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NFT stands for non-fungible token. It is a niche kind of digital asset in which each token is unique — as opposed to “fungible” assets like Bitcoin and dollar bills, which are all worth exactly the same amount.

Because every NFT is unique, they can be used to authenticate ownership of other digital assets like artworks, recordings, and virtual real estate or pets.

NFTs are simply a technological medium that allows any digital asset to be stored and circulated (or traded) virtually on a blockchain.

THE NFT ECOSYSTEM IS CATEGORIZED INTO SIX SEGMENTS:

Art

NFTs created on artistic marketplaces, from individual collections of artists or a generative art algorithm.

(Example: “Everydays” a digital artwork, sold for $69 Million at Christie’s auction)

Collectibles

A project, the aim of which is to be collected. They may be PFPs (profile pictures- a digital image that can be used on social media), animals, aliens or any other type of digital item. These collectable assets may have several uses from forming part of a community and being used for video games.

(Example: Cryptopunks, is a highly valuable PFP collection of unique pixelated characters, in 2021 the collection reached $1B in trading volume.)

DeFi

NFTs are basically value-based assets. High-value NFTs are being used as collateral in the Decentralized Finance (DeFi) space to obtain loans in its underlying cryptocurrency which can then be converted to Fiat currency. (Example: In Feb 2022, an NFT collection valued at $5M was used as collateral to receive a $1.25M loan using the DeFi lending platform, Arcade.)

Gaming

The gaming industry is rapidly adopting NFTs into their gameplay. NFTs are can be used as tokens to acquire weapons or equipment, as well as a collection of unique skins for weapons or characters.

Metaverse

Metaverse(s) are virtual worlds where NFTs mainly represent virtual land. NFTs can also take the form of wearables and accessories to personalize your avatar (character that represents you in a virtual world).

Utility

Utilities cover a myriad of uses from domain names to concert tickets. NFTs that are utility-centric can also be used as badges or access codes enabling access to exclusive content.

HOW TO BUILD A LUCRATIVE NFT INVESTMENT STRATEGY?

Several factors determine the intrinsic value of an NFT, such as:

• Utility
• Ownership History
• Appreciation Value
• Liquidity
• Rarity

Additionally, investors should consider these factors when evaluating an NFT collection:

The NFT Market Cap

Not all NFT projects prove lucrative. So, it is crucial to understand the NFT Market Capitalization so you can choose a performing NFT project for your investment. NFT Market Cap varies from project to project. Whenever the NFT Market Cap for a particular project is higher, it clarifies that many buyers are interested in the project and willing to pay a high price for the NFT collection.

Volume Traded

The higher the volume of tokens traded means higher is the demand for a specific NFT collection. The liquidity in the market also allows easier entry and exit of NFT positions in the marketplace. To know this, you should keep track of the trade volume for 90 days from the current date across marketplaces.

Number of Unique Holders

The different numbers of addresses that own an NFT from a collection is another criteria that can help you determine its worthiness. It is referred to as the owners to items ratio. The factor needs to be higher, indicating that larger communities are actively involved in promoting and marketing this NFT collection. The token value of the NFT is said to increase when these processes sync.

Number of Long-term Holders

If an NFT is associated with a wallet address for a very long period, then the NFTs are likely said to be created or sold by holders who have been in the community for quite a brief time. It further increases the credibility of the NFT collection for an investor.

Age of the NFT

NFTs like Crossroads, Nyan Cat, Crypto Kitties, My first Tweet have been widely discussed by the community for a few years now. It makes more sense to invest in evergreen NFTs rather than capitalizing on a collection that rose to fame in the past few days or months.

NFTs are proving to be an emerging digital asset class with exponential growth opportunity. With the prowess of blockchain technology and a savvy investment strategy, adding NFT exposure to your portfolio will net positive gains to your overall portfolio.