New NFT Drops
The motivation and inspiration to make an NFT drop can come from so many different places, and this inspiration can in turn affect the purpose of a collection and the reasons for someone to invest in it.
Whilst some NFT art collections can be invested in for their own sake and are purely about art and aesthetics in a very Oscar Wilde “Art is Useless” way, profile pictures and the community that spawns from this, most NFTs are connected to a specific utility or function.
As a result, with so many new NFT drops appearing on a weekly (and at times a daily) basis, it can at times be difficult for a new investor to separate projects that are seemingly destined for success from those whose success it short term or remain the digital art version of penny stocks.
In this guide, we will explore the different reasons why people invest in brand new NFTs on the ground floor either during the pre-sale or early launch phase, the different purposes for NFT collections, as well as some of the aspects of a project that highlight its long-term outlook.
Exactly which projects are worth an investor’s time and cryptocurrency largely depends on their motivations for investing in the first place.
Why Do People Buy NFTs?
In the wake of the sale of Beeples’ Everydays: The First 5000 Days for over $69m and the surge of the NFT market that came as a result of it, one of the most commonly asked questions for people who were not already in the community was why people would spend considerable amounts of money on NFTs.
Whilst not always a question asked in good faith, it is still a fascinating one as there is no single universal answer to this that covers everyone with an NFT in their MetaMask wallet or who browses OpenSea.
People buy NFTs for different reasons and with different motivations, some of which can vary depending on the specific type of NFT or project, and whilst most of these motivations are based around serious, earnest ideals, others are simply curiosity, a fascination with the technology or indulging in something fun.
With that in mind, the serious reasons why people buy NFTs can be split into three general motivations; some people buy based on the art itself, people who buy based on a part of the roadmap that the NFT ties into, and people who buy it to make money.
In the early part of the NFT boom in 2021, a lot of people who flocked to NFTs were motivated by the art itself and the sense of ownership an NFT could provide was for these people similar to that of people who collect paintings and sculptures. The key motivator was a love of the craft.
With profile picture collections or PFPs, the motivation was sometimes based on aesthetics but also in some cases based on community spirit, with people wanting to be part of the Bored Ape Yacht Club or the CryptoPunks community with similar like-minded individuals.
This often linked closely to the second main motivator, which was less about buying the NFT for its own sake but for its connection to another part of the project.
In cases such as NFT games, it was a direct connection; people bought Axie NFTs because that was a necessary component to play Axie Infinity and other similar games.
For metaverse games like Decentraland, the NFTs represented items that could be used or equipped in the game’s universe or were tied to parcels of land.
There are other cases where there is a direct purposeful connection, such as an NFT being linked to a tangible asset which could be digital such as how BAYC owners have intellectual property rights to the ape they possess, or in some cases can be physical such as attempts to connect NFTs to physical property such as land.
In other cases, it is about a more moral high aim, such as supporting digital artists, digital art, decentralised systems of ownership or new ways of defining digital identity, ownership or other high-concept web3 ideas.
The final motivation is money, where people treat NFTs similar to stocks, physical art, sneakers or rare spirits and buy them so they can accrue in value to be sold at a profit later.
Each of these motivations will require a different approach when exploring the market to make sure they are satisfied in the end, although often the aesthetics and functionality will affect the value of an NFT as an investment, particularly as the market matures and is no longer fuelled by novelty.
What Should You Look For In A New NFT Investment?
Whilst the ultimate goal of a “good NFT investment” varies depending on what you want to get out of a particular project, separating the new NFTs with the most potential relies primarily upon prioritising rational evaluations over FOMO.
This can be true even if you are spending a small amount of money on an NFT simply based on looks to avoid a potential rug pull, but is even more important if you invest based on the hopes of a project connected to the NFT succeeding, either for its own sake or to profit on the value increase that comes with it.
The key to this is ensuring that you undertake due diligence before adding an NFT to your wallet, even if it is very cheap, free, or you only have to pay the minting costs.
This means spending some time before dropping your ETH to ensure that everything appears above board and there are no obvious and evident red flags.
Transparency is key with founders, and whilst it is sometimes at odds with the decentralised anonymous ethos of crypto, a “doxxed” NFT where the creators’ identities are known and their previous history, skills and capabilities in the space are documented is typically a positive sign.
NFT projects where the creators dox themselves early are making a statement and whilst a creator being anonymous is not necessarily a red flag, it does mean proceeding with caution. This makes it more of a yellow flag.
The roadmap is the most important document to check when it comes to investing and either a missing, incomplete, constantly adjusted or unrealistic roadmap is often a sign of trouble.
It also should highlight the ultimate function of the NFTs, either as purely artistic assets, possession of a distributed intellectual property, membership to an exclusive club, shared ownership or as tokens that are used in another project such as a game or to access services.
Finally, it is worth checking their engagement with the community and not just on their own Discord channel. A community should be engaged and passionate, and the founders should regularly share tangible updates, news and content on their social media to maintain interest.
Community is the lifeblood of a project and if it is lacking, then the motivation to buy and sell may be lacking as well.