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17 Notes on NFTs for Newcomers
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This past weekend I was having dinner with a friend. They knew nothing about NFTs, but they wanted to learn.
I told them I would write them a list of things they should know to help them get started.
Below is my list.
Disclaimer: This is my list, not your list. That means it’s my opinion, but it doesn’t need to be yours. In the words of Bruce Lee, “absorb what is useful, reject what is useless, add what is essentially your own.”
17 Notes about NFTs for Newcomers
Don’t move too fast: One of the biggest mistakes a lot of people (and even some hounds) make is allocating too much of their ETH too fast before they really learn the game. Take time to observe and learn. It’s an unusual market with unusual dynamics.
PFPs: A handful of PFP projects will generate most of the returns over the long run. The rest (90%+) will likely either go to zero (or close to it), become highly illiquid, or (at best) will flounder along while underperforming ETH.
Art: Much more illiquid than PFPs in general, but also less likely to go to zero if there is a good artist behind the work. Also, when you bet wrong, at least you still have the art. It’s nice no matter what, and it’s less embarrassing to have in your wallet. In the long run, I think art that goes down in price is more likely to eventually bounce back than most PFP collections. Why? Because artists, unlike PFP teams, are incentivized to keep going. If there is a dedicated artist behind the art, they will usually keep producing for years and decades. As their portfolio expands, so will their reputation and their collector base, and value will accrue to their earlier works.
A lot of art is still very undervalued: Much of the work by most well-regarded crypto artists today is likely highly undervalued. Think of crypto artists who have built a good reputation for themselves. Now imagine the implications if they continue producing work for multiple decades. In addition to obvious artists like XCOPY I am thinking of artists like Sarah Zucker, Matt Kane, Ben Kovach, Loren Bednar, Jake the Degen, Jak, and Kristy Glas.
Consider the following strategy: Consider a barbell investing approach with two big buckets (1) Shorter term plays with solid 2-5X potential and (2) Long term high conviction holds with 10-100x potential. Bucket 1 may consist of most PFP collections and some liquid tokens that have a good narrative (i.e. $LOOKS or $APE). Bucket 2 may consist of blue-chip PFP collections, Art 1/1s or low edition pieces, or liquid tokens that you believe will outperform in the long run (i.e. $ETH or $BTC). Constantly take profits from bucket 1 and move them into bucket 2.
Consider your overall asset allocation and your psychology. Then manage accordingly. Being in the NFT world should be fun, not stressful. Consider what percentage of your total net worth you’re comfortable having in somewhat illiquid jpegs with wild swings. Then be disciplined about taking profits, turning them into fiat, and investing in other things.
DYOR to build conviction: People say you should do your own research, and it’s easy advice to ignore, but it’s actually very important. Why? Because it’s excruciatingly difficult to hold anything through inevitable dips and crashes if you don’t have self-constructed conviction in what you’re holding. And you won’t have conviction if you simply aped/FOMOed into something based on what other people are buying/tweeting.
DYOR to generate alpha: The other reason to do your own research is that this market is still so immature that it’s actually surprisingly easy to generate your own alpha. Yes, it was easier in 2021, but it’s definitely still possible.
Rule of 3: When you’re buying a collection you believe in, always buy 3 if you can afford it: One to flip for short-term profit to cover your initial investment. One to hold for longer until it gets really mature. And one to hodl for the indefinite future. If you can’t afford 3, buy 2. If you can’t afford 2, can you really afford 1? (The answer may be yes, but it’s always good to ask yourself, especially in relation to #6.)
Follow the right people. There is a lot of bullshit, LARPing, and toxicity in this space. Curate your Twitter feed and Discord groups until you find the humans/hounds/communities that truly add value. Are people trying to help you or are they just engagement-baiting or trying to get you to be their exit liquidity? (Side note: It’s totally fine for people to sell their assets, but the best accounts will always be transparent about when and why they’re selling - and this is especially critical from an ethics standpoint if it is for a collection they have hyped up in the recent past.)
