"NFTs are far from a surefire investment" — but there are tactics that can boost a digital art collector's chances of making money.
Making a profit on non-fungible tokens is much harder than it looks, a new report suggests.
According to Chainalysis, transaction data shows "NFTs are far from a surefire investment" — but there are tactics that can boost a digital art collector's chances of making money.
The blockchain analytics firm says "whitelisting is key to success in trading newly minted NFTs" — and that it is "nearly impossible" to achieve outsized returns unless a user is involved in a project from the early days. Not everyone can rake in tens of millions of dollars like Beeple.
While non-whitelisted users end up landing a profit 20.8% of the time, those who are given exclusive access — and the ability to snap up NFTs at much lower prices — generate a profit 75.7% of the time.
Inevitably, the next question is this: how do I get on a whitelist? Well, as the Chainalysis report points out:
"More than anything else, NFTs run on community and word of mouth growth. Look at virtually any successful NFT project, and you’ll likely find Discord servers and Twitter threads full of enthusiasts promoting the project. This is by design."
Generally, non-fungible tokens are promoted for an extended period of time before they're released — allowing momentum and demand to build. Being a dedicated follower who helps spread the word from the beginning is your best chance of being added to a whitelist.
The staggering statistics don't end here. Among unwhitelisted buyers, 78% of sales end up resulting in a loss — and in some cases, they may only end up getting 50% of their initial investment back.
By contrast, 78% of sales performed by whitelisted buyers generate a profit — and 51% of the time, lucky users end up doubling their initial cryptocurrency investment at the very least. Chainalysis added:
"The data is clear: whitelisting provides a significant financial reward for those who play a role in an NFT project’s success by seeding its early community growth efforts."
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Making Money on NFTs
Let's zoom out and look at some other NFT trends identified in the report.
Chainalysis cites data from the OpenSea marketplace that indicates just 28.5% of NFTs purchased during the minting process result in a profit when they are sold.
Again, there are some tricks that can boost a user's chances of success. Collectors who purchase NFTs from the secondary market, and later flip them for higher prices, make a profit 65.1% of the time.
The report also uncovers some other valuable trends concerning the state of the NFT market.
Unsurprisingly, CryptoPunks was far and away the most popular NFT collection between March and October 2021 — generating $3 billion in sales. The project was established back in 2017, way before non-fungible tokens were cool.
Crunching the numbers, it appears that many collections experience "brief but large spikes in transaction activity without ever gaining consistent popularity."
There's also a lot more competition in NFT marketplaces these days. Just 193 collections had at least one weekly sale on OpenSea back in March 2021 — but fast forward to late October, and this had surged to 2,300 collections.
And while it's the whales who rule the roost in the crypto markets, the NFT market remains retail driven — with most transactions under $10,000 in value. Nonetheless, the proportion of transactions in the $10,000 to $100,000 bracket has risen substantially — from 6% in March to 19% in October. Institutions are practically nowhere to be seen.
