How to Trade NFTs: Strategies That Seem to Work (So Far)

Buy and hodl for the long run, revive the old classics, mint and flip, or follow the smart money. Just don't spray and pray.

[Click here to read the original version of this post on jacobmorch.com]


Good afternoon, friends.

My four week long “NFT MBA” period has come to an end, and I must say it has been one of the more interesting educational experiences I’ve had in a while.

Imagine if you mixed a curriculum cocktail made of the tiny fraction (i.e. the 5%) of a business school education that is actually useful and fun, plus a solid dose of psychology, game theory, decision making, philosophy and art. Then you make the students put a serious chunk of their net worth on the line, to be returned, or doubled, or 10Xed if they do their homework. That is the recipe for the NFT MBA for you. Under such circumstances, you can’t avoid learning a ton.

Alas, this is (probably) the second-last post in the “NFT season” of this newsletter. I’ll keep exploring NFTs going forwards, and will certainly mention them here again at some point, but in two weeks time I’ll do a thematic jump to something else I’m thinking about these days. Could be some philoshophical thoughts on “infinite entrepreneurship”, could be how to design a fulfilling career, could be… a scrutinizing look at the existential issues facing the social invention we know as the nation state, and what may take its place in the future.. who knows (reply to this email if you have any preference among these three!)

Anyway, onto the strategy post I’ve promised to deliver for weeks now.


How to Trade NFTs: Strategies that Seem to Work (So Far)

⚠️ Please read this entire post with one massive disclaimer front and center: None of these strategies are proven to work over time, and may lead to terrible results if implemented. Not investment advice, bla bla bla.

With that disclaimer out of the way, here are the NFT trading strategies that seems to work reasonably well based on my own experience plus studying other people’s approaches for the last few weeks.

Strategy 1: Buy and HODL For a Long Time

“Hodling” means “holding”, but when you type at the speed of a crypto bro propped up on Red Bull trying to buy more Bitcoin before the price runs away from him, some of the letters tend to swap place.

Hodling is a classic crypto term which simply means “not selling”, or even better, “never selling”. It’s used by people who believe cryptocurrencies are the future of money, and therefore don’t see any reason to sell Bitcoin, Ether or anything else to get back to fiat money like US Dollars. Therefore, they HODL for long periods of time.

Hodling for the long run also seems to be a viable strategy in NFTs, with one caveat: you must buy and hodl quality NFTs, not junk. Most (90% of) NFTs are pretty shait, and will be worth 0,- in the long (or, more likely, in the pretty short) run (my $3,500 EtherClips, as discussed in last week’s post, is a great example). Therefore, if you want to execute a hodling strategy, I recommend you buy into serious, quality NFT projects that have at least some track record behind them. This might limit the upside, of course, but also limits the downside. Risk/reward 101.

This is similar to buying blue-chip stocks: they probably won’t explode and be worth 10x what you buy them for anytime soon, but they probably won’t go bankrupt tomorrow either.

(Some quality NFT projects may include CryptoPunks, Bored Ape Yacht Club, Art Blocks Curated and so on – but please do your own research).

Hodling might be the right strategy for you if you check the following boxes:

  • You believe in NFTs for the long run,

  • You believe in Ether (the cryptocurrency of the Ethereum network) for the long run,

  • You have excess capital you won’t need for the foreseeable future,

  • You can stomach market crashes and extreme price drops (down 50-90%) without panicking.

Strategy 2: Buy and Revive the Old Classics

One of my favourite Taleb-isms is “The Lindy Effect”, which states that an idea that has been around for a long time in the past, is likely to stay around for long time into the future.

In other words: having stood the test of time is an effective indicator of quality, because most crap disappears after a while.

This seems to be true in NFTs as well. Old NFT projects (from 2017-2018) sometimes command extreme valuation premiums just because they are old. Much like expensive antiques, these projects can get a historical aura around them. According to their owners and fans, they represent “a part of blockchain history”, and who wouldn’t want to own that?!

CryptoPunks is the obvious example, but a more fascinating one is the EtherRocks project. EtherRocks are 100 pictures of rocks that became one of the first ever NFT projects launched on the Ethereum network. Then very little happened for a few years. Then everything happened at once.

Long story short: the project was rediscovered about a month ago. People went ballistic about them, and the price went from a few thousand dollars to literally millions of dollars in a few short weeks. Absolute bananas.

Tom Osman, a young, self-proclaimed family man in the UK, was one of the people who had his entire life changed by one of these rock photos. He found the project on a whim, bought a rock, held it for 3 weeks, and netted 420 ETH, roughly $1.2 million (he tells the whole story in this amusing podcast episode).

