The popularity of Non-Fungible Tokens (NFTs) has skyrocketed over the last couple of years. From jpegs to being linked to real-world items; artists, musicians and gamers have all been able to benefit from the ability to make something truly unique, tokenising whatever it is they want. Establishing something as the first of its kind adds value to it, but is this just a trend that will soon die out?
Adam Garcia is the owner of The Stock Dork. He has had a passion for finance and investing since high school which led him to create The Stock Dork as a resource for all investors. Before starting The Stock Dork, Garcia founded and operated an Investor Relations Firm. Throughout the years, he has transformed into a leader who has blazed the trail for many new investors and traders by showing them the ins and outs of obtaining financial freedom.
With his wealth of expertise, Garcia sat down with The Fintech Times to explain what to look out for in NFTs – what will have a good resale value from an investor’s point of view:
Non-Fungible Tokens (NFTs) have been enjoying a recent boom with the likes of CryptoPunks and Christie’s, who auctioned the most valuable NFT ever in March 2021, showcasing the capabilities of NFT within the cryptocurrency space. NFTs hold weight within the cryptocurrency market because they are individually unique and cannot be swapped out for other tokens. Additionally, NFTs are used to represent unique digital assets like virtual buildings via Decentraland. Their ownership and one-of-a-kind status can easily be verified as they are utilised across various applications in numerous companies. They even can be traded through secondary markets and open up future use case scenarios.
Since being standardised by Dapper Labs in 2017, NFTs have been widely discussed but slowly adopted given that not all of its features are fully utilised. In 2021, it appears that NFTs possess more potential than ever before considering that over $1.25billion in NFT sales were made in just the second calendar quarter. The asset class is here to stay for the foreseeable future. Also, NFTs are assets that can be leased, then collateralised to create additional cash flow. However, assessing the value of NFTs requires greater clarity as it’s hard to tell what makes an NFT valuable or restricts it to being a digital inventory. How can you reliably evaluate the future value of NFTs to know which ones are worthwhile?
Concepts Shape the Value of NFTs
Assessing the future value of NFTs requires a greater understanding of the concepts that are fundamental to their success. One of these concepts is use-cases, with utility being one of the most vociferously debated issues within the crypto community.
Since the start of 2021, various NFT applications have emerged. NFTs have improved video games thanks to providing ownership and scarcity to in-game loot as well as power-ups. Alternatively, rappers have been built for several types of tokens inside one NFT. Anticipating future utility plays a big role in accelerating the value of NFTs.
There are some NFTs that even have worth beyond resale, meaning they are yield-bearing. When the yield is gamified, the asset’s worth increases because of increased user involvement as well as more attention. By owning an asset that consistently generates returns like NFTs, the asset’s present value will continue to remain extremely high.
Scarcity is another concept that determines future NFT value. One thing that makes NFTs so unique is that it has an intrinsic rarity. Some NFTs are admittedly more distinctive than others, though, which contributes to said rarity. If there are thousands of distinct characters within a collection such as CryptoPunks, there will be some characters that have one-of-a-kind traits and qualities that will set them apart from other characters within the collection. It’s because of this rarity that NFTs can trigger huge price spikes. Other collections like the Japanese-based Lucky Maneki is another example of an increasingly popular collection featuring various rare characteristics.
Sales History Also Affects Future NFT Value
NFT values are also determined by ownership identity or the identity of the original issuer of the NFT. NFTs that have a high ownership value possess that value because those values are being produced by established corporations, artists and other public figures. An example is Sir Tim Berners-Lee who sold an NFT of the World Wide Web code for over $5million.
Simply looking at the ownership value of an NFT and ascertaining its relative future value can be challenging. The value of the NFT owned by a celebrity or famous figure could be impacted by how famous that person becomes going forward. However, NFT values will still be pretty high if they were owned by celebrities in the past, also carrying with it added emotional worth, for example, collectable cards of renowned athletes.
NFTs With Liquidity Possess a Higher Value
The more liquidity that an NFT has, the greater its value will be. A liquidity premium is one of the reasons why tokens created on the Ethereum blockchain have better values than tokens that were created off the chain. Anyone that has Ethereum can easily trade ETC-standard NFTs through secondary marketplaces. If the market for your NFT or NFT collection isn’t bought, then you may have liquidity problems. Once no one is willing to purchase your asset, then it will be hard to sell it, at the very least at the price that you want to.
Consistently investing in NFT assets with large trading volumes is generally preferred by investors as liquidity reduces the risk of owning NFTs; particularly NFTs you don’t want to hold on to.
Some NFT assets are also known for their tangibility because they are tethered to real-world objects, which add to their value. They also are known for market practicality, with tangible NFTs being reliable for short-term trading on the marketplace. With tangibility and increased utility and liquidity among its pros, it will be easier to read the future value of NFTs and determine the viability of investing in them.