The interest in NFTs soared in 2021. While these gains are eye-catching, they are an outlier when it comes to the NFT market as a whole. Most NFTs don’t cost thousands of dollars, nor do they experience millions in daily trading volume. In fact, it’s quite the opposite. The vast majority of NFTs have relatively low prices. Some, very low.
Whether you want to turn a quick profit or are looking for a long-term investment, you will want to properly research your purchases in advance. In this article, we will examine what to look for when assessing the value of an NFT. We’ll also walk through some examples of current NFT projects that have the qualities to look for in an NFT.
Estimated NFT Value
Value
Utility has become a big focus for new NFT projects as creators look for ways to provide more value to holders. NFTs with strong utility naturally tend to have higher prices as holders can benefit from their investment without the price of the asset even going up.
Rare
The defining characteristic of a valuable NFT is scarcity. People are willing to spend small fortunes to acquire something that is truly rare. We have seen it for centuries with art and other collectibles and now we are experiencing it in the digital world.
NFT projects create scarcity by minting a fixed supply of tokens. These could be the popular 10,000 profile pic (PFP) collections or a single-edition digital art piece. Individual NFTs in a collection often have their own level of rarity based on the uniqueness of their properties.
Payment Fees
Today, most projects choose to build on Ethereum as the ERC standard tokens can be easily traded across markets. These NFTs should have a higher value than off-chain tokens, something to keep in mind when you’re assessing your NFT investments.
Liquidity premium is the ease with which NFTs can be traded. NFTs with a high liquidity premium enjoy a high value. An asset is considered to have high liquidity if it can be converted to cash quickly at a fair market price.
In general, holders prefer more liquidity as it reduces the risk of holding the asset. Highly liquid NFTs can maintain their value even if they lack utility because they can still be traded speculatively.
Learn and Invest Safely in NFT
Find Out Price Floors
The floor price is the lowest asking price for an NFT within a specific collection. It is one of the primary metrics investors use to determine the strength of a project. Naturally, projects with a higher floor price are viewed as stronger, leading to a higher overall value for the project.
If you have more money to invest or a whole lot of Ethereum burning a hole in your pocket, you can consider buying the ceiling NFTs in a collection. These are the rarer items that demand higher prices. While not accessible to everyone, these have the potential to reach crazy values if the project were to catch fire.
Up Investment Campaign
With an NFT, you can’t sell your asset until another person chooses to buy that specific NFT from you. Because of this, you will want to plan how to best sell your NFT when the time comes. Listing it at a low price may help it sell faster, but will lead to a lower return.
Higher prices may have the opposite effect and your NFT may remain on the market. If the project is experiencing price volatility, the value of your NFT could tank while you’re waiting to sell it.
One of the biggest challenges of investing in NFTs is cashing out your investment. It isn’t like buying a stock or a crypto coin where you can go onto an exchange and instantly sell your asset (assuming there’s enough liquidity).
Focused Attention To One Kind of NFT
If you want to make money with NFTs, it is helpful to have experience and insight into the type of NFT in which you are investing. This will allow you to better assess the value of the token as you will know the market and what to look for in a winning project.
This applies more to digital artwork than the other types of NFTs. Most people don’t have the ability to distinguish between an average piece of art or a masterpiece. Because of this, they won’t be able to catch undervalued projects before they become popular.
Self - Study
When you find an NFT that looks like a good investment, it’s time to roll up your sleeves and learn everything you can about the token, its creator, and its place in the market.
Above all else, it is essential that you do your own research when evaluating NFT investments. It can be tempting to simply buy something because you see someone else do it or because an influencer tells you to. You may catch a few winners like this, but it is unreliable and will eventually lead to big losses.
NFTs are still in their infancy and their interest isn’t going away any time soon. More mainstream investors and big name brands are coming to the space which is leading to even more people minting NFTs in hopes of capitalizing on the demand.
But investing based on underlying fundamentals is an investment strategy that has proven effective across asset classes. By evaluating your NFT investments using these criteria, you will be in a better position to make money.
