Robert Rogal is the Director of the Ro Gallery, a fine art gallery and auction house in New York. Mr. Rogal fields a lot of questions these days from art lovers about NFTs and how they factor in to the world of art. One of the most common curiosities relates to the astronomical prices that some NFT’s are fetching. Why do some productions sell for millions while most barely garner any interest at all?
Variables like usage, ownership history, liquidity premium, and future value play a part in driving the cost of an NFT. Of course, factors like buyer emotion and the creator's popularity can influence the price too.
Below Robert Rogal delves into the factors that impact value when buying and selling NFTs.
A Quick Background on NFTs
NFTs, or non-fungible tokens, are digital tokens made via blockchain so they can't be exchanged or replaced by an identical token.
They're associated with a specific asset and can’t be liquidated for fast cash without going through the proper channel. An NFT is simply a virtual version of a product, meaning that selling the NFT transfers not only the token but also the proof of ownership.
Which Assets Can Be Turned Into an NFT?
Robert Rogal notes that understanding the different types of tokens is essential to grasping the factors affecting the price.
The most popular utilization of NFTs is turning online properties or virtual items into tokens. However, experts mention many real-world assets have the capability of being digitized on the blockchain.
Currently, NFTs are often:
- Music and videos
- Social medial posts like memes and articles
- Digital art like 3D models and paintings
The popularity among the above comes from the present fervor around the world of NFTs. Some non-digital assets like the following also have the option of becoming non-fungible tokens:
- Statues
- Real estate
- Antiques and collectibles
- Paintings
Which Factors Drive the Price of NFTs?
The value of NFTs isn't determined by one almighty power. Instead, their worth is weighted on four major components — ownership history, future value, utility, and liquidity.
#1 Utility
Robert Rogal explains, this basically means: How can someone use the NFT?
At the moment, the two highest-value categories are tickets and game assets. For instance, the Crypto Space Commander battleship sold for
over $45,000 in 2019. However, if you could use it in a additional applications, the value would be even more.
To drive the utility value higher, Robert Rogal says businesses should create partnerships that offer benefits to NFT holders. Dapper Labs, for example, could work with event organizers to decide a discount for people who own CryptoKitties. Authentication is easy with NFTs, so organizers won't have to work so hard to verify provenance.
#2 Future Value
Forecasts and speculation are often the main forces behind the price appreciation of NFTs. Essentially, the projected future value is decided based on supply and demand. In fact, some markets encourage people to speculate on the price to create a rare market sector.
Since NFTs are assets, collateralization and leasing to create extra cash flow are possible. Take the gaming example — players want a certain game asset to pass a mission; thus, the demand increases and the price inflates.
#3 Ownership History
The NFT issuer and past owners can positively or negatively affect the price. An NFT with a high ownership history (i.e., they were created by a famous artist or a company with a great brand) tends to come with a heftier price tag.
Two methods for increasing the value based on ownership history are:
- Co-operate — Working with individuals or companies with a strong reputation to issue NFTs naturally attracts traffic. The first NFT Formula 1 car sold for a whopping $113,124.
- Resell — Reselling an NFT owned by an influential person boosts the price. However, it's tricky to find out who the previous owners were at the moment.
#4 Liquidity
Robert Rogal explains that high liquidity means a higher-priced NFT. It's the main reason behind the increased price of on-chain-created non-fungible tokens and off-chain assets.
For instance, if an NFT loses its utility value entirely but still has a high liquidity value, people will still buy and sell it. Conversely, non-ERC tokens suffer a lack of liquidity and, therefore, decreased value.
How to Consider Value When Buying or Selling NFTs
Approaching value when buying or selling NFTs is challenging since it's largely speculative. But understanding the worth from both sides of the coin may help.
As a buyer, remember the points based on real-world assets, utilization, and uniqueness. Considering these factors makes it easier to analyze whether selling or holding can give you the best ROI in the future, even before you make the purchase according to Robert Rogal.
As a seller, consider the hype around the NFT and work to raise your own profile. Creating a buzz and getting people talking about your brand is what it's all about. Digital signatures and transference of ownership proof can help boost your token's value.
Whether buying or selling, keeping all price-affecting factors in mind and doing your market research helps you value your NFTs appropriately.
