Like in the stock, forex, and crypto markets, where there are yardsticks to evaluate the strength of assets, there are metrics you can use to rate the worth and potential value of an NFT before investing in it. Four of these metrics will be explained in this article, along with some benefits and risks you should be aware of before investing in an NFT.
NFTs Do Not Offer Financial Value Alone
NFTs can be pretty valuable in a couple of ways. Apart from being investment instruments with high-profit potential, they are also used to establish identity, community, and ownership. Some people buy NFTs to support artists, and often, the artists earn more from this since they profit directly from their works without any intermediary.
As a new form of collectible, they are digital upgrades to items like comic books, arts, posters, sports cards, etc., attracting many to buy NFTs not because of any monetary gain they expect from them but because of the other values they have. Sometimes the value could be in the form of exclusive access to events, for gaming purposes, and some just buy it for the novelty of it.
For investors, NFTs have also become a profit-making technology (even though only a few people have become rich by getting involved in NFTs!).
One question you might then ask is how to spot which NFTs have the potential to offer you financial value and the ones to skip for investment purposes.
4 Ways to Understand the Worth of an NFT
Below are four factors you should consider when trying to invest in an NFT.
1. How Rare the NFT Is
NFT rarity will determine its value. For example, a rare NFT can be a first-of-its-kind piece of digital art by an illustrator; some NFTs made by celebrities also fall into the category of a rare NFT.
An example of an NFT that falls into this category is a project by Mike Winkelmann (aka Beeple) named “Everydays: The First 5000 Days.” It’s been called an “accumulative piece” because it’s made up of 5,000 images, one for each day since May 2007, a total of 13 years. Speaking to Artnet, Metakovan and Twobadour, NFT collectors from Singapore, said they bought the piece because they believe it “is going to be a billion-dollar piece someday.”
2. What Can the NFT Be Used For?
This covers how an NFT is used in the physical or digital world. In addition to being unique digital assets, certain non-fungible tokens also serve other purposes. Some NFTs, for example, give the owner rights and benefits they otherwise wouldn’t have.
The Bored Ape Yacht Club started as a set of NFT images, but now they are tickets to special events and give rewards to their owners, such as the ability to print new NFTs. Many NFTs are also used in games, and they are valued differently based on the functions they play.
3. How Liquid the NFT Is
The ease with which an NFT can be bought or sold within its network refers to its liquidity. Investors like to invest in liquid NFTs (those with significant trading volumes) since the…
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