How to evaluate the valuation of NFT, there are no rules to follow. The metrics you use to evaluate traditional investment vehicles like private companies or stocks simply don’t apply to NFT investing. Usually, the payment made by the last buyer will give some indication of value. However, with NFTs, it is difficult to guess how much the next buyer might pay, depending on their estimates.
Most buyers lack the skills to logically determine the value of an NFT, and their offers are based on guesswork. For sellers, it is also difficult to determine at what price the NFT they hold will eventually be sold. Over time, the value of NFTs is actually driven by a notion that neither buyer nor seller may have control.
An example can better illustrate the problem. An NFT artwork may be in high demand for a period of time, and potential buyers will perceive it as rare and hope to gain value in the near future. Then, all of a sudden, they might find out that this digital image is freely available on the internet, and no one wants to buy the NFT.
NFT artwork by well-known artists or NFTs related to tangible assets are relatively easy to price. However, in most cases, it is difficult for investors and traders to determine the value of NFT.
The demand for NFT is directly proportional to its rarity in people's eyes, but how do you know how rare an NFT is? Unique artwork from famous illustrators can be rare NFTs, as can NFTs minted by top celebrities. Some rare game items can also fall into this category. Scarcity brings enormous intrinsic value to these NFTs.
Immutable proof of ownership gives NFT holders a sense of distinction, thereby bringing value to NFT. Beeple's "Everyday's The First 5000 Days" and Jack Dorsey's first NFT tweet are typical NFTs with scarcity.
Utility is a key factor in evaluating NFT projects. To have value, NFTs need to have utility in practical applications. For example, NFTs can be used to tokenize real estate, precious metals, or even securities, and can also be used to present virtual land or game assets in a variety of ways. The NFT space is still in its infancy, and as it matures, more innovative use cases are sure to emerge.
After creation, NFTs extract value from their inherent properties. The accumulation of value over time depends on the utility of the underlying project and the strength of the community. For example, Decentraland NFT, which refers to the virtual land in the project, is a good example.
NFTs related to real-world objects draw a tangible element. Coupled with the immutability of ownership on the blockchain, it creates tangible instant value. NFTs can be effectively used to emphasize ownership and eliminate fraudulent activity. In NFT projects, the practical application of NFT is related to their value.
NFTs that hold tangible value are perfect for short and long-term transactions. Some NFTs, like bills, may have an expiration date, while others, like those representing real estate, can develop more value over time.
A key factor in the value proposition of NFTs is interoperability, the ability to use tokens in different applications. For example, if the same weapon can be used in different games, the NFT has a better chance of gaining value. Non-fungible tokens will always make transactions easier if they work on different blockchains.
However, interoperability is difficult to achieve. Because developers have to build a huge network of applications in order for tokens to be usable within them. Developing a range of attractive use cases can help inject interoperability into NFTs. Another strategy that developers can follow is to form partnerships with other projects that bring benefits to those who own the tokens.
The social identity associated with the project behind the NFT is one of the decisive factors for the value of the NFT. Checking out their profiles on social media platforms like Twitter and Instagram can help us gauge the acceptance of NFT projects. If attention is low, it indicates that they have not yet been able to create a solid foundation for themselves.
When you first meet any person or project, it's natural to take cues from those around the project. Social proof often indicates how people feel about a project and helps in making decisions.
The identity of the NFT's issuer and previous owner also affects its value. NFTs created by well-known individuals or companies tend to have higher historical values of ownership. You can improve the value proposition of NFTs by partnering with people or companies with strong brand equity to release NFTs.
Another way to attract attention is by reselling NFTs previously held by influencers. By providing an easy tracking interface, marketplaces and sellers can help buyers find information about the NFT's previous owner. Highlighting the addresses of those investors who have profited handsomely from NFT transactions will help buyers gain valuable insights.
NFTs with high liquidity also have high value. The secondary market provides an ERC or BSC standard NFT trading platform, allowing buyers to easily enter the market. Traders prefer to put funds into NFTs with high trading volume, because the higher liquidity helps them make easy profits. Highly liquid NFTs may retain their value even if the relevant platform is shut down.
Token economics emphasizes increasing participation, and liquidity will push up the value proposition of NFT. Through the built-in system, depreciation of NFTs that have been idle for a long time and low liquidity, and encouraging competitive assets, will help build a vibrant NFT market. With the development of the NFT market, there will be a complete system to support the liquidity of assets.
Sometimes speculation can be the catalyst behind NFT price increases. For example, in December 2017 the price of CryptoKitty #18 shot up from 9 ETH to 253 ETH in just three days. Although there are critical voices against raising value through speculation, speculation is inherent in human beings and cannot be eliminated in practice.
Even in the traditional financial system, instruments such as derivatives are based on speculation. From this perspective, it is not surprising that speculation has become an important part of the NFT ecosystem. The price performance chart of the NFT project, changes in the assets under the project, and even events beyond your direct control can incite speculation and drive the price of NFT up or down.
NFT is a nascent ecosystem that is constantly evolving. Various factors affecting the value of NFTs are rapidly evolving. To improve accuracy, you need to take them all into account. Furthermore, value is largely a subjective concept, although you could argue that intrinsic value is being discussed. In this scenario, addressing how to determine the value of future NFTs becomes even more challenging.
Since NFTs are an asset class with limitless possibilities, we can safely assume that they will steadily expand their application, with various subcategories offering lucrative opportunities. The number of NFT use cases is growing at a breakneck pace. NFTs can now be used in applications like vote distribution to secure voting rights.
When researching the factors that affect the value of NFT, you just need to remember, "glittering things are not all gold". So, be patient and consider all factors when making a decision. At a time when various NFT marketplaces are emerging, from omni-channel platforms like OpenSea to niche markets like Real Nifty, it becomes even more important to do your due diligence and make an informed decision.
Cointelegraph Chinese is a blockchain news information platform, and the information provided only represents the author's personal opinion, has nothing to do with the position of the Cointelegraph Chinese platform, and does not constitute any investment and financial advice. Readers are requested to establish correct currency concepts and investment concepts, and earnestly raise risk awareness.
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