starting mint price so that buyers would want to take the first step of minting the collection, and then list the NFTs to sell to potential buyers for a profit.
So how do you know if prices will go up or not? You can analyse the trend using NFT tools, but for collections without any roadmaps, it all comes down to the people who holds the NFTs – the community. If the collection is interesting, the holders might hype up on Discord and Twitter to generate excitement. If the collection is small and sells out, it creates an impression of scarcity and causes interested buyers to grab the NFTs at a higher price. Conversely, if the collection did not sell out, the holders would lose confidence in the collection and would want to quickly sell off the NFTs to cut losses.
If a certain trader holds a lot of NFTs, he can easily manipulate the floor price by selling a bulk of his collection at either a very low price or a very high price. There are many reasons why someone would want to do that, it could be an undisclosed agreement to pump the price, or could be sabotage from competitors to drag down the price. For collections with very low price, this activity does not cost a lot but it will easily undermine the overall confidence of the degen collection. Often, when such collection suffers a price crash, it would be very hard to recover. When no one is keen to trade in these collections, they will relegate into oblivion.
Other than managing the psyche of the community, you also need good NFT trading tools to help you snitch the NFT collections at the best possible price. A premium trading tool will be able to help you complete the sales transaction within seconds. Comparatively, using OpenSea is slow and if someone else has already bought it while you submit the order, the transaction would fail and you would still have to pay for the transaction/gas fee. The tool can also run scripts to pick up any NFT based on your defined criteria, for instance, if a listed item is 50% lower than floor price, which could be due to listing error, the tool can process the transaction to snag you the deal automatically. Probably the best tools out there is NFT Sensei, based on what I heard. It is currently on beta and it will be selling the NFT membership very soon.
The strategy of crypto asset trading is no different from stock trading, but more dangerous, because it’s not regulated. However, the transactions are published hence more transparent for analysis. Anyone can see the number of listings, the prices traded, the sellers wallet ID and amount. So you can quickly ascertain if a certain collection is being manipulated by artificial volume trading.
The collective power of holders can also influence the floor price of a collection by listing the NFTs at a higher price, or simply not list for sale. A strong community also means holders have confidence that the project team can deliver the value and enhance the desirability of the project. If the project does not instill confidence, or if holders lose patience and want to cash out the project, they would be listing their NFTs at a low price. If the number of holders listing low-priced NFTs is large, and if there are not enough demand to buy up these low-priced NFTs, the floor price would slip, which could further cause more holders to lose confidence and want to list their NFTs at a lower price than the current floor price to entice buyers to buy their NFT instead of a higher-priced one.
One quick approach to regaining floor price is to “sweep the floor”, a term which means buying all the low-priced NFTs. Once these NFTs are bought up, the next available NFT for sale would be at a higher price, hence the floor price of the collection will go up. If no new listings appear, then the floor price will gradually rise. It is hoped that through this exercise, it would catch the attention of new buyers and generate sales volume. A word of caution though: if the general sentiments of the project remains poor, holders may still want to list their NFTs at a price lower than the artificially-elevated floor price, and in no time, the floor price will slip again.
The other factor is also the type of demographics your collection attracts. If somehow the collection attracts a lot of paper hands, then the collection will crash very easily. If the collection attracts diamond hands with strong holding power, it will keep floor price stable.
Survival Of The Mental Fittest
After spending over 3 weeks of trading in NFT collections, I am somewhat exhausted. The web3 space is very different from the web2. First, a lot of information is spread on Discord, which is not searchable on search engines. Hence, if you want to conduct degen trading, you need to be constantly checking dozens of Discord servers to sniff out the newest collections or rumours. Buying the NFTs during mint guarantees you buy at the lowest price and list them early to reap profits quickly.
