In this article, We will help you answer the question, should you flip NFTs or HODL?
2021 was a fantastic year for NFTs for several reasons. Michael Beeple’s Everydays: The First 5,000 Days sold in Christie’s auction house for approximately $69 million. That’s an astonishing amount of money.
Several big-name companies announced they were getting into NFTs or the metaverse, including Facebook, which rebranded their entire company to Meta and Adidas.
It seems like many NFT investors are getting rich by flipping their JPEGs.
Flipping an NFT describes buying or minting one and then selling later at a profit. But is this a good idea? Surely, the space is full of hype? And are NFT buyers better off holding onto their purchases?
Below, I’ll cover the cases for and against flipping NFTs, assuming you’ve already bought one.
I’m not a financial adviser, and this content is for informational purposes only. Buying NFTs is incredibly risky, and most will go to zero. Do your own research.
Flipping Vs Holding NFTs
Before making any rash decisions about an NFT portfolio, review each of your buys (or potential purchases). Ask yourself:
- Do I know what I’m about to buy?
- Would I rather buy this NFT or another token or Web 3.0 asset, e.g. an altcoin?
- Is this a long-term investment (over a year)?
- Is this a medium-term hold (6-12 months)?
- Or is this a quick flip?
Assuming you can afford the initial investment and can write off a loss, these questions will help you decide how long to hold or if you should flip.
The Case For Flipping NFTs
Many crypto and web 3.0 investors buy an NFT and sell it a few weeks or months later. They flip NFTS for a variety of reasons and not just for profits. So, let’s cover why you may want to sell your NFTs.
1. To Take Profits
The number one reason for selling NFTs is to take profits. If a project increases in floor price, you can sell and take out your original investment at a profit.
This strategy helps mitigate risk. It’s also easier to follow if you own more than one NFT from a project, i.e. you can sell one for profits and keep one as a moonshot.
2. To Generate Liquidity
Buying NFTs is the surefire way to spend lots of Ethereum fast, whereas flipping NFTS offers a chance to replenish a wallet with this Web 3.0 asset and make money.
When I set up a budget for purchasing NFTs, I aped into several projects for six weeks and blew my entire NFT budget for the year. Instead, I should have held onto my Ethereum for longer and purchased some NFTs at a discount during a subsequent market dip (expect many market dips in NFT-land).
To buy new projects, I’ve two options. I can either put more money into the market, which increases my risk. Or I can use sales from some NFTs to reduce my risk and either hold Ethereum or buy other projects. Ethereum holds its price more reliably than most NFTs.
3. To Reduce Risk
In August 2021, the total sales volume for NFTs exceeded the entirety of all previous years… combined!
If an investor purchased before August, they might want to flip an NFT, harvest some profit and take it back to Ethereum, Euro, or dollars. That way, they can reduce their exposure to a risky asset class.
For example, many traditional advisors say to keep no more than 5% of a portfolio in risky assets. However, many NFT investors prefer aping all in, in place of the stock market.
It’s a strategy investors use to navigate the cryptocurrency market and regular investments. So, if an NFT portfolio suddenly forms a sizeable percentage of a traditional portfolio, that’s a good reason for considering a flip.
4. For Tax-Loss Harvesting
If you’re facing a big tax bill from NFT or cryptocurrency profits, selling unprofitable NFTs can mitigate that tax bill. Plus, you may be able to reclaim some Eth too.
For example, the floor price of many NFTs rose meteorically during the first half of 2021, only to plummet in value by 50-90% during the second half of the year.
Unfortunately, it’s sometimes difficult to sell failed NFT projects because of a lack of liquidity, i.e. no one is buying. It’s a bad idea to attempt to catch a falling knife. Bear that in mind before aping into new projects.
Remember, the merits of tax-loss harvesting depend on what country you’re in and advice from your financial advisor.
5. Because You Lost Faith In An NFT Project
Losing faith in an NFT project or its team is an excellent reason to cut your losses and sell.
When I got into the NFT space, I couldn’t believe how many projects were launched every day. A few are potential blue chips, but most are derivative knockoffs of successful projects like The Board Ape Yacht Club and the Cryptopunks. Or they were nothing more than overpriced JPEGS masquerading as picture-for-profile projects. And more than a few are scams.
It’s common for NFT flippers to purchase a project due to hype or a recommendation on Twitter or Discord. Then, they discover the NFT team can’t or won’t deliver on a roadmap and lose faith. In such a case, the end of a financial year may be a good time for an investor to sell before it goes to zero.
6. To Simplify An NFT Portfolio
It’s incredibly difficult to keep tabs on multiple NFT projects, unlike a more simplified portfolio.
NFTs to the outsider look like overpriced JPEGs, memes, and GIFS. But a good NFT buyer understands what a specific NFT is for upon purchase. Some are a form of generative NFT art or represent a picture-for-profile that owners use as their online avatar. Other NFTs are tickets to virtual communities or used in playable games.
