Tapping on this article, you must be wondering, “NFT Valuation? That’s easy, I place the value of my NFT at whatever cost I like”.
I know this because even I thought the same before doing my research on it.
But NFT valuation is a complex process, where you have to keep a lot of factors in mind and there are a lot of methods through which you can value your NFTs, deciding which one to choose is also a decision you have to make.
Phew, that’s a lot and we get it, that is why we’ve brought to you the article that can make it all a bit easier for you!
What is NFT valuation?
Okay, we’ll start with the basics. To answer this, first, we have to know why do NFTs require valuation. When NFTs came into existence, people just thought they were expensive digital images and couldn’t be used for anything other than the rich buying them just to spend their money somewhere.
But with the development in the NFT world, NFTs have become much more than just digital assets, people decided that they do have some value outside of that too. They started providing numerous benefits to their owners, some NFT collections started working for the betterment of the environment, some of them developed their online games and so much more.
At this point, we knew that we had to have a price for the NFTs, but it is quite a difficult task to complete because since NFTs are rare and one-of-a-kind collectibles, how do you value them? How do you know what NFT valuation is the arrow on the dot?
It’s okay, we’ve got you!
Factors to consider for NFT valuation
Many factors can help determine the value of an NFT. However, in the end, the decision is of the investor whether they think the NFT is worth their money or not and whether they would like to invest in it or not.
Here are some of the aforementioned factors:-
One-of-a-kind
NFTs are described by their rarity because they are a form of digital collectibles and therefore, their rank is often determined by their rarity. When people get to know how rare an NFT is and how difficult it is to get to own one, they immediately get attracted to it. It is the same mentality as when we see top brands and we know that it is difficult to own their original pieces, we are immediately attracted to them.
Multipurpose
When NFTs have other uses that come with their digital ownership, their value increases. This of course is a very sensible point, because why would you buy something that you can get a screenshot of off the net until it is either extremely rare or has multiple benefits to it apart from the ownership rights.
For example, there is the NFT collection called Bored Ape Yacht Club (BAYC) which has NFTs where Apes are dressed in different accessories and clothes. Along with the ownership of these apes, you get access to the virtual world created just for them.
Interconnectedness
When an NFT can be used in more than one platform, then it is perceived to be more valuable. If an NFT can be used in a lot of games then it will be considered to be more valuable. This also connects to the utility factor of NFT valuation. A lot of NFT creators are always busy in getting partnerships and making networks that will help increase the interoperability of their NFTs.
The Family tree of NFT owners
If an NFT was previously owned by someone popular, naturally its value increases for the person who is thinking to buy it next. If an NFT has been created and tokenized by a known artist, that NFT will also be considered quite valuable.
Social skills matter
The more hype you create around NFT, the more its value will increase. The pieces that gain a lot of comments and discussion from the audience obviously will create a kind of curiosity for the people to go onto your NFT collections and look through them and eventually buy them. In the same way, if any celebrity or someone famous talks with any NFT on platforms like Instagram, Twitter, or even LinkedIn, it gains incredible hype.
The Market Conditions
NFTs are still a new product in the crypto market, people are still trying to learn more about it, new projects are coming up, liquidity of the assets isn’t stable but keeps on changing.
This results in different values of NFTs at different times, you have to invest very carefully, taking in all the factors and the conditions in the market, and then decide to invest in an NFT. Check what has the potential of giving you a gain in the future as well so that you get your value for money.
The prices are mainly decided by NFT designers. When the NFTs are a copy of a physical piece of art, they are priced at 10% of the actual art piece. As the NFT world is expanding more and more methods have evolved to determine their value.
What makes an NFT valuable?
NFTs are sometimes very expensive. This is because NFTs have introduced scarcity in the digital market.
You must often wonder, why do people spend so much money on just buying an image or maybe a music video which you can easily get off of the net. This is because when you are buying an NFT, you are not just buying an image or a meme but you are tokenizing an NFT, owning it as your own. A lot of things are sold on the NFT marketplaces, like NFT music videos, in-game assets, and even virtual lands.
How do you increase the price of something by converting it to an NFT? When you turn so something into an NFT, minting it as one, you are basically limiting its supply, causing its price to inflate.
Methods of Valuing your NFTs
There are various methods through which you can value your NFTs, here are three of them:-
- Asset approach- In this method of NFT valuation, you calculate the value or the price of the NFT by calculating the worth of all base assets and then subtracting them from the obligations they are under.
- Market Approach- The market approach of NFT valuation takes the price of a single product and values all similar products the same which is slightly inconvenient in the case of NFTs, especially the blue-chip NFTs.
- Cost Approach- In this method of NFT valuation, when any similar products are not available or the liquidity of the NFT is not stable, this method is used to estimate the price of an NFT.
- Discounted Cash Flow Model- In this method of NFT valuation, the value of an NFT is calculated based on the return that it might give in the future to the investor.
Wrapping it Up!
In this article, we provided you with a small guide on why you value your NFTs, what is NFT valuation, and how you value your NFTs. You can find all kinds of NFTs on NFT LinkShare which is a marketplace just like the others, if you are someone who is thinking to start investing in NFTs.
There are a few frequently asked questions answered below:
What is the cost of 1 NFT?
Currently, the value of 1 NFT is rupees 0.96 INR which means you can 5 NFTs with rupees 4.79 INR, and inversely, with rupees 1 you can buy 1.04 NFT. In the same way, you can 52 NFTs with rupees 50,000. All of this excludes the gas fees.
Who owns NFT?
The ownership details of an NFT are recorded in the blockchain technology. The ownership of an NFT can be transferred from one person to another, which allows NFTs to be sold and traded. NFTs are liquid assets but their liquidity keeps changing according to the market conditions and so does their value.
What is the biggest value of an NFT?
The biggest value of an NFT was when The Merge by PAK was sold for $91.8 million. The first high-valued NFT was Everyday: The First 5000 Days by Beeple which was sold for $69 million, which brought the NFT market into the mainstream of cryptocurrency.
Is there any real value of an NFT?
Almost 95% of NFTs that were created in 2021-22 are now worthless as said by most of the researchers in the market. But when we take a look a little closer in the market, the NFT market is worth a huge $10 billion. This $10 billion comes from the 5% NFTs that are still topping the ranks.
How rare is my NFT?
To know the answer to this question, you will have to go to Discord and choose the bot command where you will have to enter the details of your NFT, and what it is asking and it will show you the rarity ranking of your NFT.