Second, there are so many scam activities on web3 that you just have to stay alert. Scammers will always try to spoof the original collection’s website and artwork and cheat unknowing people to buy from their fake collection instead of the original ones. Worse, these scam websites could contain phishing codes to drain all the money and assets in your wallet. Googling does not help, because these scammers could well be buying ads to bring their website to the front page. One of the standard practices across the web3 is that the project owners will never direct message (DM) you to tell you personally to inform you of any whitelist or win any mint or change the mint date/time or price. The fact is that all announcements will be made on the Discord channels. Even giveaway announcements are done on the server, never directly messaging you. The bad thing is that if you miss the announcement of any giveaway, you potentially lose the redemption. This is how the project encourages you to keep interacting in their official platforms.
Third, I find that the risk is too high and the returns are quite low. A few bad calls could wipe out your profits accumulated from a dozen trades. Besides, every time you trade, there are transaction fees to be paid which varies depending on the platform volume. I think I manage better with a few projects with potentially of a large margin appreciation, instead of chasing after multiple small collections to profit bit by bit.
So far, I have managed to sell all my NFTs at a profit, although I also lost some money on a few NFTs due to rugs and scam collections. As a portfolio, I am still in the red (unrealised loss) because my big-ticket NFTs crashed and ETH value plunged, but I am confident I will gain back once market picks up. I am holding to several long-term projects as they are only started development with exciting roadmaps that will generate good market interest and bring up the NFT price.
My Next Move
I will be taking a break from active NFT trading and holding to the collection that I own, believing strongly that they will appreciate over the months. I will also not be actively pursuing any new projects or spending excessive time to get whitelisted where I could mint at a low price. Although I could potentially miss some opportunities, my 3-week experience tells me that I have lost more – in terms of time, money, and real-life development. Going forward, I will be more focused on investing so that I reap profits from long-term projects instead of spending time digging the degen collections, which I admit is fun and eye-opening. One of the NFTs I collected is Beat Bots, and I am one of the 200+ holders who will help contribute to the success of this 90s-nostalgic project founded by Benjamin Ang from Singapore. The project is also a fully incorporated company in Singapore. Go to the website to read more.
Should You Start NFT Trading?
I would recommend to invest in NFT Collections that runs like businesses with strong roadmaps, proper team structure, tangible utilities (like free merch or access to real life events), and a community that exudes positivity. Such projects are far and few during this period of time. Most people in the community are trying to make quick profits. They spend time participating in activities hoping to earn whitelist so that they get to mint the first batch. More than half would be looking to sell them at a profit and move to the next. If the project is not hyped, if the mint price is high, regardless of how promising the roadmap is, they won’t buy. Most NFT players now are only interested in speculative trading.
Ironically, now is actually a good time to buy and hold some of these promising projects, because their prices are very low as they go through development phase. In 2-3 months, they will be delivering some of the features which should bring the NFT prices up.
For many other degen collections – for instance, goblintown.wtf – they are highly speculative and difficult to predict. You have to keep watching the market on the overall sentiments and new announcements which can move the price. The quality of artwork rarely determines the value, it is the rarity rank and the speculative potential that determines whether a collection is worth buying.
On top of that, there are little regulation to help holders who got caught in scams or frauds or activities that would be deemed as illegal in traditional financial systems. These rules are not enforced on the NFT space, since there is no governance yet, even though you may think that traders should have some form of protection, but then it would mean regulations (and somewhat unwelcome restrictions) would have to come in. So, it is very high risk, but like all risky activities, you could potentially achieve high returns. Some people enjoy such “freedom” to trade without the traditional rules, but law-abiding people should really stay clear of degen collections and stick to the bigger players who I feel will get you more significant profits over a longer term.
One final word: NFT ownership has many loopholes and gaps. Watch this video to understand the fundamental legal problems on NFTs.
Finally, a reminder again that this article is not a financial advice and you have to do your own research, this article being one of them. I know I do not cover a lot of aspects in NFT trading and readers might think the information is not comprehensive which may be misleading. But these information I share is to the best of my knowledge and I am open to hearing your views and correct them. Please share your comments and I might include your points in the article to substantiate or amend.