Guide to NFT Trading - How to define which NFT to buy and sell?
Indicators to NFT buying and selling strategies
When choosing to buy an NFT, you should consider some basic metrics to gauge its potential value.
Eight key metrics to consider when evaluating the intrinsic value of NFTs are floor price, cap price, transaction volume, supply, sales, rarity level, provenance, and smart contracts.
Should I buy NFTs at the beginning of the project, or should I wait and see for a while before buying?
NFT has swept the entire Internet, and the development trend shows no signs of slowing down. As its popularity continues to soar, there is no shortage of new NFT projects launched every day.
The exact value of NFTs can be difficult to determine, but in order to better assess the longevity and value of NFT projects, we have compiled key metrics that can help guide your buying and selling strategies in a better direction.
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NFT evaluation indicators
1. Reserve price
What is the reserve price?
In the field of NFTs, the reserve price is the lowest price of NFTs in NFT projects.
People usually buy at a reserve price as a good entry strategy, as it is a viable starting point for newcomers to NFT projects.
The reserve price is a good measure of the popularity of NFTs in the project community. As demand increases, so does the floor price.
So, if you buy the cheapest NFT in a collection with the expectation that it will become more popular, you can resell that NFT when the reserve price is higher.
Look for projects that combine high value and accessibility. While projects with higher reserve prices are worth more, smaller traders can’t afford them.
2. Cap price
What is the capped price?
The highest cost of NFTs in a collection or the highest selling price of NFTs
Buying capped NFTs can be considered a high-risk, high-reward NFT trading strategy.
If you’re willing to spend a lot of money on NFTs, consider buying capped NFTs. These are usually the rarest and most popular digital assets, and also sell for the highest prices.
If the demand for the project increases, the cap price of NFTs could also skyrocket. But if the project loses its appeal, investors looking to sell could suffer huge losses as liquidity dries up.
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3. Trading volume
What is transaction volume?
This indicator refers to the total transaction volume, which can reflect the overall demand of the project.
Generally speaking, the transaction volume and value of mature collectibles will be higher.
The transaction volume indicator is a good indicator of the popularity of NFT collectibles. For collectibles to get high volume, someone has to be willing to buy and sell.
By looking at the total transaction volume, it is easy to determine if an NFT project is currently in demand. The higher the trading volume, the more liquid the market becomes. The market is highly liquid, making it easy to buy and sell NFT positions.
4. Supply
What is supply?
Supply refers to the number of NFTs in the collectible.
Essentially, each NFT creator can control the supply of their creations and their inflation rate.
The supply of NFTs affects how people perceive the value of collectibles. Collectibles with high supply tend to contain NFTs with lower market value. Collectibles with low supply generally have higher reserve prices because each NFT they contain is rarer and scarcer.
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5. Sales
What is sales?
Sales of NFTs help investors identify past and present market interest in collecting NFTs.
If NFT collectibles show higher sales recently, it could be a sign of growing interest. However, the direction of the movement in sales relative to the reserve price also needs to be considered. If many NFT holders are selling and the floor price is falling, this could indicate declining interest or even panic selling.
6. Rarity level
What is a rarity level?
The rarity level of an NFT depends on the qualities and characteristics that the NFT has in a particular collectible. This metric can also be understood as the difficulty of acquiring a particular NFT.
The rarity rating indicator can help investors assess the value of NFTs in each series.
According to the law of scarcity, NFTs with high rarity and high demand generally attract more buyers and sell for higher prices. Additionally, NFTs with higher rarity tiers may come with additional exclusive NFT utilities, such as gamers earning more from earn-as-you-go games.
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7. Provenance
What is the provenance?
In the NFT world, provenance can be defined as the history of ownership behind the NFT, going all the way back to its origins.
Provenance is an important metric for evaluating NFTs because it enables you to verify changes in ownership information through the blockchain. Your investment is protected as the work can be traced back to the original creator.
8. Smart Contracts
What is a smart contract?
Smart contracts are applications that run on the blockchain. They are an essential part of NFTs, the basis for selling or transferring digital assets, setting royalties for artists, allowing users to interact in the metaworld, and more.
Smart contracts can outline the rights of owners and buyers, as well as preserve supply chain or transaction history.
In terms of securing the supply chain, the prerequisites required by smart contracts are tied to the original creator and purchaser. While the buyer owns the title, they do not necessarily own the copyright to the NFT. Unless this is part of the contract, the copyright remains with the author.
For example, on the BNB chain, it is possible to quickly look up individual NFTs and their smart contracts, as well as see which wallet addresses hold NFTs and the amount held in each wallet. In addition, when the BNB chain clicks on the contract address on the NFT, it will be linked to BscScan. The blockchain explorer enables you to find the validity of smart contracts and the latest NFT collectibles.
In addition to analyzing quantitative NFT metrics, we can also use other qualitative metrics to evaluate NFT projects.
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Evaluation Metrics on Binance NFT Market
We have now covered eight key metrics that can be used to evaluate NFT projects. You might be wondering how to use them on the Binance NFT marketplace.
If you’re interested in buying your first NFT, but are struggling to find a high-quality item, you can browse NFTs through leaderboards that rank the entire Binance NFT market by sales, collectibles, and creators.
In addition, within each leaderboard, you can view an overview of the reserve price, transaction volume, project, and latest price to help you evaluate the value of each NFT project.
If you want to explore NFTs of different rarities and get surprising or scarce NFTs at lower prices, you can browse Binance’s Mystery Box page.
Before investing, look for individual NFTs for more information, such as transaction history and the wallet address where the NFT was minted. For more information, see How to Find NFT Contract Addresses.
Finally, on Binance NFTs, it is also possible to view every NFT metric for the past 1 day, 7 days, 30 days, or all of them, to assess changes in market performance over the aforementioned time periods.
What role can NFTs play in an investment portfolio?
Like any other investment, NFTs are potentially excellent portfolio diversification tools.
NFTs are a digital asset class with infinite possibilities. NFTs can open doors for you to other opportunities in the metaworld while exposing you to the world of blockchain.
However, keep in mind that not all things that sparkle are diamonds. NFT projects pop up every day, be sure to do your due diligence and make an informed decision.
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3 Tips for Creating a Successful NFT Portfolio
- Build a Diversified Portfolio
- Don’t put all your eggs in the same basket. Not every NFT will be a hit. A diversified portfolio can improve the chances of successful investing.
- Therefore, don’t spend more money than you can afford
- Your single investment should preferably be no more than 10-20% of your total portfolio cost. NFTs are no exception.
- Actively participate in the activities of the NFT community
- No matter which NFT project you are interested in, please actively participate in the community activities. Doing your own due diligence can help you identify potential scams and pick out a good investment.
Conclusion
The value of NFTs largely depends on market forces, and the future of the NFT world cannot be precisely predicted.
However, your chances of success can be increased by conducting proper market research and using the metrics we share. You can use these metrics to better evaluate and navigate the NFT space.
Ready to dive deep into the NFT world?
Please browse various NFTs on Binance’s secondary market.
Binance’s weekly IGO launches and exclusive mystery box releases? Follow Binance on Twitter and Telegram for the latest NFT developments.
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