Finding the Next CryptoPunks: What the Most Valuable NFT Collections Have in Common
Can studying the NFT blue chips help us find the next big winners?
The NFT technology is enabling digital ownership and having a profound impact on art, gaming, music, and really our daily lives, economy, and culture at large.
Studying and participating in all this is exciting in and of itself, but it’s also creating some great investment opportunities and certain NFT collections have made some people very wealthy in the last few months.
While I still believe CryptoPunks, Bored Ape Yacht Club, and Cool Cats are great investments at their current price points, they’re also well out of reach for most people. That’s why I’m now searching for the next blue-chip ‘generative trait’ project.
Having studied these and other successful NFT projects, and listened to the experts in the space, I’ve made a set of loosely defined criteria that I’ll outline below. This is by no means a guaranteed formula for long-term investing success, a quick-flip guide for instant profits, or financial advice of any kind. I’m just offering my humble and ever-evolving perspective and educated guesses as to what makes for a good long-term investment in this space.
#1 Interesting and unique artwork
The artwork is typically a potential buyer’s first touchpoint with a new NFT collection, so it needs to get them excited. I’m looking for art that’s interesting and sufficiently different from what’s already out there, not necessarily something that would be considered artistic masterpieces. The simplistic pixel art of CryptoPunks and CyberKongz, and even the hand-drawn artwork of Cool Cats, SupDucks, and Gutter Cat Gang, are all great examples of this.
Not only does good artwork lure people in, but it also makes them much more likely to want to own it long-term and showcase it publicly, thus acting as promoters, attracting new investors, and strengthening the overall brand and investment case of the collection.
For projects that are more focused on utility than aesthetics, which I’ll cover below, the art naturally doesn’t matter as much.
- Is the artwork interesting and unique in a way that resonates with people?
- Are all pieces in the collection visually appealing and desirable?
- Is the artwork interesting and different from what already exists?
#2 Clear mission or purpose
The projects in this space have wildly different missions. I personally classify them into four overall different categories:
- Art. Led by an amazing artist and bought for its aesthetics, artistic message, and/or to support the artist.
- Cause. Bringing awareness and funding to a certain cause or minority group.
- History. Being historically or culturally significant in some way.
- Utility. Giving concrete utility to its owner in the form of a game character or artifact, property or business in the metaverse, etc.
There are already plenty of success stories across the spectrum, and most NFT projects fit into multiple categories at the same time. Furthermore, a project can easily evolve over time, for instance starting out with its sole focus on amazing art, a deeper purpose, or historical significance, but later utilizing its funds, IP, and community support to create a game, an animated series, staking, additional airdrops of new NFTs, or a million other things.
Because of the possibility to evolve, I’d much rather see a strong community formed around amazing art, a shared cause, or historical significance, than some concrete utility. World of Women, The Creature World by artist Danny Cole, BAYC, and CryptoPunks are all great examples of this.
One of the newer and still affordable examples of historical significance is the OnChain Monkey. They call themselves the first-ever avatar series that’s fully on-chain in a single transaction. I’m curious to see how much significance and value people will assign to them in the future.
- Do I become part of a deeper purpose that I personally align with?
- Is the NFT project historically significant in some way?
- Does the NFT bring me concrete utility, either right away or in the future?
#3 Strong and dedicated team
The bare minimum for me to buy an NFT is that I trust the people behind the project to not run away with my money. In a world of pseudonymity and people hiding behind avatars, having this trust is harder than it sounds.
For new creators, it’s always extremely valuable to be backed by known and trusted figures in the space. If someone like Beanie, Zeneca, or Pranksy vouch for a new team, that’s usually good enough for me. Active social media accounts and a bit of background on each team member also go a long way. Video or audio interviews are great as well, but not required.
After that, I’m looking for talented people who I believe will deliver high-quality work. A lot of the groundwork is obviously done by the artist, but they usually need a skilled team around them to succeed.
The more a project is focused on utility, the more you’re betting on the team to deliver on its promises. However, even collections that aren’t about utility still need great marketing, branding, and community management, as well as the ambitions and ideas to keep bringing value in the future.
