Because NFTs are a new type of asset, they have drawn the interest of many new investors worldwide. Usually, members of the art world, the collecting world, and the world of crypto have the most interest.
Still, as their popularity has grown, NFT prices have shot up, drawing the interest of more people including those interested in NFTs as a speculative asset for potential income. Because of this interest in potential investment income, the question of valuation becomes much more important. We will discuss the factors that can be used to value NFTs and how this process has been done with data science.
Factors for NFT Valuation
Being new, there are no set of rules used to assess the value of an NFT. The ways that companies and other assets, including art and other collectibles, are valued differently from NFTs and are therefore not directly applicable. One avenue that seems to be somewhat reliable is the payment of the purchase made by the last buyer of the NFT. This is not sufficient because, with NFTs, we have seen significant volatility. It’s hard to guess what the next buyer will be willing to pay just using these estimates from previous purchases.
Most buyers lack the needed skills and information to logically ascertain an NFT’s value and usually make guesses with little reason behind them. Sellers also have a challenging time determining what kind of price they might receive for the NFTs that they currently hold. In time, much like the value of art, the value of an NFT is driven by perception, and neither the buyer nor seller have any control over this.
Let’s consider the following: an NFT artwork may be in demand for a particular time with buyers believing it is rare and will produce value in the near term. They then discover that the image is available for free online, and the pool of potential buyer’s dries up.
Renowned artists’ NFTs and tokens that are associated with tangible assets are easier to define their values, but in most cases, investors and traders will have a more challenging time determining the value of the majority of NFTs.
There are, however, several factors which one can utilize to make a price prediction. And when combined, they produce a much more justifiable and hopefully accurate number.
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