Published on October 18, 2022
Why Are NFTs Valuable?
A guide to value investing in NFTs. Value can come from scarcity, utility, meme-ability, or collector speculation.
7 min read
Who would’ve thought such a little acronym could make such a huge splash? Say what you want about NFTs, but you can’t say they’re not a part of our culture now. From high-profile celebrity endorsements, like Eminem and Snoop Dogg repping their Bored Ape Yacht Club avatars, to flourishing marketplaces such as OpenSea, the recognition of the NFT space continues to expand.
Non-fungible tokens don’t sound like the most exciting thing in the world, but let’s help you push past the techno-jargon and truly see what lies behind the NFT curtain.
Non-Fungible Tokens What?
Fungible assets can be traded in an open market for other assets of equal value, making cryptocurrencies such as Bitcoin and Ethereum fungible. What makes an asset non-fungible in the Web3 world is specifically encoded metadata and identification codes that set these assets apart from the pack. By locking them down with a digital fingerprint, non-fungible tokens are no longer able to be so easily replicated.
This is how NFTs have become so highly collectible through blockchain platforms and technology. While they may not have real-world value in a fashion that would be perceptible to most, a unique confluence of factors has led us to the point where digital assets can finally possess real and lasting value.
However, not all NFTs are created equal. Some are more valuable than others, so before anyone dives too deeply, it is essential to understand the basics of NFT value.
Factors of NFT Value
It could be said to be the basis of economic value: scarcity. When an asset of any kind is not infinite in number, or not easily accessible, it suddenly increases in value. Demand; meet supply. In our modern age so far, it has been difficult for digital creations such as music, artwork, writing, and more to be genuinely unique since so much of the digital world is replicable. As the common complaint against NFTs goes: copy + paste.
Yet that criticism misunderstands — NFTs are one digital asset that cannot be simply copied. The metadata and identification of a non-fungible token are inextricably bound to the blockchain. Now, ownership can be verifiable and proven on the public ledger that blockchain technology provides. Underlying each NFT is something completely unique.
With that in place, more value continues to emerge. NFTs now gain collectible value, and rights-to-ownership confers the possibility of real utility to those who own specific tokens. While NFTs are more than just art, the art world and its intersection with the NFT space is a great way to understand the growing hype around digital assets.
The Appreciation of NFTs
In 2021, Beeple sold one of his NFT artworks at the prestigious auction house Christie’s for nearly $70 million dollars. This sent a clear signal to the world that NFTs could make it to the highest levels of collection and achieve matching price levels with physical art. The separation between established artists and digital artists blurred forever on that day.
Of course, part of NFT value is derived from just how new they are. This novelty certainly inflates some projects beyond their true, settled value. However, this is much harder to judge than one might think. Think of any work of art by a major artist. For years, investors have used art as stores of value, and paintings often hold their value better than stocks.
Art is immutable — just like NFTs. That means it cannot be altered. As long as all those who look upon the art appreciate it, they retain their judged value. Over time, that value also increases, as there is only one exact copy of that piece of art. That’s right — the Mona Lisa is as non-fungible as an NFT from Bored Ape Yacht Club.
NFTs contain all the potential of art but bring even more to the table in our digital age. Unlike the art world, shut away behind costly barriers to entry, the NFT space is already highly democratized. Digital artists can find communities and audiences that would have never discovered their work before, and those same audiences can now find others with similar tastes and interests.
In this sense, the NFT space is like a cross between the world of art and the world of collectibles like trading cards. A potent mix of highbrow and pop culture, digital assets can now be collected like Pokemon or baseball cards—and displayed and flaunted both IRL and in the metaverse. Just look at NBA Top Shot from Dapper Labs, which evolved into an online ecosystem where NBA fanatics could trade NFT video clips of notable plays: trading cars come to life!
There’s little barrier to entry, too. Just create an account on OpenSea, Rarible, or whatever your preferred NFT marketplace and link up a Web3 wallet like Metamask. OpenSea provides price tracking information, as does icy.tools. From there, smart investors can cut through the noise and find NFTs that speak to them — both artistically and financially.
Value Investing in NFTs
So now it’s clear that NFTs have value because they are scarce digital assets with utility, artistic value, or communal worth. Even the smallest tier NFT project will have some rabid fans on Discord, though, so that still doesn’t help one figure out which NFTs will be valuable in the long term.
As it is with all investing, there is never zero risk in the NFT space. Giants like Bored Ape Yacht Club, Cryptopunks, or Azukimay be dominant today, but perhaps profile picture projects won’t carry the same weight a decade down the line. That said, there’s a reason why those projects succeeded where others failed.
For example, a Bored Ape NFT is not static. With ownership confirmed, an owner can utilize their Ape as intellectual property belonging to them specifically. The television series creator and actor Seth Green has done just that with his own Bored Ape (although his story is also a cautionary one for making sure you securely store your own NFTs).
Other NFTs can be activated as tickets to events in the real world. Such functions often speak for a project that is putting in the work to make it more than the sum of its parts. Ingenious community building mixed with detailed art is how Azuki built such a huge audience in a short span of time.
Yet not every NFT is worth its weight in gold. The crypto investor Sina Estavi bought an NFT representing Twitter founder Jack Dorsey’s first-ever tweet for about three million dollars in 2021. When he tried to re-list it this year for closer to $50 million, the market did not respond favorably. The bids came in closer to $280 — and that was on the high end.
While disappointing for the investor, it’s a great lesson for the rest of us. NFTs are most valuable when they have continuing merit and value over time, just like many physical goods. In a marketplace full of hype, use a discerning eye. The Dorsey tweet NFT was only a flash-in-the-pan novelty item. Purchasing it gave no long-term benefit, and it didn’t even have artistic merit to back it up.
Why NFTs Are Worth It
NFTs can be quite valuable, but not all of them — and not forever. Like any other asset, tap the zeitgeist with caution. For every Bored Ape Yacht Club out there, there’s also a Stick Dix (don’t even ask). Think of the NFT space as the early days of a newly fleshed-out digital economy. The Wild West days of infinitely replicable digital content are winding down. Now digital artists and creators can find real value in their work by realizing the formerly ephemeral through blockchain technology.
In the end, the best NFTs are assets in every sense of the word — pieces of work that bring real value and utility to the world and their owners. So don’t get caught up in the hype, but don’t write off non-fungible tokens just yet either. Like blockchain technology, NFTs are here to stay.