The rise of NFTs has been referred to as the digital gold rush. People are quitting their day jobs to keep a close eye on NFT market trends in hopes of making a profit from their efforts. But, is profiting from NFT purchases a realistic goal? I have explored a variety of ways to make a profit buying NFTs, here’s what I’ve learned.
To make money from buying an NFT you can quickly flip your NFT, invest short-term, invest long-term, sell NFT utility items, trade your NFT for another NFT, and stake your NFT for passive income. Each method has its own pros and cons, be sure you are aware of what to expect.
Below are six methods that are commonly used to make a profit from buying NFTs. Before you decide on which method is right for you, first determine your goals. Do you need money now? Or, are you okay with waiting?
1. Flip Your NFT
The most common method of making a profit from buying NFTs is to flip them. Generally, the process of flipping an NFT refers to buying an NFT and quickly selling it for a profit after the market increases in value. So what is the best way to do this?
One of the best ways to flip an NFT is to buy it at mint. If you can buy an NFT at mint — especially if there is a lot of hype around it — you can wait for the NFT to sell out, then list it for sale on a secondary market for more than what you bought it for. You can do this multiple times, and as a result, increase your total profit.
Of course, there are things that you should take into consideration that will affect your profit such as gas fees, marketplace fees, and current market value. Market value is one of the most important aspects when flipping an NFT. The reason being, if there is a lot of demand for the NFT at the time of mint, your likelihood of being able to sell it for a profit on a secondary market is much higher, as opposed to minimal demand at the mint where market value is likely to decrease on secondary.
Ultimately, successful NFT flippers stay very aware of the market and are ready to flip once a project sells out. The more you practice, the better you can become at flipping NFTs for profit.
2. Short-term investing
Rather than buying an NFT and instantly flipping it for a profit, you can try your hands at short-term investing. A short-term investment is considered to be selling an NFT within one year after buying it. The benefit of short-term investing is allowing more time for the brand to develop, resulting in a greater profit compared to if you sold it immediately (flip).
The risk of short-term investing is the market value declining. If you wait too long and the project fails to build something meaningful, then the NFT has the potential to decline in value below the mint price. That is why it is so important to do your own research before investing in NFTs.
Additionally, short-term investments are considered short-term capital gains when it comes time to file your NFT taxes, so you will be taxed at a rate of 10% to 37% if you sell your NFT within a year from purchase.
3. Long-term investing
Long-term investing might be one of the most difficult ways to profit from NFT, but it can also be the most rewarding. A long-term investment means you plan to keep an NFT for at least one year before selling. This investment strategy requires a copious amount of research to ensure you are investing in an NFT that will grow in value over time.
That being said, long-term investments can result in a huge profit if you play your cards right. Considering the NFT market is still so early in its development, who knows what certain blue chip NFTs will sell for in the future.
Another great thing about long-term investments is that you pay less in taxes when you cash out. Long-term capital gains are generally taxed at a rate of 0% to 20%, however, collectibles are taxed at a flat rate of 28%, meaning that is the most you could be taxed.
4. Sell NFT utility items
In some cases, NFTs come with physical products. The great thing about receiving physical products with the purchase of an NFT is that you can sell the physical products, and still hold onto your NFT. One example of an NFT project that provides holders with physical products is VeeFriends.
As of now, there are a few NFTs in the Series 1 VeeFriends NFT collection that offers users physical products, such as the Gift Goat. The Gift Goat token comes with a total of 18 gifts, or 36 items (18 physical and 18 NFTs). A minimum of 6 physical gifts will be sent to Gift Goat holders per year for three years until token experience expires.
As the holder of this NFT, you can sell those gifts for a profit, and still enjoy the benefits of holding the NFT. Keep in mind that the Gift Goat is just one example. There are NFTs that offer holders a variety of real-world utilities you can profit from, including:
- VIP access to shows and conferences
- Free merchandise
- Physical products
- Monthly meetings and mentoring
The possibilities are endless when it comes to NFT utilities. If you can buy NFTs with valuable utility, I suggest you do it. Even if you don’t resell it, you can take advantage of all the perks yourself!
5. Trade your NFT for another NFT
The NFT community is full of collectors and traders. Just like trading Pokemon cards as a kid, it’s not uncommon to see people trade their NFTs with others in an attempt to invest in another NFT project they like, without having to spend any money. If you can find a good deal and trade your NFT with someone else, then you have the potential to profit even more.
If you are thinking about trading your NFT, be aware that there are right and wrong ways to do it. If you put your trust in someone when trading, you risk getting scammed. So, before you start trading NFTs with others, make sure you learn the proper way to trade NFTs.
6. Stake your NFT for passive income
Staking your NFTs is another way of earning money through NFTs. Staking NFTs means depositing your NFT into a De-Fi protocol smart contract to generate a yield. In simple terms, staking is the process of storing digital assets in the form of a “stake”, and assigning them to those willing to maintain their upkeep, while providing you a share of reward for your NFT.
Things to consider before buying NFTs for profit?
Buying NFTs can earn you some serious money, likewise, you can also lose a ton of money. Below I have listed 10 things to consider before buying an NFT in an attempt to profit from your purchase.
What are your goals?
The first thing you need to ask yourself before buying an NFT to make a profit is; what are your goals? Do you need money to pay next month’s rent, or are you okay with waiting a while to start making a profit? When you ask yourself this question, be completely honest with yourself.
Deciding how badly you need the money is an important part of determining which method will be right for you and your goals.
How much are you willing to spend?
Of course, if you are tight on money, it’s not wise to put all of it into buying an NFT. The general rule of thumb when buying an NFT is to never spend more than you are willing to lose. That being said, the standard is to invest no more than 20% of your income.
For example, if you earn $1,500 per month, and assuming all your bills are paid for, you could invest $300 into NFTs on a monthly basis. If there is an NFT you want to buy that costs $900, then you can save 20% of your income for three months until you have enough to buy the NFT you want.
Still, the most important thing is to never spend more money than you are willing to lose. There are no guarantees that you will make money from buying an NFT.
Do you know what you’re buying?
Before you tap that Buy Now button, make sure you know exactly what you are buying. It is likely that 98% of NFTs are destined to be completely worthless in the long run, so it’s important to know what it is that you are spending your hard-earned money on.
You always need to do your own research before buying an NFT, no exception! When you buy an NFT solely to make money, it’s very important to note that you are investing in the human(s) behind the NFT. You are investing in their ability to execute and create a brand that is meaningful and that people actually care about.
That’s why brands like Jordan and Gucci have such high price tags; they have built their brand to be something that people value and as a result, are willing to pay a premium. NFTs aren’t much different in terms of how value is developed.
Overall, if your main goal is to make a profit buying NFTs, you need to do your research to ensure you are buying an NFT that will provide a return on your investment.