5 Steps for Evaluating the Potential of an NFT Investment
If you’re considering investing in an NFT, it’s important to understand how these digital assets work and what factors will help you determine their potential value. There are many factors that can affect the price of an NFT—some of which may seem obvious and others that may not be so clear at first glance. In this article, we’ll go over five simple criteria that can help you determine whether or not an NFT is worth your investment dollars:
Look for scarcity
In a case where there is a limited number of tokens available and these tokens can be used to purchase additional NFTs, this will create scarcity. For example, if you have 100 tokens and each token is worth $1 USD, then you would only need to purchase one more token to make it worth $100 USD.
If there are only 100 of these same type of NFTs (for example), but they can only be used for buying another type of NFT called “ICO Tokens” which are associated with an ICO project—and those ICO Tokens will only be released after the ICO has completed its fundraising goals—this creates even more scarcity since now only 10% (10 out of 100) may end up being sold during their presale period instead of just 1%.
Review the underlying asset’s value
Once you’ve determined the potential for an NFT to be profitable, it’s time to look at the underlying asset. As you can see, things get a bit more complicated around here.
The first thing to consider is whether or not an investment in your NFT will be successful. This means that you need to evaluate whether or not people are willing and able to use this type of digital asset as payment on their platform or application. You also want to make sure that there aren’t any problems with your product before putting it out there—for example if people don’t like how difficult it is for them (or just generally) then they might not bother using it at all!
The second thing worth considering when evaluating a potential investment opportunity is how valuable each party involved with said investment project might become depending on its success ratio (for example, how many times over two years did they sell their goods/services). This can indicate whether or not such actions would lead to greater profits down the line as well as help determine if these investments are worth making now versus later downstream.”
Understand the role of the artist
The role of artists in the NFT ecosystem is paramount. It’s easy to see how they play an important part in creating and marketing these assets, but it can also be difficult to understand their actual value within this ecosystem.
The relationship between creators and consumers is one that has been developing over time, as we’ve come to better understand who owns what content online and how our lives are influenced by those interactions. In general terms, artists have always been interested in selling their work—but only recently have we had access to tools that allow them greater control over their own work (think Instagram). The advent of crypto-based platforms like CryptoKitties has allowed for more nuanced ways for artists to monetize their creations without having direct contact with consumers directly.
Track resale activity for a given NFT
As with any other investment, you should monitor the resale activity of your NFTs. This can be done by following the NFT’s price history on public markets like OpenSea or EtherDelta. It’s also important to track how many transactions have been recorded for each specific token since its creation date and who these buyers are (i.e., who are purchasing these tokens?).
Don’t get caught up in the hype
It’s important to remember that when it comes to NFTs, there are no guarantees. These investments can be risky and volatile, especially if you’re investing in an asset that hasn’t yet been widely adopted by the public.
It’s also important not to get caught up in the hype surrounding these assets—you should always do your due diligence before committing any money or time toward an investment opportunity. Be wary of media coverage and influencers who may be pushing certain products as “the next big thing,” but don’t be afraid to ask questions about how they came about or why they’re so popular right now! If something sounds too good to be true (or expensive), then it probably is!
These five factors will help you assess whether an NFT is worth buying
To determine whether an NFT is worth buying, you should look for the following factors:
- The scarcity of the underlying asset. If an artist’s work has been out of circulation for a while, chances are they’ll try to recoup their investment by selling it through secondary markets like art auctions or private sales. This can lead to inflated prices on resales and low liquidity (the ability of buyers and sellers in these transactions). To avoid this problem, try keeping track of how many times your favorite artists’ NFTs have sold in the past year or two—you might be surprised by what kind of demand there really is!
- Reviewing the underlying asset’s value. Some assets may not have an intrinsic value because they’re not actually tangible items (like paintings), but rather digital files created exclusively for their use within certain platforms such as Ethereum-based gaming platforms like CryptoKitties; however, even if this isn’t true for every single instance where someone buys one off eBay today then something else must be happening here…and that something else could very well mean its creator has made some wise decisions along with yours when deciding which ones were worth doing so now as opposed to later down the road – especially considering how much time goes into creating something like this day after day long hours spent away from family members etcetera!
We’re glad you asked. It can be a little bit overwhelming to try and determine how to evaluate an NFT as an investor, especially when there are so many factors at play. We hope that this guide has helped you to understand the basics of how NFTs work and how you can use them to diversify your portfolio. If you have any further questions or comments, please feel free to reach out.