The team needs to be active on Discord, post frequent updates, and show a real interest in their community. This means communicating with respect and a welcoming tone, answering any questions that may pop up, and listening to feedback from the community. It also means communicating about the project and what it stands for, rather than money!
In fact, I typically avoid projects where the team only seems to care about the price of their NFTs, raising the floor, and “going to the moon”. Some attention to the finances is healthy, but it shouldn’t remove focus from the project’s fundamentals in favor of a short-lived pump-and-dump. How and how much the team talks about this topic also has a massive impact on the type of community they attract. More on that below.
- Do we know who the artist and other team members are and do we trust them with our money?
- Do the team members have the necessary experience and track record to be successful with this project?
- Is the team focusing on building a strong and sustainable project and community for the long term?
#4 Large and engaged community
For a new project to sell thousands of NFTs and be a long-term success, it needs to have a large and engaged community. Depending on when in a new project’s life cycle you join their Discord, and the size of the collection, the number of members to expect will vary. You will most likely need thousands of members though, but numbers can be deceptive. It’s very important to assess the members’ behavior.
If all 10,000 Discord members are buying an NFT for a quick flip, there is no community.
The conversations on Discord need to revolve around the artwork and the project’s mission as I outlined above. You need people to demonstrate a love for the art, a long-term view, a genuine interest in the project, and a focus on strengthening and growing the community.
For collections that already launched, another positive sign is a low number of sales listings relative to the size of the collection. Ideally, the ratio is less than 1 to 5 (or 20%), meaning that fewer than 2,000 NFTs are listed for sale in a collection of 10,000, for instance.
Another good indicator of strong hands in the community is how many bids are being accepted. Bids are usually placed below what an owner would/could list the item at, so a high number of these bids being accepted indicates that owners are willing to settle for less to quickly get out of the project. You can easily see all sales in real-time on a marketplace like OpenSea where accepted bids are marked by a pink ETH symbol (see screenshot below).
I’m also looking at the number NFTs per owner. I want the owner base to be as large as possible, with the average owner holding no more than 3 NFTs. If you own just one NFT in a collection you’re much less likely to sell than if you owned ten and wanted to reduce your position. Thus, a large community is both beneficial for the project itself and for the NFT as an investment.
- Does the project have a large and engaged community?
- Is the community demonstrating a long-term view on the project, rather than a short-term focus on financial gains?
Timing your purchase
If a pre-launch project checks all the boxes above, I will try to ‘mint’ an NFT when they launch. The mint price is hopefully the lowest you’ll ever be able to buy the NFT at. Proper due diligence is even more important with a brand new project with no track record, and you also need to be aware of gas fees when minting a popular project in the Ethereum ecosystem. That being said, getting in as early as possible can certainly pay off.
For projects that have been around for a while, I always try to assess where I think the price will be in a few days. If the price has just skyrocketed, it may be due for a correction. On the other hand, if there’s a positive catalyst or the rumor of one, it might be time to pull the trigger.
For projects with some price history, I generally like to see the average price having stabilized for a few weeks. This tells me that the team and community have found their footing after launching and that the price is no longer driven by short-term speculators. This reduces the downside risk, which is especially important when you’re buying a higher-priced NFT. However, it doesn't protect you from an overall market decline like the one we're currently in (as of early November 2021), as demonstrated by the ~50% price drop in even the most promising projects.
- Is it a completely new project that I can mint without paying high fees?
- For a more mature (and higher-priced project), do I believe the current price point is the best I’ll get, or should I wait?
I wrote this article to help process my own thoughts, create somewhat of an investing template for myself, and hopefully provide you with some inspiration as well. Maybe it can even start a dialog that benefits us all. To sum it all up, here’s what I’m currently looking for in new NFT projects:
- Interesting and unique artwork.
- Exciting mission.
- Great artist and team.
- Large and engaged community.
- Fair price level.
If a project checks all these boxes, I know we’ll get plenty in return for the time and money we invest — even if the ROI is more experiential and emotional than financial.
Originally published at techmoneyculture.com on October 12, 2021.
UX Designer, investor, and NFT nerd, writing about innovation, investing, product design, and culture ✍️