Key Takeaways:
- When an NFT collection launches, the first few days follow up with a burst of trading activity and high sales volume.
- If someone thinks that an NFT will go up in value in the future, that means that the collection of NFTs in question is built on solid ground.
- It is prudent to place a hard limit on buying the dip investing.
Buying the dip for a good NFT at the right time, is key to success. With that said, one should enter the NFT market with as much money as one is willing to lose. After all, unlike regular cryptocurrencies, NFTs are illiquid assets.
Meaning, there has to be a buyer at the end of the trading equation, which may take a day or a year, or the asking price may never match up with a buyer.
One also has to bear in mind that the present average NFT price is $5k, according to NonFungible. Likewise, there are more secondary sales than primary sales by a ratio of 6:1.
This indicates there are six times more NFT traders who are trying to do the same as everyone else — sell NFTs at a higher price than its original minting price. The most common tactic to traverse these odds is by buying the dip.
Buying The Dip Strategy
Those who have been following NFT launches and related news have likely noticed a pattern. When an NFT collection launches, the first few days follow up with a burst of trading activity and high sales volume.
However, this is then followed by a lull period, especially applicable to newly introduced themes.
For instance, Bored Apes Yacht Club (BAYC) gradually grew into its massive success as the third-largest NFT collection with a $4.1 billion market cap and an average floor price of Ξ104.13.
However, even this top NFT collection had long periods of subdued trading activity from its original minting price of Ξ0.08. Needless to say, the massive gap between Ξ0.08 ($277) and Ξ104.13 ($361k) is the space where life-changing gains happen, but how?
If we take a look at BAYC NFT from its launch date in April 2021, we notice that the chart looks spiky. It is between these spikes where buying the dip opportunity lies. Specifically, such opportunities manifest as downward price spikes.
Case in point, on October 22, 2021, the average BAYC floor price was at Ξ29, only to rise to nearly double that, at Ξ52, barely a month later, on November 19th.
In other words, one can only gain profits by selling high and buying low. The question then is, how to recognize when the market is truly in the lull period? After all, the chart above is only an image in hindsight, when buying the dip opportunities were recorded as past events.
Buying the dip. NFT tacticians believe the NFT to appreciate over time. It is then a matter of determining if that expectation is grounded in reality.
Because the NFT market is speculative and prone to the whims of social media hype, this is difficult to do in a consistent manner.
What Can Trigger NFT Appreciation?
If someone thinks that an NFT will go up in value in the future, that means that the collection of NFTs in question is built on solid ground.
In the case of BAYC, the roadmap was detailed and centered around rewards and building up a wider Web3 ecosystem of events and airdrops to existing BAYC holders.
In between these milestones, buying the dip opportunities presented themselves. In the same way, outside factors like famous people posting pictures of their apes on their social media accounts also played a big role.
These factors are the same as when a regular cryptocurrency gets listed on a big cryptocurrency exchange. Which makes its price go up. NFTs become more valuable on the speculation market when they are used in more projects and by famous people.
Moreover, people like to know there is an ecosystem being built around the NFTs themselves.
Case in point, the recently released (B)APETAVERSE is in a flatline state after the initial activity frenzy.
As another ape collection, but 3D, BAPE NFTs are waiting for their awakening. This appreciation driver is most likely to come when the collaboration with MADworld bears fruit. Just like with BAYC, events, merch, tokens and web3 expansions are in the works.
And just like with BAYC, these represent on-ramps for celebrities. In turn, when they jump in, the speculative price hike across social media will likely be kicked into high gear.
What Happens When the Dip Goes Deeper?
Because nobody can foretell the future, nobody really knows if the present moment is actually the dip before the price hike. Often enough, the price may even go down further.
For this reason, it is prudent to place a hard limit on buying the dip investing. The big question is, should you sell it immediately after you see the price drop to cut your losses?
The answer to that entirely depends on the reason for the drop? Does it have to do with a core part of the collection, like a visual bug in a generative collection, or does it just seem to change randomly? This is why delving deeper and tracking news can be very valuable.
Should You Dip In?
As noted in the beginning, the appreciation gap for some NFTs is astonishing, providing a one-in-a-lifetime financial event. By the same token, just like in the lottery, there is no guarantee that the NFT will go up beyond the price you bought it at.
However, with newly launched collections like (B)APETAVERSE, it follows the usual pattern of initial frenzy and subdued activity. It is then a matter of trust in the team behind the roadmap.
A Bathing Ape is not a weird, unknown artist, but a long-running fashion company with a strong following in Japan and other Asian countries. These are the very same populations that show higher-than-average NFT participation.
Is it likely that they will continue to follow through on their roadmap? Even if the answer is yes, it may happen that the ape theme is overused, so there is no major liftoff. On the other hand, it also may happen that people expect apes to be popular, based on established BAYC popularity.
In turn, they could create a self-fulfilling prophecy. As you can see, there are a lot of factors to consider. But thinking about them and doing homework on the project’s background is more than enough to at least eliminate the NFT candidates that are least likely to appreciate.
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