September 30, 2021•1,263 words
To Flip or Not to Flip
If you're active in the NFT space, then chances are you want to make some money. If you're a creator, you want your NFTs to sell. If you're a buyer, you want to buy NFTs that appreciate in value over time. Now that's obviously an assumption; I'm sure there are a select few buyers in the space that have absolutely no intention of ever attempting to make money off the NFTs they purchase, but if that was the majority of collectors in the space, then the prices of NFTs would be far lower across the board. Intuitions wouldn't be trying to get in on the action if that was the case, & you would rarely hear anything about NFTs if that was the case. So I think it's fairly safe to assume that the majority of buyers that are "collecting" NFTs are doing so under the impression that there's money to be made off these collections. I say "collecting" because there definitely are NFTs that people buy simply because they like the art & that they wouldn't sell even if they had the opportunity to make money off the initial purchase. NFTs of this sort are the one's that people choose to display as their profile pictures with no intention of selling, but the "buyers" were referencing here aren't one and done; they're collectors.
So how can a collector see to it that their activity in the space actually translates into something of monetary value? Well, they have to flip their purchases for a net positive; to put it simply, they have to buy art at lower price, and sell it at a higher price. For some, this sort of behavior put into action comes across as "morally gray." For one reason or another, flipping art just comes across as greedy or wrong, but the reality is that we all want to flip art. It's the primary reason that people buy NFTs that they have no intention of displaying as their profile picture, & its a driving force behind the demand for NFTs. Nonetheless, it can sometimes put creators and potential buyers at odds with one another. Creators can earn royalties on secondary sales of their pieces, but those royalties on an individual unit level pale in comparison to the amount earned by those who successfully flip many units. This potential scenario can lead some creators to list at higher prices, which in turn results in frustration on the buyer side when the margin of potential profit from secondary secondary market sales is greatly reduced.
If a creator is selling NFTs on the initial drop for 10 Algo, and then buyers are able to flip their purchases for 150 Algo, then the creator will receive a cut of that secondary sale, but not nearly as much as the buyer that successfully flipped the NFT. Now the creator obviously wants to make as much as they possibly can from sales of their Art, & most people would argue that they deserve to earn as much as possible given the fact that they are the ones that created the thing of value central to the transaction. So in many cases, creators will increase the price on their drops, which in turn can lead to frustration on the buyer side. When prices are increased, then profit margins are decreased, and if those margins are decreased enough, then the buyers will likely look elsewhere. On top of that, those who are actively participating in the secondary market of that project will feel the effects of this change. If demand for initial drops decreases enough, secondary market buyers and sellers can indirectly interpret this as a signal that the NFTs aren't actually worth as much as they initially believed. whether or not thats actually true is beside the point, the point is that the change in demand, if significant enough, will result in a market adjustment of some form depending on how people react. Now the problem is there's really no way to actually know how people will react, or whether they'll react at all, but what is clear is that a change occurred in the market. Being that this change occurred & uncertainty was introduced into the economic equation, holders and secondary market sellers are now in a position where their initial valuation is essentially outdated. They bought & acted based on the previous market conditions which are now different, and in many cases these individuals will perceive this change as a reason to get out as to avoid having to readjust their valuation based on the new conditions. Now if this change is apparent enough, then the vast majority of sellers in the secondary market will simultaneously move to quickly sell as to avoid the consequences of this uncertainty and the result will be an increased supply alongside a decrease in demand. This described scenario is when floor prices on projects begin to drop & panic selling manifests.
Creators obviously want to avoid this, but they also want to make as much as they possibly can from their creations, so what can be done? The reality is that there is no definitive answer; humans are extremely unpredictable, and the slightest change in external conditions can result in a range of potential reactions and outcomes, but what is certain is that the potential for an NFT to be flipped for a profit plays a central role in the demand for said NFT. If the secondary market is reflecting high prices for a given project then that project is benefiting from the increased demand that is a direct consequence of buyers perceiving that project as an opportunity to flip the art and run a profit. Now in a perfect world people would buy art and value art solely based on their enjoyment of that art, but we don't live in a perfect world. The reality is that a large percentage of the demand we see for projects comes from the fact that people perceive those projects as ways to make money. This evidenced in the potential market shifts and changes in floor price that can occur when creators raise the prices on their drops. On the positive side tho is the fact that this perception of art as a means to make money through flipping it, is driving demand for art, increasing the amount of art in circulation, & making the role of a "creator" an economically viable entrepreneurial opportunity. Flipping Art is quite literally increasing the value of art and artists in the wider economic market. In many cases people would have never even heard or seen certain art pieces if it wasn't the case that those art pieces were being sold on the secondary market for extremely high profits. Money is the ultimate way to draw attention to something, & drawing attention to art and artists is a fundamentally good thing. So while it might not necessarily be our first impression of the behavior, flipping art really is a good thing, and I'd even go so far as to argue that if you really enjoy a collection or an artists work then one of the best things you can do to show your appreciation is flip that art for a profit so as to increase demand for said art at drop. We shouldn't be hesitant about flipping art, on the contrary, we should be actively trying to flip art so as to draw attention to the space and generate increased demand for artists work within the space.