If you are reading this, chances are, you know well enough what NFTs are. Even more, you probably follow this market since it made its first steps, and already have a collection of NFTs laying in your Metamask wallet. For people like you, the NFT market is all about finding that next big hit, because when some of us invest in NFTs, the values skyrocket as if they jumped out of a bottle of coke full of Mentos.
But how exactly do NFTs gain their value? Is there a secret ingredient that can forecast a winning streak? We believe that it is a subject worth noting, so let’s see what exactly forms the value of an NFT and whether the market value of an NFT can be predicted.
Value of NFTs / Foundation
The global economy is set in such a way that all products that reach the market carry value. Typically, this value is comprised of costs and a profit margin that the source aims to secure as remuneration. This extra margin is used to pay off for the time the source spends on materializing the product and in case of most long term projects, it is channelled towards turning into life the next iteration of the product. The said costs usually include the following expenses:
- Product design
- Product manufacturing
- Marketing
Whilst NFTs are digital and one may think that this eliminates a good share of the costs tied to the principal product, the reality proves to be the opposite. It is the ratio between these costs that is different. Instead of manufacturing expenses connected to physical products, value of NFTs builds itself on:
- Design
- Contract development (applies to utility NFTs only)
- Minting costs
- Marketing
- Resale market value
NFT market is packed with digital art and there is a story behind each and every one of it. Some teams spend 100% of their time on visual design, forget about utility, and set marketing aside. They place all their bets on the NFT tag, in hopes that it will be enough to maximise the value of their NFT collection and turn all their sacred Lambo dreams into reality.
All NFTs have value, but it is the ratio of the costs that splits winners from losers…
Others, choose a different path of taking their NFT project to the market. The ratio changes but one factor that always remains the same, is that the costs and expenditure apply to both of these takes. Hence, all NFTs boast value, not all NFTs have what it takes to maximise it.
Investing in NFTs
There are thousands of ways how investors find and research their investment targets. And the NFT space doesn’t have to be much different. For some, it is a pure and simple question of whether they feel a connection to a specific NFT art in question. For others, it is research that governs if the Buy NFT button gets clicked. By following the logic of incremental NFT value based on costs tied to it, we can split such research into the cost categories described above.
Design
Serves as the primary point of contact with a potential buyer. In many cases, design is enough to trigger the purchase, but let’s not forget that in the NFT world, not everyone appreciates the unique ownership aspect that NFTs carry. Moreover, Cryptopunks do not deserve to be in the same room as Mona Lisa, so it seems that design does not play the key role in building value for an NFT.
Contract Development
Today, NFTs can be minted with a click of a button and one doesn’t have to be a blockchain developer to turn an NFT collection into a reality. At the same time, as the NFT market gets populated with identical collections, it is the utility, that serious NFT teams bet on when turning their new idea into life. This immediately stipulates the need for a smart contract developer, and these guys aren’t cheap. Hence, the greater the utility, the larger the assumed cost tied to it will be.
Minting costs
These are gas fees that need to be paid when an NFT token gets minted (read created). Ethereum is notoriously known for high gas fees but this is set to change shortly after it switches to full Proof of Stake. Other NFT blockchains like Solana offer lower transaction fees but one way or another, it is still a cost to be counted with. The larger the collection, the larger the primary costs will be.
Marketing
We reach the pinnacle vehicle that makes or breaks NFT projects. Twitter here, servers as a great showcase of what many people behind NFT projects struggle to grasp. Taking an NFT project to the market without any marketing, is like jumping off a skyscraper without a parachute. Smoking a cigar while inspecting the inside of a petrol silo if you may.
Now, we mentioned Twitter because it is packed with NFT projects that expect to sell out purely based on a few tweets that the founding members make. And if you are still on the fence regarding this, Bored Apes Yacht Club did much more than this, to turn into the machine it is now. Yes, NFT marketing is a real thing, and it is key to awareness and finally, sales. Hence, next time you decide to purchase an NFT, google it to see if there is any footprint of it on the web.
Resale market value
This factor is not part of the preliminary costs but it surely forms the value of the next NFT you buy. Any non-fungible token is as good as what someone is ready to pay for it. Now see, the code of conduct of indirect marketing states that hype and becoming viral can be resultant from outrageous actions. Such actions accompanied both CryptoPunks and BAYC when they started to exchange hands for crazy numbers. Was this part of the initial marketing campaign planned by the teams behind the collection? You never know. But it surely helped to create global brand awareness and unknowingly introduced the existence of NFTs to every household on planet earth.
How much is the NFT market worth?
NFTs exploded into a $41 billion market in 2021 and are quickly catching up with the total size of the global fine art market
The real value of your next NFT
We have already established that NFTs’ value is not an imaginary number that comes to their creators in the middle of a night. As with any product, there are costs tied to product execution, and market resale value that is governed by demand. Evaluating every factor that makes up the cost can help us to project whether some Cryptodog’s Leg NFT has a real chance of surviving the grater that the NFT market has become. This then should concern not only the NFT developers, but also investors who are on the hunt for the next gem that takes their principle and multiplies it by 6 digit numbers. Oh, and don’t forget, as with any crypto, it takes time for it to appreciate, so choose wisely what you lock your savings with.