AOTB Mini-Series
I was one of the early people to hear about the Solana Mees project and I could have minted one for about 10 SOL (when SOL was $40 or so). Instead, I ignored the project.
On the last day before the pre-auction closed, I had the opportunity to mint one, but I decided to go to bed and see what would happen with the auction closed and pick one up the next day if anything seemed interesting.
The next morning I awoke to learn that the Sol Mees I didn’t mint were selling for more than 100 SOL each. I could have made 10x while I was sleeping. I didn’t do it because, honestly, much of the NFT market makes no sense to me.
Who would want to pay $3700 for a randomly generated digital image?!?!
Sometime back, before the May 2021 crash, I wrote up a piece about ways to trade the massive NFT bubble. One of the best strategies I outlined there was to find historically significant projects, like the cryptopunks, and buy them when the market crashes.
They have value because they are historically rare, not because they are good art. I think that’s still right.
But now, I also think that Lesson #10 of The Art of The Bubble helps too.
Three Types of Bubbles to Earn Money with NFTs
In that lesson, I distinguish three kinds of bubbles: pump and dumps, “traditional” bubbles, and self-reinforcing bubbles (the gamma squeeze stuff that GameStop did a while back).
The Art of the Bubble focuses on traditional bubbles–those that just get ahead of themselves, but do ultimately have real promise. Examples include the tech bubble of 1999 and the most recent cannabis bubble of 2020. The internet really did change everything, just not by 2000. Cannabis will be an enormous industry, just not by 2021.
Cryptocurrencies will change everything, just not by 2022, incidentally. So, we get huge bubbles and huge crashes.
My lesson from the SOL Mees is simple: they run a version of the pump and dump that’s a lot like the IPO flip from back in 1999 (when you had to call your broker to buy stock for $200 in transaction costs).
Let’s call it the Debut Flip.
I’m going to include some NFT projects in my DIY-er newsletter for subscribers and, of course, higher-paying subscribers will know about the information first. They are a little different from Moonshots, though, so everyone will benefit from understanding the business model at work.
So, let’s get to it!
The Debut Flip
Here’s are those Sol Mees now on OpenSea.
Many are hovering around 10 SOL right now, but Sol is worth about $200 now. That does seem to indicate, then, that the frenzy after launch led to a lot of over-priced buying. It is likely that something similar will happen with the RandomEarth projects on the TerraBlockchain, which you can find here.
Methods to Earn Money with NFTs
The mechanics for each NFT project are a little different, but there are broad consistencies–specifically in the incentives at work. That way you’ll know if you’re being had.
In most cases, a team of coders and artists works together. The team makes a base figure, or small number of base figures, and then have a set of random items the figure can wear. A computer program then randomly generates all the different combinations and you get 10,000 images like the ones below.
Those are LunaBulls.
At that point, you need adoption. Sometimes teams air-drop free NFTs to people who do a lot of promoting (the Crunks Project did that). With the Sol Mees, the developer developed a profit-sharing scheme.
- The person who first mints an NFT gets 5% of all future sales.
- The price that the minter pays is roughly the same for everyone (it’s cheapest early on) and goes to pay the costs of making all the NFTs.
What this means is that if you are an NFT project developer, you are basically giving away, at cost, all the initial NFTs. The only way for you to make money, then, is for people to sell and re-buy those NFTs a lot.
Things to Consider for Earning Money with NFTs
That’s why, if you are going to develop an NFT project, the first questions you get asked are the following (this is from the RandomEarth platform on Terra).
If you have enough interest in your project, then you’ll get paid back all your development costs for the NFTs with the initial sale. Then, with the debut of the project on established platforms, there will be a frenzy and people will buy and sell these things like crazy.
You, as a project developer, will make 5% of all such exchanges. If 10,000 change hands at an average price of $2000 (some selling for $100,000 and others for just $100), then you’ve gained $1,000,000 in profit on the first day.
Afterwards, you have a passive income-generating asset. If over the next year after the first day, you get the same traction, you’ll get another $1,000,000. If one of those NFTs becomes super famous and sells for millions, you’ll make even more money.
And, of course, there is no reason for you to stop after making just one NFT project.
Ok, But How Does The Buyer Make Money?
It’s helpful to understand that the NFT development team and the buyer don’t make money in the same way even if their incentives aren’t completely at odds.
The developer makes money primarily on the long tail of NFTs–the 9,900 of the 10,000 that are worth almost nothing long term.
You, as the buyer, have to make money on the “hits.” So, you’re not really playing the same game.
That doesn’t mean that you can’t make money on hits, just that you’ll increase your chances if you position yourself more like the NFT developer–you’ll need a basket of such NFTs.
That’s why successfully flipping NFT projects is like selecting moonshots (and why I’m going to include these ideas in the Moonshots section of the DIY-er Report going forward).
Concluding Thoughts
I would have been successful buying Sol Mees. The Crunks project, which I’ve written about recently, didn’t instantly sell out. They’re gone now, but that immediate frenzy wasn’t there. The most expensive Crunk went for 1000 LUNA ($40,000), but most are selling for between 1 and 7 LUNA right now ($40 – $280).
What’s the difference between those projects? I’m not honestly sure. Maybe The Crunks will be a sleeper hit.
The best you can do is look for the following:
- Strong Twitter presence
- Strong Discord presence
- Key crypto promoters pumping a project
- A development team that has a history of success
- An interesting, simple idea
Oh yea, and if you like the art, then you should get that too. Miguel Balbas, a member of our Discord community, just released his own project. He’s an actual artist, not a development team.
He’s not paid me anything and I’ve not bought any of his NFTs yet. I do like the art, though, so I probably will when the ETH gas fees are low enough. These are some of his pieces on OpenSea (called the Ethereal Collection).
Now you know three reasons to buy NFTs
- Because you like the art
- Because its an historical artifact
- Because it’s a Debut Flip project
I still think that way #2 is the most promising to make money, but you have to wait for a real crypto winter. During a bull run, there are lots of Debut Flips that look interesting and that I’ll let my subscribers know about.
This week I wrote a number of pieces that are related to this post, so you might want to have a look if you’ve missed them.
That’s it for this week. Remember to join us on Discord if you haven’t already.
Happy Trading!!
Disclaimers
General financial disclaimer: This post is provided for entertainment purposes only. I am not giving you financial advice and I am not a financial advisor. You should expect no financial returns one way or another based on my statements. These points hold equally for any statements that could be attributed to The Art of The Bubble or any related business entities. If you decide to buy or invest in anything, then your returns and potential losses are your own. No statements about taxation are taxable advice and you are encouraged to consult your own tax professional. You are also encouraged to do your own due diligence before investing in anything.