In the wake of the EtherRock bonanza, other old projects are being rediscovered as well, and new communities are forming around them to try to pump these projects into prominence, EtherRock-style.

One example is EtherLambos, a series of 1600 images of lamborghini-looking cars living on the Ethereum network (full disclosure: Braver, the company I’ve co-founded, has has several of these lambo NFTs on its balance sheet. We like the lambos!).

Etherlambos were originally launched right after the EtherRocks back in 2018, as shown on this timeline of early NFT projects:

For a an outline of the rationale behind a possible future EtherLambos price surge, see this Twitter thread (recommended both if you’re curious about this specific project, and if you just want to see what an NFT investment thesis might look like):

The EtherLambos Discord community is now full of people working together to create hype around these cars. Will it work? I have no idea, but I have a vested interest in it happening.

The overarching point here is simply this: old NFT projects can take off if the right influencers rediscover and buy into them. Buying the oldies can be a viable trading strategy – but just as in an antiques flea market, most of the treasures you find will probably be forgotten about and end up worthless.

Strategy 3: Mint and Flip

The third strategy that seems to work well, is to simply mint new NFTs on the day they launch, and then sell all or some of them on the secondary market right afterwards for a neat profit.

New projects with a lot of hype around them always seem to sell out in minutes or hours, leaving thousands of collectors empty-handed, eager to pay more than the original minting price to get their hands on an NFT. The mint-flipper’s job is therefore simply to find the right projects, mint plenty, and sell off most of them for a quick profit (ideally keep a few for yourself in case the project truly takes off).

Strategy 4: Follow the Smart Money

This is a classic strategy borrowed from the world of stock trading – copy what the smart people and insiders do.

In stock trading, you basically need to know the right people in order to know things before everyone else in the market. But that’s a double edged sword – if you know too much, too early, you can go to jail for insider trading. If you don’t know enough, early enough, you don’t have an edge over anyone else.

In NFTs on the other hand, “insider trading” is allowed, and the trades that insiders and smart crypto people do are public for everyone else to see, in real time. You just need to know where to look.

Nansen.ai, a Norwegian tech startup that’s growing like crazy, helps you with this (full disclosure: I’ve invested a miniscule amount into Nansen via a venture syndicate). Think of it as “The Bloomberg Terminal of crypto”, just better. It will literally tell you which NFTs smart crypto people are buying in real-time, and you can follow in the trails of NFT flipping geniuses.

Here’s a Nansen screenshot of trades in one specific NFT project over three days. See all the yellow dots? They represent “Notable buyers”, better known as smart money who have a strong, verified track record in NFT trading. When they go crazy about a project like we see here, it’s a strong indicator that something interesting is going on.

MEVcollector, perhaps the most impressive NFT trader I’ve seen so far, has employed this strategy (plus the “Mint and Flip” strategy outline above) with eye-popping success. The results speak for themselves – he has gone from 10ETH to over 800 ETH ($2.5 million) in six weeks (!).

These two Twitter threads outline his way from 11 to 862 ETH, and are worth reading through multiple times over:

Strategy 5: Pray and Spray 🙏 (NOT Recommended!)

Finally, there’s the classic pray and spray strategy. Buy random stuff, and hope for the best.

To be honest, in my learning period, I’ve used this approach quite a bit. Not with intention, necessarily, but because as a newbie you don’t know any better.

This is where everyone has to start, unless you want to spend months doing research before ever dipping your toes in the water. But it’s not a strategy I’ll recommend over the long run. You want to move up to something more sophisticated as soon as you possibly can.

(Beware: If you pray and spray during a bull market when “everything” is going up, you might actually make some money during your education phase. Don’t be fooled. This is called luck, not skill, and it never lasts)

“Know Thyself”

Last but not least, we return to this old cliché from Socrates.

It turns out that self-awareness is key, surprisingly enough, even in NFT trading.

Know what kind of trader you are, and what kind of strategy you believe in and want to follow. Flipping and hodling are incompatible strategies, for example, but both can yield excellent results. You just have to know what’s right for you, your personality, budget, time horizon and conviction level.

Best of luck.

-Jacob


Questions?

Reply to this email. I read every response.

Know Anyone Who’s Curious About NFTs or Crypto?

Share this post with them, or share it on social media. 🤠


Final Disclaimer

No, this is still not investment advice. Don’t do stupid things with money you can’t afford to put on fire.