Analyzing other people's mistakes in the NFT space
An ex-poker players approach to learning from the mistakes of others
I have gathered and analyzed all the data from @Zeneca_33's Discord group ZenAcademy, in a channel called 'mistakes'. Here people tell what they think their biggest mistake in the NFT space has been so far. It took some time and was done manually, but it was an excellent read and gave me more insight into both how some of the people in the space thinks and how to avoid making mistakes unnecessarily. I recommend you to join that group and read in that channel if you haven’t already.
Who am I?
My name is Mathias and I have been a professional poker player for 11 years. I recently quit playing professionally to pursue the NFT space instead. The biggest difference between poker and NFTs is that poker is a negative sum game, so people will withhold information to stay ahead in the metagame. That is fair, but it makes the whole scene slyer. For the last few years the content has become more available, solvers has been created, the rake has increased and the edges have become smaller. The NFT space is a positive sum game where sharing information and creating content helps yourself as well as others. The positivity and creativity of this space is one of the reasons I have decided to create a Substack. There is a lot of bad seeds out there too, but if you manage to find the right channels, you can meet some of the most genuine and intelligent people out there. While I have only been into NFTs 2.5 months, I have spent almost all my free time researching. I waited 4 weeks with buying my first NFT (which is pretty tough with all the hype and FOMO around), and have bought several more since then. It being a bear market gives me the opportunity to learn about and invest into great projects at a discount.
People aren’t necessarily that good at understanding what their mistakes were when randomness is involved. They mostly base the validity of an act on the outcome. If the results went poorly they think it’s a mistake and vice versa. You will see some of the mistakes have ‘results oriented’ written with parantheses. These shouldn’t be disregarded, but often they are based on hindsight caused by poor results and not necessarily a mistake being done. It could have been a logical decision based on the information you had at the time. None of us can look into the future, we can merely make assumptions, and given the novelty of the scene and the lack of data, a lot of it is pure speculation. In poker, result orientation is a very common concept, and people who are results oriented are rarely successful. In order to succeed in poker you have to work at analyzing your mistakes, but also finding out what the mistakes actually were, and what was a correct decision with a negative result. With so many subtleties, you have to dive deep and work at this particular metaskill. I believe the same holds true for the NFT space. While the decision making process is completely different than poker, investing money and randomness is involved in both, so some of the solutions are applicable in both scenes. Particularly the mental game and strategic macro decisions.
The Data
I have structured the data in order of mentions in the channel. Some of the mistakes will be connected and overlap. Mistakes are often based on several factors. People may not be able to assess what the actual mistakes were as mentioned above, but rather what they feel the biggest mistake was. There are still some interesting conclusions to draw from this data (17.09 - 30.11/2021). I have also paraphrased the lessons people gave in response to the mistakes people had done. Some of them are my own:
Mistakes
- Fomo, hype and apeing (57)
- Selling too early (results oriented) (54)
- Got scammed (34)
- Holding too long/Not taking profits (26)
- Not keeping liquidity for good opportunities (25)
- Passing good buy opportunity (results oriented) (24)
- Buying the top (17)
- Not researching well enough (14)
- Failed transactions in general (13)
- Failed transaction in gas war (8)
- Have too long listing time (7)
- Buying back in when price drops (6)
- Selling too early, needing to liquify (6)
- Delay minting for too long (6)
- Trust Twitters with high follower count (5)
- Not taking enough risks/Afraid of making mistakes (4)
- Not investigating interesting projects further (4)
- Selling rare pre reveal (results oriented) (3)
- Failed transaction in Metamask swap (3)
- Poor bankroll management (3)
- Minting because influencer had been sent spam on OpenSea (3)
- Choosing the wrong project when deciding between two (3)
- Minting with anonymous founders (3)
- Trading when fatigued/sleepy/drunk (3)
- Minting with high gas (3)
- Waiting until floor drops to buy (2)
- Listing too high (2)
- Get emotional attachment to investment (2)
- Have too long bid time (2)
- Not paying 100% attention when minting, watching the kid(s) (2)
- Not minting because of high gas (2)
- Regretting a sale and buying back at a loss (2)
- Buying, thinking it's a rare piece before rarity is revealed
- Failed transaction in floor buy
- Leaving the space for months during bear market
- Not buying derivative of successful project
- Trust Discord with high member count
- Minting too early (only 230 of 10k got minted)
- Accepting offer without checking rarity
- Trying to make money as quickly as possible
- Not tracking gains for taxes
- Being too late for WL
- Lost their hardware wallet
- Delisting hyped project pre reveal
- Buy bottom, having it go even lower
- Flipping with high risk/low reward
- Buy into project they don't fundamentally believe in
- Not buying a project later because they missed a lower floor
- Misclick listing price
Lessons:
- Buy several tokens in a project if you can afford to. Buying 2-3 is the consensus.
