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How to determine the value of an NFT

18 Aug 2022 By : Polus Fansare
Southeast Asia’s Lar

Market for Non-Fungible-Tokens (NFTs) has grown significantly and enabled several ways to earn through them. However, with the rise of NFT scams, main problem has arisen in determining the value of an NFT. 

Knowing the value of an NFT can be helpful in many ways. Here is what you should know about investing in NFTs, determining their worth, and considering several factors that will help you make a profit from NFTs.

Understand the pricing of an NFT

There is no defined model to evaluate the value of an NFT. In a basic sense, you cannot assess NFTs using the same parameters used to evaluate properties or traditional investment vehicles like shares. Last buyer's payment often provides some indication of the worth. However, with NFTs, it can be challenging to predict what the next buyer will pay based on their predictions.

Most buyers depend on guesswork in their bids because they lack the expertise required to estimate the value of NFTs logically. The value of NFTs is influenced over time by a judgment over which both buyers and sellers may have no control.

For instance, a piece of NFT art could be in great demand for a period because purchasers believe it to be unique and that its value will rise shortly. Then, suddenly, they may discover that the digital image is publicly available on the Internet and that the NFT would no longer have any clients.

So, to avoid these scams, investors should consider these factors to determine the price of an NFT they want to buy or sell.

Factors influencing the value of NFTs

Artist’s Fame 

The reputation of the artist who created an NFT is the first element that affects its worth. NFTs produced by well-known or particularly well-liked up-and-coming artists will be valued higher than those produced by lesser-known artists. For example, the value of an old painting by Pablo Picasso will differ by miles from the value of even an impressionist painting by a contemporary street artist. That's just how the art business operates. And with context to NFTs, nothing has changed.

Ownership History

An NFT's value is highly influenced by the issuer's and past owners' identities. The historical value of tokens created by well-known individuals or businesses is significant. By collaborating with individuals or businesses having a high brand value to issue the NFTs, you can improve the value proposition of the NFT.

Another way to get popularity is to resell NFTs already owned by prominent individuals. With the use of a straightforward tracking interface, marketplaces and sellers can assist buyers in learning more about prior NFT owners. Buyers will benefit from seeing the names of investors who profited significantly from NFT trading.

Rarity

The price of an NFT is strongly correlated with how scarce it is considered to be and how rare it is. Famous artists' original works of art and high-calibre celebrities' tokens are qualified as rare NFTs. NFTs have a significant amount of worth due to their rarity.

Any asset with a limited supply has a higher intrinsic value and gives its owner a sense of true uniqueness. In the NFT art market, sellers can demand top pay for this feeling.

Liquidity

If an asset can be sold when needed without suffering a significant loss in value, it is considered to be liquid. If you view NFT art as an investment rather than a long-term digital collectable, liquidity is a top concern. High liquidity increases an NFT's value, especially for these types of investments.

Liquidity can be unpredictable since it is determined by attractiveness and what a buyer is prepared to pay and the characteristics that change as the market does. Look at its recent trading volume to get an indication of what you might expect in terms of NFT liquidity. Systems will be established to maintain asset liquidity as the NFT market expands.

Utility

An NFT needs to be useful in a real application to have value. NFTs can be utilized in a variety of ways, such as tokenizing stocks, virtual assets, precious metals, real estate, and more. The NFT industry is still in its infancy, and as it develops, new, creative use cases will undoubtedly appear.

As soon as an NFT is minted, its intrinsic properties yield a price. The value increases over time based on the underlying project's utility and community support. These tokens include Decentraland NFTs, which stand for the project's virtual land parcels.

To know more about virtual land and these metaverse projects read- Complete Guide to Virtual Real Estate in the Metaverse.

Tangibility

NFTs exist digitally, but those linked to real-world assets may be more widely accepted by mainstream investors, enhancing liquidity and value. The value of NFTs depends on how well they are utilised in the projects in which they are implemented. 

The best NFTs for both short- and long-term trading are those with a financial value. While certain NFTs, like tickets, may have expiration dates, others, like those used to represent real estate, can gain value over time.

Conclusion

Although value is mostly a product of the human perspective, intrinsic value does follow a set of market laws. The rules for NFTs valuation depend on critical factors such as rarity, utility, and the short- and long-term resale value.

Lastly, bear in mind that the NFT you are interested in is a reliable one to bet on. It is usually essential to do your research thoroughly in a way that is compatible with all the approaches mentioned above.

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