If you want to learn how to make money with NFTs then the simplest thing for you to do is to forget about money.
I know that sounds weird, but it’s important to understand that when it comes to NFTs or any other types of collectibles, money isn’t the motivator.
What I mean by this is that if you want to sell people NFTs then you can’t wonder if they’ll pay a certain price. You need to understand the culture and why people are buy these in the first place.
It’s not different than physical art or designer bags.
Why do humans continue to spend ridiculous amounts of money on material things?
When you can answer that question then everything becomes a whole lot easier.
Why People Spend Money on Things
When people spend money they do so because they want improvement.
That’s the only reason why people spend any type of money.
In general, there are 10 different improvements that people will look to spend money on:
- Make money
- Save money
- Save time
- Avoid effort
- Escape mental or physical pain
- Get more comfort
- Achieve greater cleanliness, beauty, or hygiene
- Gain praise
- Feel more loved
- Increase popularity or social status
There is no reason to try to find more.
With NFTs, 4 of the improvements come into play and it’s important to understand them so you have a better chance of making a sale.
- Make money
- Gain praise
- Feel more loved
- Increase popularity or social status
The first one is pretty obvious so let’s look at that.
People Buy NFTs to Make Money
Buy low, sell high.
You know the motto.
There are many people that will be looking for good deals on NFTs so they can flip them for a profit.
There is nothing wrong with that. You’ll be trying to do the same thing.
However, it’s important to understand the mentality of a flipper.
Rarely is a flipper looking to pay the highest price for something. There is too much risk.
For example, think of someone that flips houses. They aren’t going to buy the most expensive house in the neighborhood.
They’re going to look for the fixer upper that after a few new touches will have a greater resale value.
Most people looking to flip NFTs are looking at what are known as the floor prices.
These are the lowest prices that you can find on the different marketplaces. That is where they are looking for bargains.
So how do you sell to them?
How to Flip Common and Uncommon NFTs
Because common and uncommon NFTs (based on rarity) are usually the lowest priced ones in the marketplace, they are always at the floor.
If you want to be successful flipping these types of NFTs then you have to hope that the floor for the NFT collection continues to rise.
For example, let’s say you buy an NFT with 20 $DUMBO (yes, I made that coin up). It was the lowest priced NFT in the collection.
What you have to hope for is that other people continue to “sweep the floor” which means they continue to buy the lowest priced NFTs so the floor rises.
When you see the floor rise then you can decide on when you want to put your 20 $DUMBO NFT back on the marketplace.
If the floor goes up 40 $DUMBO then it might be time to jump back in as that will be a 100% return.
Not too bad at all.
What Happens When the Floor Drops
Unfortunately, there will be times where you’ll buy the floor and then you’ll refresh the marketplace to find that the floor continues to drop.
What do you do then?
You have two choices:
- Re-list the NFT at a loss
- Keep the NFT and hope the floor rises
The reality is that you have no idea what is going to happen with the floor because the floor is based on the community’s perception of the NFT.
For example, I once bought an NFT where the floor was 3 Units. It was a beautiful NFT and the whole collection had great potential.
Then the developer of the NFT jumped on Twitter, said something stupid, and the floor for the NFT dropped to 1 Unit.
Nobody could’ve predicted this.
I didn’t re-list the NFT because I’m holding out on the hope that the developer and community can turn things around.
But it’s important to understand that this can happen. NFTs aren’t a guaranteed profit.
How to Flip Rare NFTs
You might think that the more rare an NFT then the easier it will be to make money, but that isn’t always the case.
There are things that you have to keep in mind.
- The market
- The trend
- The price
Just like with stocks, there can be bull and bear markets with NFTs.
Bull markets are when prices are going up and everyone is buying.
Bear markets are the opposite.
Let’s say you buy a rare NFT for 100 Units and the floor for the collection is 20 Units. You’re hoping that the floor continues to rise because that will increase the value of your rare.
However, what happens when the floor crashes to 1 Unit?
That means either the market is crashing or people have lot interest in those NFTs.
In this case it’s almost impossible to sell your rare for profit unless you find a sucker.
You might buy an NFT that is a beautiful art piece that replicates Picasso’s style. That becomes the “in” thing.
However, over time that trend may fade as people go for more Van Gogh type of work.
Terrible example I know but work with me here.
If the trend is going away from your NFT then you might have to flip it quicker than you want to recoup the cost, sell for a loss, or hope that trend comes back again.
As more and more NFTs are selling for millions of dollars, there comes a time where you might simply be pricing yourself out of the market.
How many people are going to be able to afford your $10 million NFT and more importantly how many of those people will be interested in buying it?
How to Make Money with NFTs
Alright, with all of the background stuff it’s time to learn how to make money with NFTs.
To be honest, some of it is analytical and some of it is blind luck.
It’s no different than the stock market even though some people want to pretend that they can predict these things.
Before we go into the actual mechanics of it all it’s important to understand the mindset that you need.
The NFT Mindset
When it comes to NFTs you’re either going to be a flipper or a collector.
Both can make money, but their mindsets are very different.
If you’re looking to flip NFTs for profit then in your world profit is profit.
If you buy for 1 Unit and sell for 2 Units that’s a win for you.
There is no such thing as a lost opportunity or remorse.
Sure if you held on to that NFT you might’ve gotten a 50x return instead of a 10x one, but you couldn’t have known that in the past.
