Why do NFTs sell for so much money?
Many outsiders still struggle with the question: why do people pay so much money for NFTs? There are several main factors to consider:
One of the most historically reliable asset classes in terms of return on investment over the last century has been art. Due to the scarcity of many famous artworks, they tend to steadily increase in value over time. The same goes for an NFT. Depending on who created and sold it, and the amount of time that has passed since it was created, an NFT could experience massive growth in price. As long as someone sees it as something worth collecting, it has value.
For this reason, NFTs have been a popular medium for art distribution due to the simplicity they provide for ownership verification. Prominent artists are now able to sell their art pieces as NFTs for massive amounts of money, and the buyers are able to easily re-sell the artworks or prove their ownership of them on the blockchain.
We’ve also seen large NFT collections like CryptoPunks blow up because of their originality. Although the art isn’t necessarily spectacular, the collection gains value with each passing year because it was the very first PFP (profile picture) project to be created. For that reason, it earns the same respect that a timeless art piece would receive.
If you’ve been involved with NFTs over the last year, a word you’ve probably heard a million times is “community”. While it seems cliché at this point, community is actually a huge factor in maintaining the perceived value of an NFT collection.
Bored Ape Yacht Club, for example, has one of the strongest communities that has ever existed, and thus holds the crown for highest traded NFT collection. Every holder understands the value of what they’ve purchased, and they have banded together to sustain its floor price. On top of that, it has countless celebrity endorsements to further solidify the confidence of investors. The project was sold on the idea of community, and has had tremendous success because of it.
While the previous two points provide reasoning for why certain collections have such high floor prices, they don’t necessarily explain why specific NFTs sell for such massive sums of money. In terms of those individual NFTs selling far above a collection’s floor price, the greatest indicator of value is their technical rarity. Rarity is derived from the scarcity of traits present in any given NFT in relation to all other NFTs in that particular collection.
For example, if an NFT is totally unique in a set of 10,000 (also known as a 1 of 1), while the other 9,999 NFTs each share at least one trait with another NFT in the collection, that 1 of 1 will have the # 1 rarity. Subsequently, it will be considered the most valuable, and will likely sell for one of the exorbitant prices that we are all used to seeing. Owning some of the rarest NFTs in a popular collection is seen as a great honor, and so people are willing to fork over huge amounts of money for them.
Blockchain technology is a historically good investment
For anyone who has followed the crypto space over the past 10 years, you have probably noticed a particular trend: people making massive gains. Investors who bought Bitcoin when it first became available are currently sitting on unfathomable amounts of wealth. This recent crypto bull run showed retail investors that something as silly as a “meme coin” can make you a millionaire. NFTs have been the next step in the progression of crypto-related investments.
Because NFTs are seen as a subset of cryptocurrency, people have gravitated toward them with the intention of making big gains. Many NFT enthusiasts have immediately assigned large future valuations to these new digital assets, anticipating that they will gradually trend toward mass adoption (much like we’ve seen with certain crypto coins). In other words, investors are considering NFTs to be “the next big thing”, and have thus decided to value them highly.
We are early
You’re probably tired of hearing this, but it’s true: we are still early. Only a few million wallets have ever held an NFT in them, while hundreds of millions of wallets have held or traded Bitcoin. There is a massive amount of room to grow in this space. Very few NFT projects have actually utilized the underlying technology to develop something useful for their communities. Almost everything is being traded out of speculation.
As founders and developers progress and learn how to create unique use-cases within their projects, the NFT space will grow. Large scale investors have recognized that fact, and are placing massive bets on blue chip NFTs in an attempt to stay ahead of the herd. They are predicting that as the space continues to grow, so will their early investments. And they may be right – the only way to find out is to stick around and see!