To NFT or not to NFT – 400x returns or tulip mania

  • Top NFT projects experience unparalleled price growth, even for crypto.
  • Some prices seem “exuberant” and will see corrections.
  • The gaming industry is just getting started with this technology.
  • Diligent research and a good investment hypothesis are the key to profits.

We’re all Punks now

On 19 August 2021, the premier fiat-money credit card company Visa paid $150k in Ethereum for a 24x24 pixel JPG. In the following week, the lowest price (or floor price) for any CryptoPunk rose 280% to $425k.

This would have sounded downright crazy just 2 years ago. But then the NFT boom happened.

NFT, short for non-fungible token, refers to a blockchain-powered proof of ownership. NFTs are implemented as standardized sets of data on a distributed ledger, like Ethereum, holding information about where its content is stored and who is the owner. While this sounds technical and less than exciting, it sparked a wave (some would say a mania) of investment.

Punk roots

CryptoPunks are a generative art project by LarvaLabs featuring cool-looking profile pictures in 8-Bit 24x24 pixel graphics. There is a system to how Punks are created. A character type is combined with certain attributes, such as a hat, buck-teeth, a beard and goggles, to create a new Punk.


Each can have between zero and seven attributes. The more attributes a Punk has, the more valuable and scarce it is considered. There is only one Punk with seven attributes and the original owner has never sold it. A total of 10,000 Punks exist and there will never be more.

CryptoPunk ownership and sales run on smart contracts (little programs) on Ethereum. In this way, the proof of ownership, and the method for transferring ownership, is not dependent on LarvaLabs or any single marketplace. As long as there is Ethereum, Punk owners can be certain to have access.

LarvaLabs’ smart contract code became the template for all other NFTs on Ethereum. Standardized as ERC-721, any marketplace can easily gather information about multiple projects. The next implementation of this standard was wildly successful. CryptoKitties, by DapperLabs, became so popular that they clogged up the whole Ethereum network in 2017.

Smashing it

While cute Kitties took collectors’ hearts by storm right out of the gate, CryptoPunks ramped up much more slowly. There was less than $1m of cumulative trading volume up until 2020.

Eventually, $100m worth of Punks were trading hands in just one day as of 23 August 2021. The market for even the highest-end Punks, worth up to $16.9m, is far from illiquid.

The engine of growth behind CryptoPunks' success was their use as profile pictures on social media. Proud holders change their image to reflect the Punk they own, and some even change their name to the Punk’s number. The 24x24 pixel format displays perfectly on Twitter and Discord, where most look for cool NFTs. This is a beautiful growth hack, reminiscent of growth OG’s ingenious strategy.

When users become brand ambassadors, growth follows. Other projects quickly copied this tactic, with equal success. Bored Ape Yacht Club was the next to follow. Current entry price is $150k. Bored Apes amplified the growth loop by building an interesting community for holders where they can network and build together. Then came another LarvaLabs smasher, Meebits. And then came Pudgy Penguins, and many more.

NFT marketplace OpenSea is becoming the “Amazon of NFTs”, with an average transaction value of $12k and more than $2bn sales volume in August 2021.

Nearly every day sees the birth of another profile picture NFT, and those that find community support quickly rise in value. For investors the literal million dollar question is: Is it time to buy?

The NFT conundrum

NFT sales make for marvellous stories these days: Rags to riches Web3-style.

Buying an Etherrock for $5k and selling it for $1.3m just 19 days later. Who doesn’t want that? But isn’t the entire market pretty ‘exuberant’ right now? A tulip mania reminiscent of the 2017 ICO craze, where fortunes are made, and lost in a microsecond? Is anyone going to pay a fortune for the picture of an ugly Ape in 5 years?

NFTs may be an excellent investment. If you choose the right NFTs, that is. The vast majority of projects likely won’t be around for very long. Choosing what to buy and timing it right are the keys to decent profits. This article will outline options on how to research and how to form an investment thesis. Part two will dive into the various mechanics of how to buy and sell.

