Which NFT Categories are Worth Investing In
Most NFT projects split up their NFTs into different categories according to some measure of rarity. The names for that rarity scale differ, but it usually ranges from common assets that have a large supply up to super rare assets with a tiny supply. Often only some categories are worth investing in.
Supply and Inflation
The number of copies of each asset in each category is important to keep in mind while flipping. If “common” NFTs have a much larger supply than more rare NFTs, investing in a common means you will have more sellers to compete with when you want to exit your trade. If hype dies down for the project while you’re holding, there will be more people undercutting your prices. This can lead to faster price crashes in some cases than if you bought an NFT in a rarer asset category.
Each NFT has a set supply, and while this is important to keep in mind, it is also important to know the supply for all substitutable NFTs. By substitutable, I mean that a potential buyer is as willing to pay for the other type of NFT as yours.
For example, if you had an NFT of a LeBron James trading card with a supply limited to 10 copies, you may only think that you need to worry about 9 other sellers since the project creator ensured there would only be 10 copies. But they could create a different LeBron James NFT that also has 10 copies and the same rarity. They may have different pictures, but they are substitutes in the eyes of investors and the potential pool of buyers for your card is now split between two sets of NFTs.
These newly printed commons inflated the supply and diluted the market for your NFT. Pay attention to how often new NFTs are added that could be substitutes for yours. Common NFTs generally will undergo more inflation than rarer NFTs. If you find a project where no new NFTs will be added for a certain category of rarity, then they can make for a great buy (assuming the demand factors look good as well).
Sometimes NFTs will have some utility within that project’s ecosystem. Maybe it’s a powerful game item or entitles the owner to some reward. If the project has a strong following, then NFTs with utility will be in demand. This can play a part in determining which categories to go after as rarer categories generally have better utility than more common ones. If you are making an investment based on utility, then it helps to get involved with the project to get a better understanding of how important those utility benefits are.
Beauty or Special Aspect
The value of an NFT frequently depends on how it looks, especially when it comes to art. Aesthetic tastes can differ, but generally NFTs that look good will outperform less attractive ones. Also look out for any other special aspects that could make someone want the NFT, like a famous previous owner or creator.
The rarer categories of NFTs are almost always going to be more expensive than the more common categories. You may not have enough money to purchase top tier NFTs, which in some cases can sell for hundreds of thousands, if not millions, of dollars. I recommend starting by evaluating the rarest category that you can comfortably afford (disclaimer- NFT flipping is high risk, so do not invest more than you are willing to lose). If the only categories for the project that look attractive are too expensive then skip it. Do not waste money on bad investments just to participate. The exception is if you legitimately like the NFT, then by all means buy in and enjoy it.