That’s only several use cases for NFTs today. Many more are emerging. So, if a buyer acquires a few dozen, it’s hard for them to determine if every roadmap is being delivered on and the current project sentiment. Checking the floor price daily isn’t enough!
If you’ve bought more than a dozen NFTs and find it hard to keep track, consolidating a portfolio can help. You could move trusted blue-chip NFTs into cold storage. Then, you could offload everything else to reduce time spent wading through Discord communities, figuring out the status of each project.
The Case Against Flipping NFTs
Spend any time on NFT Twitter, and you’ll come across investors bemoaning about paper-handling (selling) blue-chip and rare projects like Bored Ape Yacht Club or Cryptopunks. Let’s cover why you may want to hold instead of selling an NFT.
1. You Don’t Want To Get Wrecked
Trading traditional assets like stocks and shares is a full-time job and incredibly risky. Many daytraders perform worse than those who buy and hold onto conventional and safer investments like index funds. The risk to reward ratio is exponentially higher for NFTS, but don’t attempt to flip them if you can’t afford eye-watering losses.
2. You Prefer Long Term Gains
In cryptocurrency lore, May 22nd is known as Bitcoin Pizza Day. On that day in 2010, Florida man Laszlo Hanyecz ordered two pizzas for an astonishing 10,000 Bitcoin. At the time, Bitcoin was almost worthless. As of 2022, those Bitcoin are worth approximately $630 million. Laszlo says he’s no regrets.
Do you want to become the NFT pizza guy? Some early NFT flippers already have a claim to this title.
If you had minted up a CryptoPunks NFT in 2018, your only cost was gas, i.e. a few dozen dollars. Now the CryptoPunks, if you can even buy one, trade for six and seven figures. While many NFTs will go to zero, you only need to mint or buy one blue chip. So, if you don’t need the money, consider writing off the cost holding onto your purchase for the long term.
Based on Dune Analytics Insights, the bulk of NFT trades on OpenSea took place in the summer and early autumn of 2021. The preceding months (and years) are a blip in comparison. And OpenSea claims a modest 1.8 million users to date. That’s a small number of users compared to other cryptocurrency tokens and assets. Coinbase, for example, claims some 56 million users.
In short, if you bought an NFT on OpenSea or elsewhere, you’re early. Coinbase has yet to launch its NFT marketplace, and buying an NFT is still convoluted, risky and technical for casual investors.
So it may be prudent to hold rather than flipping an NFT until it becomes easier or more profitable to buy and sell them.
3. You’re Invested For the Long-Term
Holding an NFT could form part of a Web 3.0 education for learning the space and the evolution of its projects. That’s assuming you picked up an NFT under active development.
When I spend money on something, I immediately take more of an interest in my purchase. I want to learn how it works, the people behind it, and what it does.
When I started buying NFTs, I wanted to learn more about the projects I bought, the roadmap, who was behind them, and those active in its community.
On the other hand, I’m less inclined to spend the same hours researching projects I don’t own unless they’re trending on Twitter or are a potential future purchase.
4. You Value Art Over Profit
Sometimes, NFT buyers hold onto their purchases because they like digital art or they’re collecting pieces from a specific project. They’re less driven by quick flips and profits. It’s akin to collecting rare stamps, trading cards, or comic book covers.
For example, Art Block regularly releases generative art projects. The artists behind these use code to create their unique pieces on the blockchain. Other examples of successful Web 3.0 artists include Dmitri Cherniak, creator of the Eternal Pump.
Mike Winkelman, aka Beeple, is the space’s highest-profile example of a generative artist whose work people collect and hold (at a lofty premium!)
5. You Didn’t Ape All In
Those who spent a modest amount on NFTs or managed their risk can afford to hold rather than worry about NFT flipping.
Aping in describes blowing an NFT budget within a few days or weeks… or spending a significant amount on a single project.
In other words, if you were smart with an NFT budget, and have leftover funds, enjoy your NFTs. You don’t have ever to sell one if you like the art, the collection, or the project.
6. You Believe An NFT Project Has Untapped Potential
Many NFT projects have untapped potential that the wider market has to learn about. Whether they realize this potential is debatable, but holding demonstrates your conviction.
Until a project moons, you can easily get engaged with the NFT project by taking part in chats on Discord. You can also learn more about whether people buy a project using NFT sites like Dune Analytics, Nansen.ai, Rarity.tools.
To learn more about these tools, check out my guide to NFT websites for beginners.
If a project realizes its potential, you’ll be there to see or reap the rewards.
FAQs About Should You Flip NFTs or HODL
What is the best way to flip NFTs?
If you want to flip an NFT, buy or mint at least two NFTs from a specific project at, or immediately following, the launch. Then, if the NFT project rises in value, sell one to cover your investment. Hold onto the other NFT and sell later at a profit. Don’t invest more in flipping NFTs than you can afford to lose, and remember to take profits.
What are the best NFTs to flip?
Flipping NFTs is incredibly risky, but the bests ones to flip are those you minted or acquired for a low cost. That way, you can reduce your potential losses and maximize profits.