So you took your 10x return and that’s a huge win.
Collectors can also make money because they HODL (hold). They love their NFTs for different reasons and so they are fine with keeping them.
But everyone has a price so if they see an opportunity to sell their NFT for a good price they’ll take it.
However, they also understand that their NFTs could drop to 0 and while that isn’t ideal, they can live with that.
This guide is more for the flippers, but collectors can get a lot out of it as well.
The Metrics to Pay Attention To
Flipping NFTs for profit can come down to a simple numbers game.
If the price is consistently rising on the floor of a collection then you probably know that you can grab the floor, wait for it to rise and re-list the NFT.
Okay, actually before we talk about Metrics it’s important to understand that there are basically 3 phases for an NFT:
- The Minting Stage
- The Secondary Market Entry Stage
- The Long-tail Stage
The Minting Stage
This is when you can be one of the first to own the NFT.
The developer will have a certain number for the collection (1,000 – 10,000 seems to be the norm) and you have an opportunity to get it at a Mint price.
This seems ideal because you might think this is the cheapest that you can ever get the NFT.
While that is true for some NFTs that isn’t true for most.
So what can you look out for with an NFT during its minting stage to decide if you should get in on it?
Every NFT will have a Twitter account. How active on there are they?
Why does this matter?
Because most NFTs are simple cash grabs, the developers will simply be looking to create something, get it out the door, and disappear.
Ones that look to be active on Twitter and build an active community give you a hint into whether or not they will continue to do the same after they make their money.
Some people like to look at the number of Twitter followers, but that isn’t as important to me because those metrics can be boosted a number of different ways that aren’t relevant to the price action of the NFT.
If the project has a Discord then be sure to check it out. Is it active? How many people are in there? What’s the vibe?
The price of a NFT in the secondary market is solely driven by the community. If the community is toxic then it doesn’t stand a chance.
If it’s a community of people you don’t want to be involved with then why would anyone else?
Roadmaps can be tricky because they can simply be made up. However, it’s always nice to see some type of plan for the future.
Are the developers releasing an NFT just to make money and then disappear or do they see this being a long-term project to grow?
Many NFTs will just copy & paste what other people are saying and call it a day so most of the time you won’t know who is telling the truth or not.
But having a roadmap is more important than not having one.
When looking at mint price it’s important to understand WHY a developer is pricing something the way that they are.
At the time of writing this article, the price of Sol is about $155.
If a project is releasing 10,000 NFTs at a mint price of 3 sol that’s over $4.5 MILLION for the developers assuming they sell each NFT.
That’s a lot of money.
Does the dev team feel like the type of team that will continue to develop the project or simply take the money and run.
In contrast, what if a team sets the mint price to free?
- You know that if they want to make money then they have to continue to provide value to the project
- You can’t LOSE any money by trying to get one
Charging money doesn’t mean it’s a cashgrab and doing it for free doesn’t mean the prices will skyrocket.
Just some things to pay attention to.
The Secondary Market Entry Stage
This is the most dangerous stage because people tend to get swept up in emotions and FOMO kicks in.
They’ll jump at the first price they see, but oftentimes you can get the NFT cheaper if you just wait a little bit.
Because once minting is done, some people want to make their money back or SOME money back so they’ll head to the secondary market to list their NFT.
Well guess what?
They’ll see what the lowest price is and because (for whatever reason) they are desperate to get money they’ll list theirs even lower.
This causes the floor to crash and it only picks back up once the floor is swept consistently.
Does this happen with every project? Nope, but it happens with a large majority of them.
This means you have to decide for yourself if you think you’re entering at a good price or can you wait to see how things shake out?
If the floor price is already at your budget and by moving higher prices you out, then you might just have to bite the bullet and grab the NFT.
Because things move quickly at this stage it’s hard to gauge how a project is shaking out.
However, there is one metric you can turn to that will give you some sort of idea of how momentum is building.
Now that the NFTs are out a public community is formed.
Do the people in the community LOVE to show off their NFTs? Do they use them as profile pics? Do they show up whenever the project is mentioned?
Are people actively talking about it?
Communities are hard to kill once they’re established. People love being a part of something but it also takes time for something like that to form.
A strong community means that others will want to join.
This is the reason for the success of the Bored Yacht Apt Club. Sure the art is great, but people want to be a part of the group.
How do you do that?
Buy the NFT.
The Long-Tail Stage
As much as you might want to you can’t get in on every NFT mint or even the early stages of the secondary market.
You might even want to wait to see how things played out.
This is when you enter the long-tail stage of an NFT project.
The truth is that most NFT projects are doomed to fail. There are just too many out there for all of them to succeed.
Note: This means that you’ll end up buying a lot of losers over time as an NFT flipper, but the wins make up for it.
So what metrics do you look for here?
All of the ones that we’ve discussed, but you can also begin to look at numbers as things have settled down and you have enough data to look at trends.
Because each coin has different marketplaces and there can be many different marketplaces it can be hard to specifically track metrics.
On Ethereum it’s a little bit easier because it’s the dominant marketplace for NFTs and because of that you can find some pretty great tools.
For this guide let’s take a look at Solanalysis which works within the Sol ecosystem and gets it’s from Solanart.io.
First, ignore the big numbers at the top. That’s for the whole market and you aren’t worried about the big market unless you’re trying to track things on a Macro level.