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How to Assess the Value of an NFT?

2021-07-16

Key Takeaways:

  • NFTs are more than just being collectibles, as they carry endless possibilities in real-world applications.

  • The three key factors to consider when evaluating the intrinsic value of an NFT are rarity, utility, and tangibility.

  • The value of an NFT also differs for short- or long-term holding, depeding on the asset the NFT represents.

  • NFT collectors and traders can discover a wide range of NFTs on Binance NFT - the premier marketplace for NFTs from everyday creators and premium auctions and mystery box series from top brands and artists globally 

The crypto market never stands still. New kinds of assets constantly emerge, such as altcoins, stablecoins, and other project tokens. But every few years, a new type of crypto asset  makes a big splash in the market, triggering fast-rising valuations and the creation of several new use cases.

Non-Fungible Tokens (NFTs) have spread across virtually every sector of the decentralized industry as a bridge between the digital and real worlds. As the name implies, NFTs are unique tokens that give their holders immutable ownership rights to specific assets.

As an asset class that can be attached to a work of art, a pair of sneakers, or a collectible in a video game – NFTs have become highly sought-after in the crypto market.

Factors that Drive an NFT’s Value

Determining the precise value of an NFT is difficult, since the asset class is relatively new. While tangible artworks like the Mona Lisa or physical collectibles like NBA player cards have defined values, investors looking at NFTs may have a hard time deciding whether a given asset or collectible is worth their money and whether they really want or need it.

But as NFTs make their way into a lot of industries in less than a year and reach high levels of valuation, three main factors have emerged for gauging their worth. 

1. Rarity

This factor translates literally into how rare and “hard-to-get” a specific NFT is. Good examples of rarity are a first-of-its-kind artwork from a famous creator in the digital arts industry, or an NFT created by a famous celebrity. Another factor of rarity is the effect such an NFT would provide in, for example, a video game.

People are drawn to such NFTs because of their intrinsic value, where the owner of the NFT holds the blockchain proof of ownership. This gives a sense of distinction and determines the premium value of an NFT. 

Solid examples of the unique effect in the crypto industry are the first CryptoKitties, Everydays - The First 5000 Days by Beeple and others.

2. Utility

The utility of an NFT comes from its real application, in either physical or digital worlds. For example, some NFTs are more than just collectibles, since they can be used in games, like virtual lands, spells, or characters. This characteristic of NFTs gives them immediate value, which accrues over time depending on the popularity of the underlying project. As the community of a decentralized game’s players grows, more of them will be willing to pay top dollar for a unique card.

Examples of such NFTs are the Euro 2020 NFT Tickets, Decentraland property, or collectible cards like Geralt of Rivia in The Witcher Universe Gwent Card Game.

3. Tangibility

Some NFTs are tethered to real-world objects, which gives value in terms of tangibility backed by ownership immutability. In essence, anything can be backed by an NFT to solidify ownership rights, but that does not make the object unique or high-demand. The underlying value of such an object will be determined by its practicality, scarcity, and the personal satisfaction it gives users.

For example, having an NFT ticket to an exclusive event full of celebrities is considerably more valuable, both intrinsically and on a personal level, than owning an NFT tethered to a bottle cap.

In terms of market practicality, such NFTs with tangible value are best suitable for short-term trading on the marketplace. That is because such NFTs may have expiry dates, like tickets. Meanwhile, other collectibles like NFT-tethered limited edition sneakers can accrue value over time as the number of items in circulation dwindles.

Closing Thoughts

Value is largely a matter of personal perception, but intrinsic value does obey a number of market rules. When it comes to NFTs, the rules are locked in three main factors, which in themselves depend on the NFT’s issuer. Basically, how valuable an NFT resides in their short- and long-term resale value.

The versatility of NFTs as an asset class clearly shines light on how they can carry endless possibilities, more than just being a collectible or a digital representation of an object. In real-world applications, NFTs can be used for anything from plane ticket verification and voting rights to stamping objects to prevent theft. 

When it comes to trading NFTs, few places on the crypto market are as vast and user-friendly as Binance. With its wide variety of assets listed, Binance is home to some of the most unique and coveted NFTs to suit any investor’s tastes. Visit the Binance NFT Marketplace and experience a wide array of NFTs - from everyday creators around the world or exclusive mystery boxes and premium launches from global brands & artists. Maybe you’ll even pick something that suits your notion of value.

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