We Need to Raise the Bar of What Constitutes a Project Worth Investing In
With the rapid growth of NFTs this year, crypto-maniacs and newcomers alike are looking to profit. Robert Baggs shares his thoughts on NFT FOMO, and offers us his top tips for becoming a more shrewd collector!
This article is not financial advice, rather an opinion piece of things to keep in mind on the blockchain.
The crypto community, particularly with regards to NFTs, is a passionate and exciting one.
I’ve been using the internet for over two decades and I’m quite certain I have never felt more a part of a community than I do with crypto. As the industry has expanded from small, isolated clusters to large-scale, multi-platform societies, the general dynamic hasn’t changed all that much. That is, the tight-knit fabric of the communities remains unaltered, just with more material.
That said, there have been downsides to the explosive growth we have seen in the last few years. One is a natural consequence of the success of any industry: the attraction of people whose sole purpose is to get at the money.
We all have that urge to a degree – in fact, it’s likely what drew many of us to crypto to begin with – but there is a troubling dynamic lurking, particularly within the passionate and dedicated NFT communities. This is a blend of the Fear of Missing Out (FOMO) and those who aim to exploit that trait.
My Fear of the Fear of Missing Out
I would be surprised if every person with any skin in the crypto game hasn’t experienced FOMO at some juncture – I certainly have. In fact, I’ve sprinted from not knowing a project existed to being willing to drop a lot of hard-earned cash and support into it within minutes.
FOMO is in part based on being passionate and supportive of new projects helping to move the blockchain boat forward. However, the far larger motivational force behind FOMO is the daily reports of people who invested in projects early, and now bob around on a 70-foot yacht.
The number of people who have been passively catapulted into millionairehood is staggering, whether through art NFTs or gaming NFTs with utility. This, however, has fuelled a well-populated race for early adoption of the next parabolic project. In fact, the earlier the adoption of a project, the higher the profit margins.
This yearning for getting in at the ground floor of a project, blended with how little work is needed to create a concept for a project, is nitroglycerine and charcoal. It’s difficult to imagine a more exploitable set of conditions by those who wish to just dip their hand in as many pockets as possible.
The volatility of an eagerness to invest and an eagerness to scam is exacerbated by another element somewhat exclusive to crypto: the degree of separation between “real” money and cryptocurrencies.
Have you ever been on a holiday where you are using a different, local currency? There’s this tendency to fritter away this strange Monopoly money on anything and everything, because it doesn’t feel entirely real. When it comes to investing in NFTs and blockchain projects with cryptocurrencies, many of us are far less stringent in our evaluations.
This issue doesn’t stop at cryptocurrencies either. There is a generally inflated value that spans the entire industry, with people paying inordinate amounts of money just to get into something early.
Every week I see blockchain games that are in development, selling early access keys for hundreds of dollars; just yesterday I saw a game selling early access for $799! If a developer asked that of players outside of crypto, it would be tantamount to stand-up comedy.
Raising Standards, Lowering Losses
We must retune ourselves to require more from projects.
Our thresholds need to be raised so that they aren’t met almost automatically. On this front, there are key metrics worth considering and I will cover them in this section.
Firstly, a foundation of hard truths needs to be laid. The majority of projects will lose you money if you invest in them. Investing in every single NFT that is released is not a feasible strategy and the success stories have high degrees of randomness to them. If you allow FOMO to dictate where your money goes, all I can assure you is your money will indeed “go”.
I feel the allure of new projects and I have to remind myself to be more critical on a weekly basis. It isn’t easy to distinguish between new projects fizzing with potential and those that will be stillborn.
Nevertheless, there are questions you can ask yourself to increase your hit rate. Quiet the hype, blot out the imagined riches, and run through these checks.
Is This Project Worthy of My Money?
My first port of call when I find an NFT series or blockchain game I’m interested in is to assess the project, independently of what people are saying about it. For example, what has been achieved so far? That is, what work has been completed?
Ignore the roadmap – anyone can construct an appealing concept. It’s even remarkably easy to create algorithmically generated, basic art, for instance.
Demand more! If little effort has gone into the project, I would rather wait to see how it pans out, even if it means I don’t get in at the ground floor.
Another key question is, “is the price reflective of the work?”
A project’s floor price can be set as anything, and because this is crypto, it’s often right up in the stratosphere. Ask yourself whether the work commands that price. How is this value justified? If the cost appears arbitrary, it probably is.
Do I Believe In This Project?
This is the simplest advice, but the also what I overlook the most often.
If I were to research a project, its team, its roadmap, and then also enjoy the art style or believe in the game, then my investment is justifiable. If I were to lose money on it, I can live with that.
However, if I invest in a project simply because other people think it will do well and then I lose money on it, that’s far more difficult to swallow. Aim to be in control of your losses.
Ask yourself, “why am I interested in this?” There is nothing wrong with buying into projects to make money — in fact, your standards ought to be even higher if that’s the case — but you must be able to answer that question.
For example, I bought into photographer Platon’s NFT series. Why was I interested? Because I’m a photographer and I appreciate his work. I believe it could increase in value, but it’s an NFT collection I enjoy and am pleased to own a piece from.
Are There Any Red Flags?
I have a list of red flags I check for, depending on the type of project. I’ll list some of my key warning signs.
- What is the team behind it like? My biggest pet peeve in crypto is projects led by pseudonyms with no traceable history. If there’s no accountability, the chance of it being a scam goes up exponentially.
- What sort of following and community do they have? This isn’t the most secure metric, but it can give you a sense of the project’s legitimacy.
- What else has the artist or team created? If the creator has had past projects, check to see if they were successful. If it’s their first, what have they done outside of crypto?
- If they have a roadmap, is it achievable? Like the floor price, a roadmap is made up. As a result, it can be ludicrous, and it’s worth checking that. Many people wildly overestimate what they can achieve.
- Does the project seem professional? If it has a poor quality website, spelling errors, and general mistakes, I will likely steer clear; I invest in meticulous people.
- Does it feel right? I don’t put much weight into the opinions of my gut, but if I don’t get a good feeling about a project, there is probably a reason. Trust your own experience.
The NFT community is fiercely passionate and while that ought to be nothing but good, it is sadly exploitable, both by intention and by accident.
As crypto becomes more mainstream, as the number of on-ramps increases, and as more people become aware of the titanic wealth in play, we must demand more from projects.
Shed the obsession with being the first through the door. If you’re the first, everyone else walks behind you, and as a wise philosopher once said, “seven out of ten attacks are from the rear.”
Be fervent, be enthusiastic, be supportive; but be selective, be critical, and be willing to miss out.