NFTs Are Overpriced JPGs
You can't value an NFT logically, but does that make it overpriced?
One of the most contentious issues about NFTs is their value.
Yes, most people are knowing about NFTs because of the insane record-breaking sales. And this is not just to say that they're most likely overpriced, even more so – how do you accurate value an NFT? If $10,000 is too much, then what is the right figure? $1,000 or $1? Surely there must a 'fair price' to it?
The Value Of An NFT
Anyone who can confidently claim he can accurately value an NFT should be doubted. The value of NFTs are as subjective as art – it's up to the buyer how much he wants to pay for it. In fact, a friend asked me how much my latest NFT could sell for and my reply was, "Any amount, as long as you can find a buyer for it."
How then would you go about pricing an NFT? Here are some means of justifying the price tag:
Relative to the floor price: Based on what is the cheapest going one, you use that as a benchmark for price.
Relative to the last transacted price: Based on what was a last sold one that is of similar rarity, looks, traits (up to you to justify), you could price it based on that.
Relative to other similar projects: Based on the previous project by the same company, or another project with a similar level of development and demand, you price your NFT accordingly.
Based on supply and demand: How many alternatives are available, and what is the ongoing demand for it? Supply can be seen by the number of listed items, while demand can be gauged by the last completed transactions. Scarcity is a factor of supply.
In fact, the relationship of supply, demand, and price is all you need to know to price an NFT. If demand exceeds supply, then price it higher, and vice versa. Yet, getting the price right can be tricky – if you sell it, you'll always wonder if you could have gotten more – and that is greed in play.
Aren't There Any Utility To NFTs?
If you've been following along the articles here, you'll probably get my arguments of how NFTs are not just JPGs. They can be valuable collectibles, they are also access tokens (much like a country club membership), and some even have physical utility and even yield-generating mechanisms baked in.
Yes, there is some value you can ascribe to these utilities, but reality is that the sale price of the NFT is usually way higher than its functional value – which is the argument of this article, that they are usually overpriced. In a similar sense, branded goods and apparels all have that overvaluation of the functional utility they serve e.g. two bags of identical quality and function can be priced very differently because of a label.
Some people will contend that it's branding and marketing – these companies have invested heavily into marketing and it's reflected in the price. When you buy a LV or Chanel, a Patek Philippe or Lamborghini, it's more than just the functional utility of the object – it's the social status you get, and that's not something an NFT can get you.
If you buy into that, you're precisely right, and that is what NFTs can do for you – well, not now at least As it stands, NFTs are the social flex for the rich and the crypto-early. So much such that the NFT narrative is largely shaped by the people who have a BAYC or Punks on their Twitter PFP. While this probably matters not to you now, it'll become more significant when NFTs become a part of our daily lives.
So What Is The True Value Of NFTs?
Just like art, it's up to you. If you're a collector, by all means, assign that collector mindset to value your NFTs. If you're into fine art, there's also that category of NFTs for you. Access tokens? Gaming tokens? Fashion tokens?
The reality is that NFTs are so broadly applicable and will likely be deployed across multiple industries. Rather than dismiss all NFTs as over-priced JPGs, why not dive into an industry that you're familiar with. Chances are, you might be able to find value that others are still oblivious to because we are that early in the adoption phase.
The best returns are when there is asymmetric information in the market. Your experience will and expertise will lead you to find the diamond in the rough – you just need to open yourself up to the possibility, and you will find that value.