Non-fungible tokens, or NFTs, are still new, and few people understand them. And this means it is even more challenging to determine whether to invest in them. However, for those already conversant with NFTs, they can be a tremendous profit-making investment. Some entities have made millions of dollars by selling NFTs.
NFTs are growing in popularity as an attractive investment option. More people are now willing to invest in NFTs because of the perception of having high value. But how do you decide which NFT to buy? Of course, you will consider the value of the NFT as one of the criteria. So, how do you determine this value?
Why Invest in NFTs?
Before we focus on how you can determine the value of an NFT before buying, maybe the first important thing to consider is the reason for purchasing the NFT. For most investors, the high monetary value of NFT is the reason for buying. But NFTs have other non-monetary uses, including gaming or gaining exclusive access to communities or events.
So, after you understand what specific value you are looking for in the NFT, then you can be in a better position to determine its value. However, like in the crypto market, NFTs are highly volatile, and prices could shift without warning. A good investor should understand all these important factors.
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Who Is Behind the NFT Project?
NFTs are often as good as those behind them, including the creators, buyers, and associates. Usually, the people behind the NFT will influence its value by triggering speculation. Celebrities and people of higher social standing tend to own or associate with NFTs of high value. So, do your research to understand those behind the NFT before buying.
How Scarce Is the NFT?
Also, consider how rare the NFT is before buying. Always go for very rare NFTs because they tend to have higher values. Rarity can depend on who made or owns the NFT. For example, some celebrities or respected NFT creators will have NFTs of high value. And this is common knowledge even in a business where rare items like gold are more precious.
What Are Its Uses?
A wise investor would never invest in anything that has no particular use. You are buying the NFT expecting to derive certain benefits from it. NFTs can have different purposes. Some may only be used as unique digital certificates to show ownership of a real asset. However, some NFTs can be used to earn usage fees. For example, a tokenized short music clip can make you some money every time someone plays it.
How Liquid Is It?
Liquidity refers to how easily you can buy or sell something. Even with NFTs, you should consider liquidity to assess their value. Usually, NFTs that are easy to trade tend to have a higher value than those more challenging to exchange. Luckily, most NFTs are easily transferrable.
Take Away
With their growing popularity recently, NFTs are becoming an attractive investment option for many investors. But even if you are so much into them, it is wise to always consider some things before deciding to buy a particular NFT.