How do you assess the value of an NFT? Here are some factors that you should consider before purchasing an NFT.
The Down Low:
- NFTs are more than just a novelty; they may hold the promise of a plethora of practical uses
- Rarity, utility, and tangibility are the three most important considerations when determining an NFT’s intrinsic value
- For short- and long-term holding, the value of an NFT varies depending on the asset it represents
- Traders and collectors of NFTs can find a wide variety of NFTs on exchanges like OpenSea, Nifty Gateway and Rarible
Cryptocurrency markets are constantly changing. Tokens are assets issued for various use cases on networks, such as paying fees and for investment . Every so often a new type of crypto asset makes a big splash on the market, causing prices to soar and spawning numerous new applications. We’ve seen that with the year of the NFT in 2021.
Nearly all of the decentralized industry has adopted NFTs as a way to connect the digital and physical worlds. In keeping with their moniker, NFTs are one-of-a-kind tokens that confer permanent ownership rights on their owners via registry on a blockchain.
NFTs have become a sought-after asset class in the crypto market because they can be attached to a piece of art, a pair of sneakers, or even a collectible in a video game.
Factors that impact NFT values
Because NFTs are a new asset class, it’s difficult to estimate their exact value. In contrast to tangible artworks like Van Gogh’s Starry Night or physical collectibles like baseball cards, investors looking at NFTs may struggle to determine whether a given asset or collectible is worth their money and whether they truly want or need it.
However, as NFTs have made their way into a wide range of industries in less than a year, three main factors should be kept top of mind for assessing their value.
The scarcity or rarity of a specific NFT is directly related to this factor. An NFT created by a well-known celebrity or a first-of-its-kind digital art work are good examples of rarity. For example, in a video game, an NFT could have a significant impact.
It is because of the intrinsic value of these NFTs that people are drawn to them, and the blockchain proof of ownership. An NFT’s premium value is determined by this distinction.
CryptoPunks by Larva Labs and Bored Ape Yacht Club are examples of how scarcity drives value.
The Bored Ape Yacht Club is a collection of 10,000 digital ape avatars. Ownership of a Bored Ape grants access to a members-only club with exclusive benefits. Each Ape cost $186 when the project first launched. Now the most affordable ape now costs 52.2 Ether ($206,700).
Bored Ape Yacht Club accomplished this by building a strong social media campaign that drove the message of scarcity and inclusivity as well as the benefits of ownership.
Real-world applications of NFTs are what make them useful. Examples include virtual lands and characters that can be used in games as NFTs. These NFTs have an immediate value that grows over time, depending on the popularity of the underlying project, thanks to this unique feature.
There will be more and more players willing to pay top dollar for a one-of-kind card or special sword as the community of decentralized game players grows.
A good example would be digital land in a metaverse such as Decentraland or The Sandbox.
Value in terms of ownership immutability is provided by tethering some NFTs to tangible real-world objects. To put it another way, anything can be backed by an NFT, but that does not make the object unique or in high demand. Value will be determined by its practicality, scarcity and the personal satisfaction it provides to its users.
An NFT ticket to a star-studded concert or event, for example, is more valuable than an NFT attached to a coffee cup, generally speaking.
Short-term trading on the market is the most practical application for such NFTs with observable value. That’s because NFTs, like tickets, may have expiration dates. Limited edition sneakers with an associated NFT are one example of a collectible that can appreciate in value over time. Just keep them in the box.
When deciding whether to buy an NFT the final factor is the social proof associated with the artist or project. Check their Twitter following. If they only have a few hundred followers and are following more, this indicates that the market doesn’t place a high value on what they’re producing. In fact, they may be a talented artist but just haven’t been noticed yet.
Another factor is secondary market sales for their previous work. What do those numbers look like? If there isn’t a demand it means that there is no interest and thus no value.
Intangible value, on the other hand, follows a set of established market rules. There are three main factors that govern the rules of NFTs, and each of these factors depends on the NFT’s issuer. How valuable NFTs are in the short and long term depends on their resale value.
NFTs as an asset class show how they can be more than just a collectible or a digital representation of an object because of their versatility. There are numerous practical uses for NFTs in the real world, such as the verification of Covid vaccination and voting rights, as well as the stamping of objects to prevent theft.
There are many NFT markets offering varying levels of service or ease of use when it comes to trading NFTs.
Some of the most unique and sought-after NFTs can be found on the Nifty Gateway asset list, while OpenSea (as the name implies) is a more inclusive market where anyone can list and buy NFTs.
Humans are collectors by nature; we’re drawn to shiny objects. Just keep in mind that all that glitters is not gold, especially when it comes to NFTs.
If you enjoyed this article, you might also like: How To Price and Sell Your NFT Art
Jay Speakman is a technology writer based in San Francisco, California. He writes on the topics of blockchain, cryptocurrency, DeFi and other disruptive technologies. Clients include Avalanche, Be[in]Crypto, Trust Machines and several blogs devoted to blockchain gaming. He will not rest until fiat currency is defeated.