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How to value NFTs: Understanding the influential factors

How to value NFTs: Understanding the influential factors

Rarity, popularity, usefulness and appeal play a pivotal role in assessing the value of non-fungible tokens (NFTs). In this excerpt of Sygnum’s research investment report, we uncover the nuances of NFT valuation.

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Non-fungible tokens are unique representations of single assets such as a concert ticket or a piece of digital art. They are in themselves not economically productive.

NFTs that represent economic value such as a flight ticket or discount voucher simply inherit that value. NFTs in the art and collectibles class, however, have no intrinsic value.

The value of these tokens is in the eye of the beholder – if there is one other party to whom that piece of art, collectible, avatar, etc. is meaningful, they will determine the value. This is analogous to the value of traditional art and collectibles.

What an investor can assess is the likely value that someone else will place on the NFT. This will depend on the rarity (the number of identical items created and the number of different items from the same artist or studio), the popularity (based on past demand and demand for similar items), the usefulness (e.g. items usable in games or in metaverse application) and an assessment of the likely desirability.

The price of NFTs with comparable features can give a guide to the likely value a potential buyer will place on the NFT.

FACTORS INFLUENCING THE PERCEIVED VALUE OF NFTS

Factors influencing the perceived value of NFTs
Thomas Frei

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