As the community prepares to launch El Collectooorr, the world’s first autonomous NFT collector, we’ve been thinking: is flipping NFTs really a good way to turn a quick profit? Should you be looking to offload pieces as quickly as possible?
To say NFTs have taken the world by storm would be an understatement. Non-fungible art has sold for upwards of $60m; big brands are designing virtual accessories; celebrities have forked out hundreds of thousands to change their profile photos to yawning monkeys.
In the last year, the total market cap of NFTs has grown 2650% to $22b, peaking at $37b in April. One of the factors behind this growth is the buyers who are attracted to the market by the prospect of significant returns flipping NFTs. “Flipping” means buying and quickly selling an NFT at a profit . However, most in the NFT flipping game usually fail to make a single dollar. Digging into the drivers behind the NFT hype and why NFT flipping can seem like an attractive way to earn money, we explore 3 main reasons why it is just not worth it. These reasons are:
- Most of us lose money flipping NFTs
- It requires more time and effort than you think
- In focusing only on profits, you miss out on the fun of collecting
To understand the hype, it’s important to recognize what makes NFTs different from other crypto asset classes. Clue: it’s in the name. Unlike fungible currencies like Bitcoin, Ether, or USDC, NFTs cannot be subdivided. Bitcoin or Ether can be split up and held by an infinite number of wallets. An NFT can only ever reside in one.
So while the price of ETH and BTC is determined by a large pool of market participants, the price of an NFT is effectively determined by one buyer and one seller. This means that theoretically, all you need to drive up the price of an NFT is a few motivated bidders competing to be the only possible buyer. During the auction of Beeple’s “Everydays — The First 5000 Days” all it took was 33 active bidders competing against one another to drive the price of the NFT up from the $100 starting price to $69.3m. It would probably take more than 33 ordinary wallets to move Bitcoin’s price by 1%, let alone 6900000%.
Everydays: the First 5000 Days
The non-fungibility of NFTs makes certain in-demand tokens susceptible to soaring valuations. This quality makes them suitable for flipping. With stories like the one above making their way into the mainstream news, NFT flipping has gained attention as a promising way to turn a profit. Accounts of NFT flippers turning a relatively small amount of ETH into large sums in no time confirm this and feed into an irresistible narrative of NFTs as easy money. Some posts even go so far as to put NFT flipping as a source of passive income.
Newcomers are flooding the market sold on the promise of a quick buck. This increases the demand, which disproportionately increases the price of certain NFTs, which in turn attracts new attention — and on goes the narrative cycle of effortless returns on jpegs.
The truth, however, is that flipping NFTs is not as simple nor as profitable as it is made out to be, and for most market participants, it’s just not worth it.
According to recent surveys (Dexterlab, Coingecko), most people do not make any money trading NFTs. In fact, due to the particularities of NFTs and their market, there is a high risk of losing significant amounts of money.
One such particularity is their non-fungibility: The non-fungibility of NFTs means that they are able to moon significantly with concentrated demand; by the same token, they crater when demand dissipates.
Another quality of NFTs that can lead to negative returns is the relative immaturity of the market. With less than a decade of history, many market participants are newcomers who are susceptible to losing funds in scams such as wash trading or rug pulls. Even the most experienced of traders can see the floor price of their NFTs crash as the project implodes due to negative public attention of the founders.
Despite the many bloggers who claim to make “passive income” flipping NFTs, the truth is, there is nothing passive about it. There are a few NFT flippers who are actually successful, but their success came from actually putting in the hours. Knowing which pieces to buy requires in-depth knowledge of the space. But knowing what to buy does not guarantee that you will be able to. To get access to the real bargains, you need to be constantly monitoring new listings, following projects closely for potential whitelistings, and/or contributing to projects for early access to the mints. One strategy involves knowing all the traits of a collection and their rarity levels by heart, while continuously monitoring OpenSea for new listings. Even with constant tracking and knowledge of the market, there is a strong element of luck that impacts the likelihood of flipping success.
NFT flipping at its core is a financial practice. The only reason driving the purchase is profit. To be sure, this is a valid reason, but collecting NFTs can be so much more.
When you remove the financial aspect, you open yourself up to the aesthetic and social pleasures of collecting NFTs. With all the hype around how much pieces sell for, we often forget to actually engage with the art behind the prices.
Immense pleasure can be derived from participating in the creation of new forms of art which NFTs enable. Art Blocks is a perfect example of this. On the platform, the act of purchasing is what generates the piece into existence. What the NFT looks like is determined by an algorithm created by the given artist. Minting an Art Blocks NFT much less a financial transaction than it is an artistic one.
This idea can be applied more generally to everything you collect on the blockchain. As a collector funding artists, you are participating in the creation of new cultural artifacts. This is especially relevant for emerging artists with limited revenue streams. By purchasing an emerging artist’s work, you not only recognize them as worthy of attention but you are directly supporting the production of new works.
NFT flipping can be a lucrative endeavor for the few who put in the effort of meticulously studying the market. For the vast majority of us, though, it is not worth it. In the long run, we will probably lose a significant amount of money and time. This is not to say that there is nothing for us to gain in the NFT space. On the contrary, when we take out the financial motivation, we can derive new forms of pleasure from the aesthetic and cultural dimensions of NFT collecting.
If you’re interested in a better way to collect NFTs, check out El Collectooorr, the world’s first autonomous NFT collector. Learn more and grab your spot now while the whitelist is still open!
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