NFTs Are Selling for Millions, But How Do You Tell a Diamond From a Dud?

Art Ethereum Forecast Investing NFT Non-fungible tokens
Last updated:
Author
Author
Simon Chandler
About Author

Simon Chandler is a Brighton-based writer and journalist with over ten years of experience writing about crypto, technology, politics and culture. He has written for Cryptonews.com since late 2017,...

Last updated:
Why Trust Cryptonews
Cryptonews has covered the cryptocurrency industry topics since 2017, aiming to provide informative insights to our readers. Our journalists and analysts have extensive experience in market analysis and blockchain technologies. We strive to maintain high editorial standards, focusing on factual accuracy and balanced reporting across all areas - from cryptocurrencies and blockchain projects to industry events, products, and technological developments. Our ongoing presence in the industry reflects our commitment to delivering relevant information in the evolving world of digital assets. Read more about Cryptonews
Ad DisclosureWe believe in full transparency with our readers. Some of our content includes affiliate links, and we may earn a commission through these partnerships.

It is harder to make a model for the ‘underlying’ value of an NFT than a stock. Consider whether you’re getting value for money, in terms of what the NFT is worth to you. A significant portion of NFTs are likely to fall in price at some point.

A fragment of 24 Hours in The City That Never Sleeps by Frank Ape. Last sold for ETH 5 (USD 9,144). Source: async.art

With a non-fungible token (NFT)-based digital artwork selling for USD 69.35m, you’d be forgiven for assuming that most NFTs are worth a small — or large — fortune. However, for every multi-million-dollar NFT, there are hundreds, if not thousands, of obscure tokens sold for modest sums.

This raises an important question: with so many NFTs flooding the market, how can a potential buyer appraise the ‘inherent’ value of a non-fungible token and evaluate which types of NFT are most likely to appreciate in value?

Analysts speaking with Cryptonews.com said that, while there’s as much justification to sell NFTs for high (or low) prices as physical artworks or collectibles, modelling their ‘fundamental’ value as if they were stocks is incredibly fraught. At the same time, most experts would expect an NFT market crash to happen sooner or later, even if they also acknowledge that NFTs are here to stay.

NFT is in the eye of the beholder

According to Messari’s Mason Nystrom, the potential value of a non-fungible token is likely to vary according to its category, and according to what it represents.

“If the NFT is a piece of art or collectible, the value is whatever the market demands. NFTs that can be utilized in games to win prizes like Sorare [a digital collectible football platform] trading cards have an element of utility that can be valued,” he told Cryptonews.com.

Additionally, Nystrom also noted that NFTs which represent financial products, such as Nori‘s Carbon Removal Credits, can be priced similarly to existing products.

When it comes to pricing — or predicting the future price of — NFT artworks or collectibles, it’s very hard to say which particular NFTs will end up attracting a high value.

Frederik Haga, an analyst with Dune Analytics said,

“Some people make a living of buying and selling art and I don’t think there’s any reason for that not to happen for NFTs as well. However, I do think it’s fair to say that it is harder to make a model for the ‘underlying’ value of an NFT than a stock or token for instance.”

Assuming that the creator of an NFT is already a respected artist (or simply a famous celebrity), it may be fair to assume that it will command a high price. That said, predicting whether it will rise higher in the future is probably nearly impossible, while it’s also very difficult to predict which particular NFT of a famous artist or creator will end up being the most valuable.

“[Even] though Picasso’s life is relatively documented, there is little evidence to suggest he kept his most valuable paintings. So, even artists themselves aren’t always capable of determining which pieces will accrue the most value,” said Mason Nystrom.

For AJBell financial analyst Laith Khalaf, artwork NFTs should be bought only because the work involved holds artistic value for the buyer, and not because of any potential future profit. He told Cryptonews.com,

“As with any purchase consumers should consider whether they are getting value for money, in terms of what the NFT is worth to them, but I wouldn’t bet on being able to sell it on at a profit. That doesn’t mean you won’t be able to, but that shouldn’t be your primary motivation.”

NFT ecosystems

As Mason Nystrom added, art is inherently subjective: “It doesn’t possess cash flows, nor any sensible metrics for valuation which makes indexing a valuable portfolio strategy.”

On the other hand, he suggested that it may be possible to formulate a reasonable estimation of native tokens belonging to key NFT platforms.

“For other NFTs, it’s perhaps easier to bet on NFT ecosystems — tokens that facilitate the NFT market either from an infrastructure or consumer standpoint. For example, various NFT marketplaces or NFT liquidity protocols that possess tokens present an opportunity to bet on the success of NFTs without having to purchase individual NFTs,” he said.

Nystrom suspects that, even if NFTs may outperform NFT platform/protocol tokens in percentage terms, platform tokens will capture more of the value of this market.

Short-term crash, longer term growth

Most analysts seem to agree that the NFT sector is caught up in massive amounts of hype right now, and that as a result a significant portion of NFTs are likely to fall in price at some point.

“Impossible to say when, but there’s probably a crash coming. There’s way too much hype right now, so a lot of the things we see sell for 100s of ETH now will undoubtedly crash in price,” said Frederik Haga.

Mason Nystrom agrees that the sector is currently going through a period of euphoria. He said,

“The NFT market is, without a doubt, experiencing a hype cycle. NFTs are in the cultural zeitgeist which adds an element of speculative fervor.”

Nonetheless, even with present levels of risk being fairly high, he expects the market to stabilize in the longer term.

“While there will likely be a short-term correction in the NFT markets, long-term NFTs and tokens that facilitate unique digital ownership will create billions in value across various sectors,” he added.

Frederik Haga also agrees that NFTs have a long, bright future ahead of them.

“I think NFTs are here to stay as they represent a radical new way for artists of various types to get paid, and that is certainly a very real problem to be solved,” he said.

This doesn’t necessarily solve the problem of which NFTs or type of NFT to target. But for Haga, if you’re dealing with art NFTs, it’s probably best to stick with artists who were already established prior to the current mania.

As he concluded,

“I’d have more faith in creators that created art 3 months ago or 3 years ago and now decide to put it on the blockchain, rather than artists or projects that spun up ‘overnight’ during the recent hype.”

____

Learn more:
Why Would Anyone Buy NFT – A Link To A JPEG File?
‘Traditional’ Art vs. Crypto Art: How to Value It
NFT in the Mainstream: Sotheby’s Follows Christie’s with a New Plan
‘NFT’ Surpasses ‘Ethereum’ on Google This Week as Trading Balloons
A Crypto Vanity Dream Now Features Musk, Beeple, Justin Sun, DOGE and NFTs
Hack Sunday: NFT Theft Follows a Personal Token Attack
Second-Hand NFT Market for NBA Top Shot Packs Appears on eBay
Consider These Legal Questions Before Spending Millions on NFTs
Check These 4 Make-Your-Own-NFT Platforms
Non-Fungible 2021: Prepare Your NFTs For DeFi, Staking, and Sharing

More Articles

Ethereum News
Ethereum Price Slumps 4% After $4,000 Breakout Failure, But History Suggests More Upside Coming 
Joel Frank
Joel Frank
2024-12-09 17:06:29
Altcoin News
CoinMarketCap Launches ‘S&P 500’ for Crypto
Sead Fadilpašić
Sead Fadilpašić
2024-12-09 17:00:00
Crypto News in numbers
editors
Authors List + 66 More
2M+
Active Monthly Users Around the World
250+
Guides and Reviews Articles
8
Years on the Market
70
International Team Authors