Metrics To Guide Your NFT Buy And Sell Strategy
Main Takeaways:
When choosing to buy an NFT, you should have some basic metrics in mind to gauge its potential value.
The eight key metrics to consider when evaluating the intrinsic value of an NFT are floor price, ceiling price, volume, supply, sales, rarity, provenance and smart contracts.
Should you get into an NFT at the start of the project, or should you wait and buy later?
NFTs have taken the internet by storm, and they're not showing any signs of slowing down. With its soaring popularity, there is no shortage of NFT projects launching every day.
Deciding on the precise value of an NFT can be hard. Still, to better evaluate the longevity and value of an NFT project for your portfolio, we have rounded up key metrics that can help guide your buy and sell strategy in a better direction.
NFT Evaluation Metrics
1. Floor price
What is it?
In the NFT space, the floor price is the lowest-priced NFT within an NFT project.
Buying the floor is considered a good starter strategy since it's an approachable entry point for new people joining an NFT project.
Why is it important?
The floor price is a good metric for evaluating how well an NFT project is being received by the community. As demand increases, the floor price will increase.
So if you buy the cheapest NFT in a collection with the expectation that it will become more popular, you can then resell the NFT when the floor price is higher.
A good goal is to find a project that balances high value and accessibility. Although projects with higher floor prices are worth more, they are more difficult for smaller traders to afford.
2. Ceiling Price
What is it?
The cost of the highest-priced NFT in the collection or the highest price that an NFT was sold for.
Buying the ceiling can be considered a high-risk, high-reward NFT trading strategy.
Why is it important?
If you are willing to spend a lot of money into NFTs, look into buying the ceiling. Those are usually the rarest and most popular digital assets that sell for the highest prices.
If demand for the project increases, the price ceiling of NFTs can skyrocket. But, if the project loses appeal, investors looking to sell can take huge losses as liquidity dries up.
3. Volume
What is it?
This metric refers to the total volume traded and shows the overall demand for the project.
Generally, established collections have high volume traded values.
Why is it important?
The volume traded is a good indicator of how popular an NFT collection is. For a collection to attain high volume, people must be willing to buy and sell.
By looking at the total volume traded, you can easily determine whether an NFT project is currently in demand. The higher the volume, the more liquid the market tends to be. You want a liquid market so that you can easily enter and exit NFT positions.
4. Supply
What is it?
Supply refers to the number of NFTs in the collection.
Why is it important?
Essentially, each NFT creator controls the supply of their work and its inflation rate.
The supply of NFTs affect how the value of a collection is perceived. Collections with high supply tend to have a lower market value for each NFT. Collections with low supply often have higher floor prices due to the rarity and scarcity of each piece.
5. Sales
What is it?
The number of NFT sales helps investors identify past and present interest in an NFT collection.
Why is it important?
If an NFT collection shows many recent sales, it could be a sign that there is increasing interest. However, you need to consider the direction of the movement in relation to the floor price. If many NFT holders are selling and the floor price is going down, it may indicate decreasing interest or even panic selling.
6. Rarity Rank
What is it?
The rarity of an NFT is determined by the traits and characteristics the NFT possesses within a given collection. This metric can also translate to how hard to get a specific NFT is.
Why is it important?
Rarity rank is a metric that helps investors assess how valuable the NFT in each collection can be.
Following the law of scarcity, rare and in-demand NFTs often attract more buyers and sell for higher prices. Moreover, NFTs with a higher rarity rank might come with additional exclusive NFT utilities, such as more benefits in play-to-earn games that gamers can benefit from.
7. Provenance
What is it?
In the NFT space, provenance can be defined as the history of ownership behind an NFT starting from its origin.
Why is it important?
Provenance is an important metric used to evaluate NFTs because it enables you to verify changes in ownership information through the blockchain. Your investment is protected because only one original can be traced back to the original creator.
8. Smart Contract
What is it?
Smart contracts are an application or program that runs on a blockchain. They are an important part of NFTs because they make it possible to sell or transfer a digital asset, set royalties for artists, let users interact in the metaverse and more.
Why is it important?
Smart contracts can outline the rights of the owner and the purchaser. As well as preserve the supply chain or transaction history.
In terms of preserving the supply chain, the preconditions required by smart contracts are tied to the original creator and the purchaser. While buyers take ownership, they will not necessarily possess the copyright to the NFT. Unless it is part of the contract's stipulations, the copyright remains with the author.
For example, on BNB Chain, you can quickly look up individual NFTs and their smart contracts. You can also see which wallet addresses hold them and how many each wallet has. Additionally, when you click on the contract address on an NFT on BNB Chain, you will be linked to BSCscan. A blockchain explorer that lets you look up the validity of smart contracts and the latest NFT collections.
Learn more about BSCscan and how to use it in our comprehensive guide What Is BscScan and How to Use It.
Besides analyzing quantitative NFT metrics, there are also other qualitative metrics we can use to evaluate NFT projects.
Learn more about the different qualitative metrics in our6 Key Indicators for NFT Collectors To Evaluate NFT Projects guide.
Evaluation Metrics On the Binance NFT Marketplace
Now that we’ve covered eight key metrics you can use to evaluate NFT projects. You might be wondering how you can use them on the Binance NFT marketplace.
If you are interested in picking up your first NFT but struggle to find quality projects, you can browse NFTs via ranking boards that showcase the top sales, collections and creators across the Binance NFT marketplace.
Moreover, within each ranking board, we’ve included an overview of Floor Price, Volume, Items and Last Price, to help you assess the value of each NFT project.
For those who would like to explore NFTs of different rarity levels and unbox a surprise or a rare NFT at a lower price, you can browse through our Mystery Boxes page.
Look up individual NFTs to gain further information before you invest in it, such as the transaction history and the wallet address that minted the NFT. For more information, please refer toHow to Find NFT Contract Address.
Lastly, on Binance NFT each NFT metric can be viewed over the last 1, 7, 30 days or all time, to assess the change in performance over time.
What Role Could NFTs Play In Your Portfolio?
Like any other investment, NFTs can potentially be a great portfolio diversifier.
NFTs are a digital asset class with endless possibilities. NFTs can open doors to other opportunities within the metaverse, on top of giving you exposure to the blockchain world.
However, keep in mind that all things that shine aren’t diamonds. With so many NFT projects coming up each day, doing your due diligence and making an informed decision is especially important.
3 Tips For Creating A Successful NFT Portfolio
Diversify Your Portfolio
Don't put all your eggs in one basket. Not every NFT will be a hit. Diversifying your portfolio can improve your chances of making successful investments.
Don't Spend More Than You Can Lose
It is considered a best practice not to spend more than 10-20% of one's total portfolio cost on a single investment. NFTs are no exception.
Be Active In The NFT Community
Whichever NFT project you are interested in, consider being active in the community. Doing your own due diligence can help you pick out a good investment from a potential scam.
Conclusion
The value of NFTs is largely determined by market forces, and it's impossible to predict the future of the NFT world with precision.
However, you can increase your chances of success by doing proper market research and using the metrics we have shared. You can use them to better evaluate and navigate the NFT space.
Ready to dive into the world of NFTs?
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DISCLAIMER: NFTs are an emerging asset class that is still evolving. The information in this article should not be construed as investment or financial advice. Always do your own research before making any decision to buy, sell or trade NFTs.
The article has been edited on June 22, 2022.