Follow smaller accounts too: Often, the most original thinking and best alpha come from smaller accounts with a unique perspective. As accounts get bigger, they are less likely to share alpha, and if they do, it almost instantly is no longer alpha since hundreds of thousands of people are now in on the “secret.” For example, if you had followed Mondoggg over the past few months as he steadily grew his following, you would have gotten lots of good intel, including potentially having exposure to his Alphadoggg project (current floor: 20E). He still has under 10K followers. There are lots of accounts like this if you look for them.
Play the long game. For projects you believe in, time in the market > timing the market. Also, it’s way less stressful.
Don’t forget about taxes and fees. Seriously. Don’t do that. For example, if you are a US citizen, and you buy something at 2e, and sell it at 10e, thinking you will pick another one up from the floor at 8e and pocket the 2e difference, you are in for a surprise. First, deduct 10% for fees, which gets you down to a payout of 9e, then you can deduct another 40% for short-term capital gains, which brings you down to 6.2e in your pocket. This doesn’t count any taxes you likely incurred from swapping ETH multiple times on the buy and the sell. This is another reason to play the long game (#12).
Use FOMO as a counter-signal. You will constantly feel the urge to FOMO into things based on factors totally outside of your control. Use this feeling as a counter-signal, or a “reverse compass” of sorts. If you’re feeling FOMO, you need to actually do the opposite of what it’s telling you to do. Breathe, slow down, DYOR, and wait. When the pump ends and the inevitable correction begins, you will be happy. There will always be another project and another opportunity. Don’t waste your hard-earned ETH chasing the crowd.
Learn about the people doing the actual art and building. This is one of the most satisfying and rewarding parts of the space and one of my core motivations for doing interviews with artists and builders. Follow them on Twitter, and engage with their work. It’s fun and you will learn a lot.
Be inclusive. Crypto/NFT worlds have a reputation for being bro-y, exclusive, and clubby. Let’s work together to try and break that mold! Think about the words you’re using and how they may appear to people who don’t look like you. For example, I see so many comments in Discords and on Twitter to the effect of “Floor is moving!! Let’s go boys!!” 🙄
And of course, be SAFE. Before you do anything, learn the basics of security. Here are the top 3 most important tips: (1) Protect your seed phrase at all costs. This means not storing it on your computer and never sharing it with anyone. (2) Use a hardware wallet (3) Be very suspicious of all links. Bonus: Read this mega thread by 6529:
I could easily think of 17 more items to add to this list, but I am going to pause here so I can go romp around in the woods. Maybe I will do a follow-up post at some point.
Oh, and one final thing that is important to know: I wrote this list as a reminder to myself as much as to any of you.
I am still working on many of the things on this list. I still fall victim to FOMO. I don’t always follow the rule of 3. Sometimes I forget about taxes and fees.
Whenever I make a mistake, instead of beating myself up, I try to think about the frameworks or lessons that I can apply to my future decision-making. I think of these takeaways as my “reward,” so that even when I “lose” I still “win.” Arf!
🍣 Salmon Bites
A few quick morsels of fun before I sign off:
1. Tweet Thread of the Week
Great thread from Zeneca that is worth a few minutes of your day, especially if you were lucky enough to mint a Moonbird:
2. Artist Spotlight: Grant Yun
I am really enjoying the work of Artist Grant Yun.
He describes his bold, graphic style of unique scenes as “neo-regionalism.” Many of his pieces have a vibe that is simultaneously nostalgic and futuristic.
I’m not sure what it is, but his work stirs something in me and makes me wag my tail appreciatively. I also find them very aesthetically appealing.
In addition to working on his art, Grant is also a medical student and a dancer!
You can learn more about Grant at his website.
What did you think about this issue of The Monty Report? Please head over to Twitter and let me know. Be sure to tag me - @MontyMedici - in your post so that I see it.
Until next week.
p.s. I am very excited about the interview coming out in next week’s issue with one of the top builders/investors/artists in the space. Can you guess who?
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