- Hold longer.
- Choose quality teams.
- Be more liquid.
- Buy a hardward wallet.
- Don't interact with airdropped NFTs.
- Learn how to handle greed and emotions.
- List for short periods (1 day).
- Don't blindly trust influencers (DYOR)
- Be careful about buying bundles, can contain fakes.
- Learn how to use Etherscan.
- OpenSea sucks.
- If you're selling unrevealed mints, don't check what it turned out to be.
- Organic growth is way stronger but will usually take way longer.
- Tutorial to set up advanced gas
- Create and follow your strategy: is it a flip, short term, medium term or long term hold?
- Follow the right people.
- Place more bids when your bankroll is smaller to save gas and be able to buy below floor.
- With how the meta is now, try to get into WL in good projects. How they give out WL's will also tell about the quality of the team.
- The stronger the fundamentals, the less important it is to min max.
- Organize your Discord well.
- Twitter accounts with high follower account can be fakes
- The less substance and more hype in the Discord chat, the higher chance of it being a pump and dump.
- Small bankrolls have to be way more careful placing their bets, while big BRs can afford to speculate a lot more. Learn how to manage your bankroll.
- Take breaks from NFTs, go into nature, meditate.
- Take some losses to liquify instead of holding until the bottom some of the time.
- Ratio of low online Discord users to total in the group is a red flag.
- Make sure the dev team/community managers are active in the Discord, and if they are too spammy it can be a bad sign too.
- Discords people have to grind for levels to get whitelist can be fake and lack substance.
- Too much price talk in Discords is inorganic for the project.
- Know the tax jurisdiction for NFTs in your country.
- Keep liquidity for wallet initialization if it's your first time selling on OpenSea.
- ETH peaking, high gas and over saturation of projects are factors that can cause an NFT bear market.
- Be kind to yourself, we are human and we all make mistakes.
Analysis
There is a lot to take from this. The top 3 perceived most common mistakes are active mistakes where the user made an action that resulted in a suboptimal result. Some of the other high ones are more passive mistakes where the user didn’t make the choice to do an action that would have led to a favourable result. Psychologically it is easier to blame yourself for something you did than something you didn’t do, so the results will obviously be biased from that mindframe. I will analyze a few of them and make some assumptions about why these happen and what we can do to improve.
FOMO/hype/apeing
This is based on getting overwhelmed in the moment at looking at some project being hyped or price action going rapidly up. It is easy to get caught up into this and not be mindful about the fundamentals and research needed to make a profitable investment. There are of course situations where the timing window is scarce and the project actually is solid, but these are rarer occurences than the opposite thing happening. Seeing big players invest into one of these doesn’t necessarily mean that you should, since they could have a different strategy than you as well as a bigger bankroll, and therefore have the opportunity to make more speculative investments without necessarily getting hurt by it.
Remember to research before investing. There are so many projects out there, but so few of them will moon. Some of them does well because they have big whale action pumping, creating FOMO, and other’s will be fundamentally strong. It is much easier to spot the fundamental once if you know what to look for.
The team is the most important. They are essentially what you are investing in. If there is no particular info on the team, don’t invest. There are some exceptions, but this should be a thumb rule for everyone. I was shocked to see how many had got scammed, and this is one of the reasons. A good track record either in this space or IRL is essential.
It is also very important to look at the quality of the community. Is it solid and organically grown or is it all based on hype and trying to make the price rise? This is secondary to the fundamentals of the creators, but also a very important factor to look into. Often they are correlated with how the marketing of the team is being done. Have they artificially pumped their numbers (Twitter/Discord), are they giving out WL to everyone who advertises for them or for people who are active in their Discord? The more unique and less forced they give out whitelists will tell a lot about how creative and genuine they are. Learn how to aggregate all factors to make a logical decision as a whole.
