What Gives NFTs Their Value?
NFTs always seem to be a hot topic in the cryptocurrency world. People wonder why some are worth so much—and others are worth pennies. So, what gives NFTs their value?
Popularity, the artist, and the depiction of certain NFTs all contribute to the value of a particular NFT. That being said, there are some ways that the value of certain NFTs is falsely inflated. Read on to learn more about what gives NFTs their value.
1. Popularity
In short, simple terms, NFTs are digital art, and as such, demand and popularity play a large part in determining their value. Just as in the traditional rules of supply and demand, the more in demand an NFT is, the higher the price climbs. And since most NFTs are one of a kind, this means that there is always a scarcity mindset when a piece or set grows in popularity.
The issue with this is that popularity can come and go, and this is one of the main reasons NFTs are so volatile. Just as trends are shortening the more we advance as a species, so too is the popularity of certain NFT pieces, leading to increasingly volatile pricing. In general, popularity is the largest aspect contributing to an NFT’s value.
2. The Artist
There are some exceptions to what we mentioned above regarding popularity, and that is when famous artists create NFTs. Traditional art pieces by famous artists (i.e., the Mona Lisa) tend to hold value much more firmly than a piece by a new, unknown contemporary artist.
The same holds true for NFTs. Famous ones created by artists like Grimes and Nyan Cat tend to hold their value better than random collections created for fun. Great Apes is a perfect example of a collection created by non-famous artists, who were worth quite a pretty penny during the height of their popularity before crashing to become basically worthless.
3. What the NFT Depicts
This is an interesting aspect of NFT pricing, and it’s a hard one to explain. In general, what an NFT depicts walks the line closely with popularity—with certain depictions only being famous while that particular topic is popular; however, there are some exceptions.
For example, Jack Dorsey’s first tweet is one of the most valuable NFTs of all time because it depicts a special moment that is part of history. This is also why it can be a challenge to predict the future value of any particular NFT. For example, NFTs of Donald Trump were quite popular shortly after the 2024 election; however, there is no way to predict if they will continue to retain their value after he leaves office.
4. Uniqueness
As we mentioned above, NFTs are technically all unique. That being said, there are many fads in the NFT world which lead to the creation of many similar NFTs. Not to continually bring up the Ape NFTs, but if you take a look, this is also when collections of NFT monkeys, pudgy penguins, and who knows what other types of animals popped up. Once the market was flooded with these cute animal NFTs, the high prices that originally led to the creation of so many variations began to fall. In the end, most APE investors lost everything.
Art will forever be valued based on its uniqueness, and this extends to the NFT world. The more unique or “new” a certain piece is, the better it will do—just don’t expect it to stay that way forever.
5. The Economy
Similar to art, the value of NFTs is closely tied to the economy. If people can’t afford the basic costs of living, they won’t be able to afford to spend money on art. This was a major contributing factor to the rupture of the first NFT “bubble.”
Unfortunately, we live in tumultuous times, and there is no industry that is 100% safe, but we do think that NFTs are far more volatile than almost every other industry, so probably not your best idea for those trying to hedge against inflation and other aspects of the currently poor economy.
Are NFTs a Bubble?
It’s hard to specifically mark any particular aspect of the blockchain world as “a bubble,” as it is a very intricate world with lots of facets. However, the initial NFT hype, in our opinion, was a bubble.
While Grimes and other famous artists may be able to continue selling their NFTs for millions, if you, an unknown individual, make a personal collection of a spread of funny-looking animals, it is unlikely you will make any profit off of their sale, even if any at all.
In general, we do not advise investing in NFTs as any form of long-term investment. Of course, if there is a piece you fall in love with, go for it, but don’t expect it to eventually sell for more than you bought it for.
Is There Any Way to Make Money Off of NFTs?
In our opinion, no. We do not think there is any dependable or predictable way to monetize NFTs. Of course, there are many video games out there (like Axie Infinity) which utilize NFTs as premium in-game items and skins, but we don’t think there is any way to net money with any certainty through these avenues. Like art NFTs, the popularity of these tends to grow and wane, and it is likely you may never earn back your original investment.
Unless you are an already established famous artist with a catalog of works, we do not recommend trying to switch to a career based on NFTs—you will likely be disappointed.
Overall, the world of NFTs is finicky and complicated, and we don’t recommend that anyone who is not already established in art try their hand at it—especially not in the current economic climate. However, the choice is ultimately yours, so if you love NFTs, approach them cautiously before dumping your life savings into them.
