There are several factors that can determine an NFTs price: liquidity, ownership history, rarity and utility.
In recent years, the world of cryptocurrency trading has witnessed significant changes in the community's artistic side.
Since their advent, many have continued to think of cryptocurrencies in terms of fiat currencies —the same, but just digital versions. However, the blockchain space wouldn’t be as wild as it is today if it stayed within the traditional norms of progress, right?
The crypto community started experimenting with the idea of token ownership and rarity and then — enter NFTs. Non-fungible tokens (also known as NFTs) are unique tokens that only a single user can own at a given point in time. Their uniqueness and the tricky imbalance of supply and demand ensure that they are often highly priced and only increase in value.
Most NFTs are built on the Ethereum blockchain, meaning that owning an NFT is equivalent to owning a significant amount of ETH, in a way. While there are a variety of other chains emerging that also allow for the building of NFTs on their networks, Ethereum is still arguably the main NFT place to be.
4 Foundational Pillars of Greater NFT Value
The ability for an NFT to be literally anything is what makes it one of the most desirable (and unarguably one of the most profitable) assets to create and trade at the moment.
However, to further understand why and how NFTs are priced so high and what makes one NFT better than another, we will have to dive deep into the topic.
Liquidity
In simplest terms, liquidity is a measure of how easy it is for a trader to enter and exit trades.
Liquidity pools allow traders to trade their cryptocurrency assets on decentralized exchanges and various types of DeFi platforms. The independence from centralized market makers enables users to trade their desired crypto assets at their own will.
The world of NFT trading greatly values the existence of high liquidity and the existence of a systematic liquidity pool. Higher liquidity serves as proof that the NFTs are genuine, and reduces the possibility of the project being a potential rug pull.
The importance of liquidity for NFTs can be understood in a simple sentence: if no one wants to purchase your owned NFT, you cannot sell it. For this reason, your NFT must have a liquidity premium backed by the ERC standards to allow you to trade them on both primary and secondary markets in exchange for the equivalent amount of ETH.
To diminish the risks, investors often prefer to invest in NFT projects with high trading volumes to ensure that the projects have high liquidity and they can be traded whenever you want.
Ownership History
There is no limitation to the starting value of an NFT: it's based on affordability and the business model of the creator. For this reason, despite the average floor prices (average low price) on an NFT trading exchange, some NFTs are insanely high-priced, while others are found to be extremely cheap in comparison.
However, ownership history is of paramount importance for NFT traders. Reputable artists and NFT creators tend to have high ownership history values to bookmark their product as exclusive and maintain their value in the market. While this might be difficult to afford for many people, NFTs with a valuable ownership history attract a wide range of customers due to the surety of getting their hands on an exclusive piece that has great importance in the NFT community.
Rarity
The entire concept of NFTs stands on the principle of tokens being unique — this is what creates consistent instability in the market and why NFT prices can continue to go up, as there's often a buyer who would like to purchase a unique piece of art at a higher price than you.
For this reason, rarity is unarguably the basic underlying value of an NFT that defines its existence.
However, some NFTs are valued more than others based on the value proposition provided to the customers. Popular projects like World of Women or CryptoPunks, also known as 10K projects (10,000 piece projects), consist of 10,000 uniquely designed NFTs with different traits.
Since some pieces might have exquisite and unique features that provide more value as compared to others, the creators tend to price them higher to provide their customers with an exclusive experience of purchasing a premium NFT. These rarities hold great importance in the world of crypto as the flashiness or the third eye on a profile-picture NFT might make it distinctive among a pack of thousands of similar pieces.
Utility
The survival of any cryptocurrency, token or NFT project is impossible without proper utility in today's market. Large-scale investors tend to invest in projects that have heavy utility in their roadmaps — this allows investors to gauge the value of their assets and plan their investments.
Curtain Thoughts
It’s already pretty clear by now that the concept of non-fungible tokens and the involvement of art in the world of crypto trading is here to stay.
To stay connected with the neverending changes in the crypto industry and stay ahead of the curve in the trading world, traders need to be proactive in their trading approaches and utilize their research skills to outwit other traders.
It's about time that people acknowledge that the world is moving towards a more digital space, with the development of metaverses, NFTs and more — we’re just waiting to see what else crypto fans come up with.
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