Be mindful. Be aware of the feelings you get in the moment. I have experienced FOMO and hype in this space that is different to any other feeling I have had before. Part of it is that you have to act fast to catch the price. I have a made a couple minor mistakes in this mindstate, but have stopped myself most of the time. Repetition and pattern recognition is key. Remember that you want to make rational decisions when making bets, or they won’t be profitable. This type of hype can be compared to the feeling some people get when they see all the blinking lights and money at a casino. It is appealing with all the money right in front of you, but it is just too good to be true.
A solution to becoming more mindful is meditation. One of the main benefits of meditation is to improve your metacognitive ability. It can also be relieving for an overly excited mind. It isn’t that intuitive to get into for many people so I recommend trying guided meditation to learn the basics of it. 10% Happier and Headspace are two excellent apps for that.
Another solution is that when you are feeling the FOMO, instead of connecting your wallet and mint, you can step from the PC and the metaphorically blinking slotmachine, and ask yourself if it is really a good fundamental decision or if your mind is playing tricks. Personally I keep my funds in a hardware wallet, so by the time I’ve connected and I’m up and running, I have been able to rationalize that this may not be the wisest investment.
Selling too early and Holding too long
These are two of the most common mistakes people think they make. They are very often based on result orientation or hindsight. At the time with the info you had it could have been the correct decision to sell/hold, or it could have been a mistake. That depends on a lot of factors, but the most important is to have a strategy that leads up to this decision:
Are you holding short term? If your strategy was to flip an NFT for 3x what you bought it for and did so, but it ended up 50x’ing, you still made the right decision. This was your strategy coming in, and while it’s important to not always be 100% rigid toward your start strategy, but rather be able to adapt if something fundamentally changes, it’s still the right play. Flipping involves more tactics than longer holds, but can also be very risky, and leave you thinking you made a mistake if the project does incredibly well. Congrats, at least you picked a right project to flip.
Are you holding medium term? If you plan to hold the position to a price goal, eg. from .2 to 2 ETH because you believe in the fundamentals in the medium term, you should do so. It’s important to have an exit strategy and not time the market based on swings. Unless this is part of your strategy. If you are savvy at technical analysis, you use this as a tool in your strategy to make the right decision.
Are you holding long term? Here fundamentals and team is the important, because you think this is a project that can grow over a long period through a highly volatile space. It is important in these investments to be able to part with the capital for a long time, and not have to sell due to liquidity issues, because it hasn’t moved the way you wanted yet. That’s a recipe for disaster.
Regardless of investment type, remember to always keep some liquidity, it really sucks having to sell off something you planned to hold or miss an opportunity in a good project.
Remember that you can also split your strategy if you are buying several tokens. If you buy 3, one can be for flipping the same day, one can be for holding until you reach a price target, and one can be for holding one year+ or just for collecting forever since you believe in the project so much and want to be a part of the community.
The main takeaway is really to plan your investments. In a space moving this fast with so many projects popping up every day that can be very tough, but it’s important, and you practice the ability to filter good projects from bad ones. And remember there will always come a new opportunity. The infrastructure of this space is still incredibly primitive compared to what it will become. Which segues into the next part.
Got scammed
I’m very surprised to see how many of you have gotten scammed. There are truly many bad actors and deceitful people out there in this space. There has been written numerous articles I have seen to prevent it, but I guess it can’t repeated enough times:
Never give out your seedphrase to anyone. This is only for recovery and if you give it out, they will have total control of your wallet. You will end up with 0.
Block your DMs on Discord. This is where most of them try to get you. It sucks to not be able to connect personally with people, but until we have better solutions it’s the safest.
Use a Hardware wallet. It’s important with an extra layer of security with all these scammers and the value of your assets.
Don’t press links not posted by offical team members. That include announcement bots as some hackers has found ways to control those.
Don’t trust high follower/member numbers and ‘influencers’. There is so much social engineering and foul play to manipulate the perception of the people in the space into making bad decisions. You have to be paranoid to avoid disaster.
Take your time and triple check every decision. Yes, you might miss that hyped up ape derivative at that low floor price, but you will also have a higher chance of avoiding getting scammed.
In conclusion there are some low hanging fruits here that most people can grab, and also some projects that can be very beneficial if we make the commitment. Wealth rarely comes easy. The NFT space has abundance of it, but we must choose our steps wisely to get there. If we do:
v1.1 updated on 7.12.21. Fixed a couple typos, rephrased and extended a few parts.
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Dude - you're a bloody legend! Thanks for sharing!