Non-fungible tokens, or NFTs, have gained a lot of attention in recent years as a way to buy, sell, and collect unique digital items such as artwork, music, and collectibles. However, many people have found that they consistently lose money when buying or selling NFTs.

Here are a few potential reasons why this may be the case:

FOMO

1. Lack of research

This is probably the #1 cause for losing money buying NFTs, yet 90% of NFT buyers do very little of it.

It’s important to thoroughly research the NFTs you’re considering purchasing, including the artist, the content of the NFT, and the market demand for similar NFTs. Without this research, you may end up investing in NFTs that have little value or demand.

2. Market conditions

The value of NFTs can fluctuate significantly due to market conditions and trends. If the market is experiencing a downturn or there is low demand for the NFTs you have invested in, you may lose money.

3. Scams and fraud

There have been instances of scams and fraud in the NFT market, and investing in such NFTs can result in significant financial losses. It’s important to be cautious and do your due diligence when considering investing in NFTs.

Expensive gas

4. High fees

Some NFT marketplaces charge high fees for buying and selling NFTs, which can eat into your profits or cause you to lose money if the value of the NFT decreases. Also, you need to watch out for gas fees fluctuation, especially when your NFTs or the NFTs you’re interested to buy is on the Ethereum network.

There are tools like this that can help you to estimate the transaction fees when acquiring NFTs.

5. Speculative market

The NFT market is highly speculative, which means that the value of NFTs can fluctuate significantly and may not be tied to any inherent value or utility. This can make it difficult to accurately predict the future value of an NFT and can lead to losses if you buy an NFT that does not increase in value as expected.

6. Limited liquidity

Another reason people may lose money when buying or selling NFTs is due to limited liquidity, or the ability to easily buy and sell assets.

The NFT market is still relatively small and niche, which means there may not be a large number of buyers or sellers for a particular NFT. This can make it difficult to find a buyer or seller for an NFT, especially if it is not in high demand, and can lead to losses if you are unable to sell an NFT for the price you desire.

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Takeaway

By being aware of these factors and taking steps to mitigate them, you can increase your chances of success when investing in NFTs. However, it’s important to remember that investing in NFTs carries risks, and it’s possible to lose money even if you take all the necessary precautions.

Cover photo credit: Ahsanjaya / Pexels

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