How to Value NFTs
How to estimate the value of non-fungible-tokens
Hey DEFI TIMES community,
NFTs are weird - They are unique assets, collectibles, items, etc.
These assets are illiquid (at least for now). That makes them harder to sell than ERC-20 tokens, which we can easily trade on Uniswap with lots of liquidity.
That’s exactly why many people are scared to get into the NFT world because they don’t know whether they will ever be able to get rid of them again.
Don’t get me wrong: Most people will lose money flipping NFTs. But there are some tips and tricks to identify valuable collectibles.
What Factors Influence the Value of NFTs?
Today, we go through some of the traits that determine how much demand there is for a particular NFT.
Most people get into the NFT space and buy some cool JPEGs that they find appealing; however, that’s exactly how they are going to lose money. Buying NFTs only based on looks and hype isn’t the optimal strategy.
But what are the actual value-additive factors for non-fungible-tokens?
How Old Is the NFT Project?
Before buying an NFT, you should first ask yourself when it was NFT minted. There is a significant difference between new and established NFTs - especially when it comes to their valuations.
Older NFTs have a higher chance of prevailing than newer ones.
A simple example: CryptoPunks was probable the first NFT collection in Ethereum’s history. After their launch in mid-2017, the project survived until now. Four years after the launch… they completely exploded in value!
Compare CryptoPunks to the latest hype project that goes parabolic on OpenSea. Which one do you think will be around in five years from now? Well, there’s a much higher chance that CryptoPunks are going to stay. The longer a particular project is on the market, the longer its life expectancy is. That’s also known as the Lindy Effect.
Ask yourself if there is historical importance to those NFTs. For example, CryptoPunks have always been the faces of Ethereum early adopters. They were released at a time when only religious believers were in the Ethereum space (apart from all the hype around ICOs).
If you own a punk, you own more than just a 24x24 pixel picture. You are part of Ethereum’s history.
The higher the historical relevance, the more significant the Lindy effect.
Who Created the NFT?
Another thing you have to ask yourself is whether the creator is a celebrity or a well-known person/institution. Or maybe an anonymous guy on the internet?
Does the creator have a huge following on social media?
How active is the creator’s community?
The larger the audience, the higher the chances for the NFT to take off.
The general rule of thumb: The bigger, the better =)
Imagine a popular influencer on TikTok. She has millions of followers and decides to sell NFTs, which represent the right of appearing in one of her videos.
The larger her audience, the more people bid in the auction, the higher the price.
And if her community is active, there’s quite a good chance that you will be able to resell it in the future.
How Many Tokens Exist?
Scarcity is probably one of the biggest value drivers in the world. People want rare things - Whether it’s gold, bitcoin, or… NFTs!
Whenever something exists in abundance, people lose interest. You can observe it in every area of your life.
Bitcoin’s Unique Selling Proposition is a simple fact that there are only 21 million coins… ever to exist! Scarcity makes people want to own something. I want to own Bitcoin because only a few people in the world can own a whole BTC. In fact, not even every single millionaire can own 1 BTC.
The same logic applies to NFTs. Cryptopunks, for example, only have a total supply of 10,000. Think about that for a second: Only 10,000 unique people can ever own a whole punk.
The punk supply will always be constant. And that’s also part of the reason why punks took off during the last few weeks. It’s incredible to see how the scarcity of something affects human psychology.
It’d rather own a CryptoPunk than another NFT, which has a total supply of 10,000,000 - It’s just the way humans work.
We’ve seen creators releasing NFTs in different editions like 1/1 or multi-editions like 1/10, 1/50, 1/100, etc. Of course, the NFTs, which are only released as a 1/1 edition, are typically more valuable than 1/100 editions.
Also, it’s super important to keep in mind that the artist can print more NFTs at any time. So, it‘s also trust involved.
If it is commonly known that a creator/artist releases NFTs on a regular basis, then you should ask yourself how fast the NFTs are minted.
Ask yourself the following questions:
At which pace does the creator mint an NFT?
Is it daily, weekly, monthly, or annually?
How many NFTs have they minted before?
How Useful is the NFT?
What does the NFT include?
We’ve seen many different categories of NFTs being released in the past. Many creators release NFTs simply as a way to interact with their communities. Therefore, each NFT has a specific message and meaning to the owner.
One of the best examples is VeeFriends. VeeFriends is an NFT collection created by Gary Vee to interact with his community and strengthen the relationship between his company and his followers.
You can buy VeeFriends tokens on the open market (for example OpenSea). If you own one VeeFriends token, you get access to VeeCon, which is a conference specifically for VeeFriends holders. The conference topics range from business, marketing, ideas, creativity, entrepreneurship, innovation, to competition.
In total, 10,255 VeeFriends tokens exist in three categories: Access, Gift, and Admission.
Access tokens are redeemable tokens to unlock unique experiences with Gary Vee himself. Some activities include going garage-saling with Gary, playing tennis, or just having dinner.
I can imagine a future where most creators will earn a living selling access tokens.
Wanna hang out with your favorite influencer? Buy their NFT!
But the value of the particular NFT strongly depends on the size of their audience. For example, VeeFriends tokens sell for several ETH at the moment.
Another cool thing with creator NFTs is that you can bet on the growth of the creator’s audience. Imagine you hold a VeeFriends token and you are not planning to sell or redeem it. In the future, the token could have more value as Gary’s community grows.
Creator tokens are also a speculative investment - besides their actual utility!
As you can see, there are many different ways to value an NFT; however, most of them aren’t objective. The value still lies in the eye of the beholder!
It’s still very difficult to assess the real value of an NFT because they are so unique.
Whenever you buy an NFT, focus on the following questions:
How Old Is the NFT Project?
Who created it?
How big is the audience of the creator?
What can you do with the NFT?
In my opinion, you shouldn’t buy NFTs because you plan to make money with them. Only buy NFTs if you actually enjoy their utility or the way they look.
NFTs are still a very risky asset class and we are extremely early… The NFT space will look completely different 10 years from now!
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DISCLAIMER: All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.
Do your own research before you purchase cryptocurrencies. Any cryptocurrency can go down in value. Holding cryptocurrencies is risky.