Research resources

Research is the key to finding underpriced art, getting in early, knowing what characteristics to look for and setting price expectations. The top three tools for research are Twitter, Discord and newsletters. Here are a few suggestions. This list is in no way comprehensive. Do your own research, focusing on what most appeals to you.



  • @Zeneca_33, this account has timely NFT content and a great newsletter
  • @garyvee, yes, Gary Vaynerchuck! Big into NFTs and on the beat
  • @seedphrase another big NFT account with good retweets and information
  • @nbatopshot for information on pack drops, if you’re into sports collectibles

Discord: Any successful NFT project has a powerful community that aims to get rich together. Make sure to join. You can find Discord invites in their Twitter profile text. Get a feeling for the community, its vibe and if you like the people. Joining a high energy crowd is part of the fun of buying an NFT.

How to time buying and selling

Join a rocket-ship project early on for the maximum ROI. The best time to purchase is at the time of minting. This is possible if your research reveals a great project early enough. Twitter influencers or a tip in a Discord community are good places for that. A lead indicator for future success is a project’s community growth and the level of enthusiasm.

If you didn’t get in on the ground floor, don’t worry. The secondary market can still offer great opportunities. Part two of this research will get into the nitty gritty of where and how to buy.

Things to look out for, when looking at a specific project:

  • How big is the community?
  • How fast does it grow?
  • What’s the energy on Twitter and Discord?
  • Do you like the art?
  • What benefits do you get as a holder and community member?
  • What traits and characteristics are more valuable than others?
  • Which traits are trending?

When you have a clear picture of what to look for, look at sales prices to get an idea of what you can expect to pay. Check Discord for what others paid for similar tokens.

The key to both buying and selling is to have a principled, calm approach. FOMO and greed are the nemesis of any investor and NFTs amplify both. With high-growth projects, price escalates quickly and individual pieces fly off the shelves. This makes it much harder to stick to the plan. By all means set a maximum price and a reasonable ROI.

A purely fictional investment hypothesis could be: Buy a KrazyKoala, because their price is still affordable, the Krazy Krew community is great and growing, and … Koalas!! The Koala should have an eyepatch, because it’s rare (1%). Pay no more than 5 ETH and sell for at least 15 ETH. Warning: this is definitely not investment advice. It is meant as a clarification of the structure and detail that should be present. It’s imperative to stick to the plan once it’s formulated.


The recent NFT market seems to follow a mantra: “Number go up!”. History teaches us that nothing grows forever.

While the basketball card collecting marketplace, NBA Topshot, is the only big sport NFT marketplace right now, its parent company, Dapper Labs, is planning to launch UFC moments soon. Other sports will follow. This space may grow, along with prices.

Axie Infinity launched a game featuring a blockchain based marketplace for in-game items and characters in 2018. The total market capitalization of the underlying AXS token smashed through $4bn recently. Transaction volume topped $35bn in July 2021.

The gaming industry has just begun using NFTs for crypto-powered in-game markets.

Without a crystal balI it is hard to tell if the current craze for profile picture JPGs is going to continue unabated. Since venerated institutions like Sotheby’s and Christie’s have sold NFTs for record sums, will a CryptoPunk become a hallmark of 2021 art? Very optimistic members of crypto Twitter even announce the “flippening” of De-Fi by NFTs.

Realistically, corrections for some top tier prices can be expected and many minor projects will not deliver the same returns as buying a rare CryptoPunk in 2018. But NFTs are here to stay, as access to exclusive communities, as a fun way to get into crypto, in games, and as a potentially brilliant investment.

Ignoring NFTs is certainly not a reasonable stance. How much exposure you want to the possibility of picking the wrong project and ending up with an unsellable JPG is another question. Diligent research and a well-formed investment hypothesis are the crucial ingredients to success.

Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.