Cryptocurrency

Does Crypto Knowledge Help You When Investing in NFTs?

Does Crypto Knowledge Help You When Investing in NFTs

Investing in NFTs: Moving from crypto to NFTs is easier than you might think. Most of the skills involved in making a smart crypto trade can also be applied to NFTs.

With one in four American households claiming to have purchased or sold crypto and/or NFTs, it should come as no surprise that two assets powered by blockchain technology have a lot in common.

Here are some of the vital crossover skills that can support you in making an intelligent NFT purchase.

Knowing when to get in and get out

Investing is all about timing, and the same goes for the NFT marketplace. It’s also one of the most complex aspects of investing. You don’t want to miss out on a big wave, but you also don’t want to be left holding the bag.

NFTs work slightly differently from crypto because you need to find a willing buyer for your NFT. With fewer people in the market, there’s significantly less volatility within crypto.

One area where determining your exit strategy diverges is being able to plan for a sale well before you actually want to sell. You need to price the asset fairly because the marketplace has no standardized prices because every NFT is one-of-a-kind.

Specializing in different areas

Most crypto investors will have a small selection of coins that they follow and have knowledge of. The same skills go with NFTs.

If you’re looking for good returns, you need to have sufficient expertise within the area you’re investing in to estimate the true value of a token accurately. For example, sports fans will be able to identify profitable sports-based NFT projects, and the same goes for gamers.

Knowing which NFT for sale to specialize in and what projects could gain traction in the future requires following the news and planning your moves well in advance.

Conducting research without losing your head

Traditional and alternative investment assets require traders to conduct research. However, both crypto and NFTs are susceptible to the hype machine. Countless projects have been generated based on hype, including the Billionaire Bunker collection.

Choosing to buy an NFT because some influencer recommended it is not a smart move. Such moves could lead to short-term wins, but this is something that also plagues cryptocurrency. For example, Elon Musk has shown that a single Tweet can boost or destroy millions in a cryptocurrency’s value.

NFTs are even more volatile. Conducting sufficient research will protect you against this problem by enabling you to identify successful projects earlier in their lifecycles.

Correct diversification

Diversification shields you from risk. If you are looking at where to buy NFT collections, think about how it would impact not only your spread of currently held NFTs but your wider investment portfolio.

The same goes for cryptocurrency. Few people would recommend throwing all your money into Bitcoin or Ethereum. A smarter move is to balance coins with pure value, such as Bitcoin, with some altcoins that concentrate more on utility.

Smart investment diversification is crucial for protecting you from sudden market surges. While betting everything on a single NFT could maximize your gains, it could also maximize your losses.

Understand the differences between assets

From a fundamental skills perspective, if you have already been successful in crypto, you already have the foundation for translating that success to NFTs.

Despite this, they are not the same asset. There are quirks to NFTs and crypto that make them distinct. Attempting to apply the exact same strategies has a high likelihood of leading to disaster.

For example, cryptocurrency is a more established asset with higher levels of volatility. There is also significantly less liquidity within the NFT marketplace, meaning you cannot just press a button and make an immediate sale.

Moreover, NFTs are unique, so there are no standardized prices that you can follow from one day to the next. You define the price you are willing to sell it at. NFT prices have more in common with antiques than crypto.

Conclusion

Developing fundamental investing skills will always serve you well. NFTs are not for the novice investor. Due to the diversity of projects and the relative youthfulness of the sector, you need to be plugged into the industry if you’re going to reap the knowledge necessary to make intelligent investments.

Crypto and NFTs have close associations with the blockchain, but there are huge differences that mean that what works in crypto will not always work for NFTs and vice-versa.

What’s your preferred strategy for making money from NFTs?

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