How Do NFTs Gain Value?
What is the Value of NFTs?
NFTs, or non-fungible tokens, can be worth millions of dollars.
But why? But how does an NFT, a digital asset, gain value?
Why are some NFTs useless while others gain value quickly over time?
It’ll lower the chance that you end up with a useless dud if you can identify an NFT likely to retain or increase value.
There are some indicators you can use that will help you distinguish a good NFT project and a bad one.
This article will explain how NFTs increase in value over time. We’ll show you how to determine the value of NFTs and where they get their value.
What is the driving force behind NFTs’ value?
Currently, speculation drives many NFTs’ value.
Speculation can lead to a lot of volatility in the NFTs’ value, which can make it a problem.
NFTs have decreased by 92% in sales from September 2021 to May 20,22, when they were at their peak. The number of active wallets on the NFT market dropped 88% to 14,000, from 119,000 at its peak.
It is important to choose NFTs that provide true value, and not just chase the latest trends.
You want to make investments that will last and hold their value.
Digital artwork, which can be copied or pasted, is the most well-known example of NFTs. They provide proof of ownership but it doesn’t really matter in the grand scheme. Anyone can copy them.
You can see real-world examples of the volatility and risk in the NFT market by looking at Cryptopunks and Bored Ape Yacht Club (BAYC) as an example.
The floor price for Cryptopunks fell 50% between April and May 2022.
Similar decreases in Bored Ape Yacht Club NFTs in May.
You can avoid fluctuation by searching for NFT projects that will hold their value over time.
Before buying an NFT, here are some things you should look out for:
- A sense of identity and belonging to a group or community are two benefits of membership in a group.
- Ownership proof
- Verification of identity
- A certain level of rarity or scarcity (the promise that NFTs will only be produced in a limited number and not mass-produced later)
- Future value can be derived from ownership. Access to special deals and events, for example.
- Utility – An NFT that is good for utility should be tied to a product/service. Stack Browser provided 500-lifetime package NFTs at $99 each. The NFT is almost worth it in a little more than a year, as a regular subscription to Stack can cost $84 per annum. It will continue to be valuable for the rest of your life. You can get thousands of dollars worth of value by backing the project early.
- Functionality – Before you buy an NFT, it is important to understand what the NFT does and how it can be used. CryptoKitties and InfinityNFTs, for example, are digital items that can also be used in the respective games. Their value as game items is dependent on how popular the game is.
- Tangibility – Search for NFTs that can be linked to real-world items. NFTs can be used to buy tickets or redeem real products.
- Interoperability – A NFT that can be used between multiple apps, games, or blockchain networks will be more valuable. This is a key feature for FTs in the metaverse.
An NFT project can benefit from each of the key factors listed above. These are the most important factors that an NFT project can demonstrate.
What is the best way to make NFTs more valuable?
NFTs are valued at their most basic level when someone is willing to pay less than the previous owner.
The utility is crucial when it comes NFTs sustainability and long-term value. NFT teams might offer additional perks and features to NFT holders in the long term to increase their value.
Demand can be driven by the brand values and mission of NFT projects. One report shows that 83% of millennials prefer brands that reflect their values.
It is also possible to do the opposite. An NFT project that is embroiled in scandal or drama will likely see a dramatic fall in its price.
The following are some other factors that can help an NFT gain value:
- Market speculation and future value perception
- Collectibility (e.g. NBA Top Shot NFTs which act as digital collectables similar to physical basketball cards).
- The history of ownership (e.g., NFTs that were owned previously by Paris Hilton, Justin Bieber or Jimmy Fallon) will be more valuable.
- Institutional support (e.g. venture capitalists investing millions in NFTs ).
We don’t recommend following NFTs with these characteristics.
The price of a NFT has likely been significantly inflated by all the hype and speculation surrounding it. This is also true when investors start investing in NFT projects.
You might miss the peak and end up with an NFT that is worth less if you are late. To see the potential future for many of today’s most popular NFT projects, we can look back at historical examples such as the boom or bust of Beanie Babies.
Another example is the Dutch Tulip Bulb Mania, which was another of the most famous asset bubbles.
These are the types of projects that you should avoid if your goal is to find NFTs with long-term value.
How can you make money using NFTs?
Reselling is the main source of profit from NFTs. Some NFTs pay a dividend or allow holders to earn interest. They act as a digital part of the NFT project and are similar to shareholders in a company.
NFTs should not be considered speculative investments. It is possible to lose big as well (or even more likely) than win big. Remember our earlier comments about NFT projects losing up to 50% in one month?
NFTs should be viewed more as a tool, not an investment or speculation vehicle.
Is it worth keeping even if you can’t sell your NFT to another person in the future? Is its only value in the future if you can sell it to someone else at a higher cost?
You must ensure that you are not falling for the greater Fool Theory. This is when people buy an asset that is already too expensive for the sole purpose to sell it to a “greater fool” later on.
There will come a day when no one wants to purchase a particular NFT. You might end up selling it or keeping it forever.
Look for NFTs that provide a valuable product or service. This will allow you to make your money back in terms of value without ever selling.
NFT Wine Club, for example, offers ownership of a grapevine located in a world-famous winery. Each vine is RFID-tagged and linked with a unique NFT.
You can either get all the wine from the vine, or you can sell it to make a profit. Your NFT and the resulting products may increase in value as the vineyard’s popularity grows.
How to determine the value of an NFT
We discussed some of the key factors that determine NFTs’ value earlier. There are many other things to consider when valuing NFTs.
- Look at the leadership team to see who is involved with the project. Are they familiar with the NFT or cryptocurrency space?
- Take a look at the history of NFT. What has their record been like?
- The white paper and roadmap are available. What blockchain technology does the NFT use? What is theWhat has the team planned for the future of NFT? What is the NFT’s overall vision? These details should all be included on the website of the project.
- An official website for a project is essential. Websites that look shoddy, have spelling mistakes and other issues may reflect the overall project. You can also check the NFT website’s social media accounts.
- Consider the economic factors that surround the NFT. How important are price, supply, liquidity, historical pricing, and so on? (A project with 100 NFTs unique will have a higher individual value than one with 10,000 NFTs.
- Is the NFT already part of a community?