Why is it difficult to calculate an NFT’s value? This asset class is new. Like the Mona Lisa painting or NBA player cards, tangible collectibles like these have a clear value; yet, investors may have to grit their teeth to determine their value and need for non-tangibles.
However, given the rapid expansion of NFTs into several industries and their high price, there are a few key considerations to consider when assessing their value.
Factors affecting value of NFTs
How rare is the NFT
This component determines the NFT’s rarity. Rare NFTs include original artwork from notable illustrators in the digital art business. This category also includes NFTs made by celebrities. Another aspect that drives NFT rarity is the effect it will bring, like in video games. Rare NFTs in games fall under this group.
People are drawn to these NFTs because of their intrinsic worth. The NFT’s owner possesses the blockchain evidence of title. This distinguishes NFTs and determines their premium value. Rare NFTs include CryptoKitties and Everyday’s-The First 5000 Days by Beeple.
What is the utility value of the NFT
The utility value of every NFT depends on its utilization. Tickets and game assets are two primary kinds of NFTs with significant usefulness. Example: Coachella has begun selling lifetime permits to its event in the form of NFTs, with bonuses including first row seats for the 2022 festival, tickets to every show.
A strong and uncommon Crypto Space Commander battleship sold for $45,250 in 2019. The use of an NFT in various applications can also influence its utility. If you use the same battleship in multiple games, its worth increases.
Liquidity value of the NFT
An NFT’s value increases with liquidity. On-chain assets should have a higher value than off-chain assets due to liquidity. Investors favor NFTs with high trading volumes because strong liquidity lowers the risk of keeping NFTs. NFTs developed on the ERC standard may be exchanged easily between platforms and acquired by purchasers holding Ether (ETH).
History of ownership
An NFT’s value is determined by the issuer and past stakeholders. NFTs with high ownership history value is generally the work of notable artists or corporations. Example: a $113,124 approved NFT symbolizing a Formula 1 vehicle.
Future cash flow and valuation determine the NFT’s future value. Although speculation drives value, it may also drive price appreciation. CryptoKitty #18 went from 9ETH to 253 ETH in 3 days in December 2017. However, price movement caused by valuation is unfavorable for NFTs, but that is human nature, and speculation is part of the existing financial system. Supply shortage and speculation drive the value.
While overall worth is subjective, intrinsic value follows a set of market principles. For NFTs, the regulations are enshrined in the above five points. These parameters are determined by the NFT’s issuer. The diversity of NFTs clearly demonstrates the unlimited possibilities. They are certainly more than simply trinkets or digital objects. In the real world, NFTs may be utilised for anything from voting rights and plane ticket verification to preventing theft.
On popular NFT markets like OpenSea, you may assess an NFT’s characteristics and offer a price for it. But always conduct your own research before buying any NFT. Before buying an NFT, consider its uniqueness, usefulness, prospective worth, liquidity, and ownership history.
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