In just the 2-3 weeks since Part 1 of this series was published, the NFT collectibles market has exploded. Again. And again…
As rumors circulated that more “whales” 🐳 (participants with enough capital to move markets) were taking the plunge into the world of NFT collectibles. Available supply of blue-chip collectibles such as CryptoPunks and Fidenzas quickly began to dry up, and in the ensuing supply shock, speculators lifted the tide across the entire NFT space. Some notable projects since Part 1 include new avatar collections: The Vogu Collective and Animetas; Parallel Alpha, a new NFT trading card game with some very cool lore 🌌 but no real product or timeline 🤨; Twin Flames, a photography exhibition minted as 1/1 NFTs; and existing projects that experienced a fresh surge of interest, such as Cool Cats (a newer 😽 avatar collection), Hashmasks 🎭 (a collaborative art collection released earlier this year), and Curio Cards 🃏 (an NFT art project that technically predates CryptoPunks).
Adding fuel to the fire (and validation to rumors), Christie’s announced their upcoming “No Time Like Present” auction: a lot which features a selection of CryptoPunks, Bored Apes, Meebits, and more. As if that wasn’t enough, more brands announced their first NFT offerings, including Marvel, Louis Vitton, Porsche, and Funko. Even The New Yorker published a piece on BAYC, leading many to seriously consider if NFT collectibles have transcended from a speculative mania to a new asset class/store of value.
A few NFTs in Christie’s “No Time Like Present” auction
When we see “jpegs” selling for 7-8 figures and people flipping their NFTs for several times what they bought them for in just a few days, a couple things happen:
People enter the market in droves - more projects trying to ride the hype get launched, and more buyers enter with hopes of making life-changing returns.
Irrational exuberance (mania) takes hold, and easy gains give traders the confidence to take on more risk.
Fear and greed are key drivers for any market 📈📉
I still stand by my call that over 99% of the NFT projects around today will ultimately see their valuations collapse at some point, but that said, how can we still participate and prepare ourselves for the long-term trends in NFTs as they form?
In Part 1, we gained a solid understanding of the top sectors of the NFT collectibles space. In this article, we will cover how to navigate the endless, noisy sea of NFT projects using the best valuation and analysis tools currently available, so you’ll be able to avoid getting “rugged,” “rekt,” or “FOMO-ing” in as the last chump holding the bag.
What Gives NFT Projects Value?
The quintessential professional NFT collector 😎
We often hear someone say that an NFT is worth ‘X’ amount, but what is this assumption based on? The price it was last sold for? Some nebulous intrinsic value? From individual artists to recognizable brands, the backing of a strong, passionate community is paramount for the long-term success of any project, regardless of whether or not it uses NFTs.
NFTs with little to no utility (i.e. crypto-art, cosmetic game skins, collectible avatars) can be hard to value, but just like their analog counterparts (i.e. fine art paintings, luxury brand clothing), social signalling and secondary markets have a profound effect.
Valuation Checklist:
Community Presence
A large, passionate, active, and growing community on social media hubs like Discord, Telegram, and Twitter, who are welcoming to new participants and willing to back projects with their own money (including the founders, of course).
An influencer or two covering the project doesn’t hurt, though I’d be cautious of their intent - it could be that they invested early and are looking to pump the price and before unloading, so do your own due diligence.
Brand Power & Reputation
Creators in good standing with a public history within the NFT community who are less likely of being driven by short-term profit.
Strong partnerships with other reputable names in the space.
High standards of work (especially for crypto-art curation).
Supply & Demand (Scarcity)
How unique is the NFT, really? Is it one-of-a-kind, an edition from a set (a.k.a. limited-run digital prints), or a bit of both (i.e. PFP avatars)?
Will a portion of the collection be “burned?” (artists sometimes do this after a primary sale to drive up scarcity and collectable value)
Are there any “whales” that can flood the market with supply?
Liquid Markets
A healthy primary and secondary market (we’ll cover some useful, easy-to-use tools in a bit) - low trading volume could indicate waning community interest.
Generally, markets with low volume are prone to volatility 🤢
A Team that Knows What They’re Doing (especially for games and DeFi)
Ongoing project updates (a strong whitepaper, a clear roadmap with milestones being met, and visible on a code repository like GitHub, if possible).
Strong narratives backed by data (i.e. a growing number of active users and market share, revenue growth, etc.).
How Are Individual NFTs from a Collection Valued?
Due to the illiquid nature of the market (NFTs like crypto-art especially don’t tend to trade hands often), one of the major obstacles to mass-adoption is the lack of reliable price discovery. Access to closed information opens up arbitrage opportunities (it’s why what draws hustlers to antique shows and garage sales), but when more data is available like we see in real estate listings, eBay, and Amazon, we are able to compare unique but similar items and come up with more reliable prices.
Since blockchain data (on Ethereum) is stored on a decentralized public ledger, analyzing NFT and marketplace data is open to anyone. You do know how to code, right? 🙂 (just kidding 😅) Even though knowing a bit about web APIs can be a plus, it’s not a requirement for our purposes today. As we’ll cover shortly, there are some awesome tools available online that we can use for free.
Millenial / Gen-Z Nostalgia Moment
If you were into trading cards like Pokémon or Yu-Gi-Oh back in the day, think back at what gave those shiny pieces of cardboard value, and why some were more valuable than others. Holding these cards was a social signal; entry to a community fandom, where certain rare cards carried status (“whoa, they’ve got a first edition Charizard! They must be an elite collector! #subscribed”)
Cards depicting popular monsters like Pikachu would get more attention from the broader community. Some cards were not only scarcer (i.e. ultra rare > rare > uncommon > common), but also got the foil treatment at higher rarities (magpies aren’t the only ones that like shiny things).
Finally, if the cards were part of a TCG (trading card game), they could be used in tournament play (sometimes with valuable prizes and clout on the line). It was typical for rarer cards to have more powerful gameplay utility than common cards.
Different Pokémon cards, each with a unique look and value
In the NFT space, many collectible projects adopt a similar rarity structure and value proposition. Axie Infinity, for example, is a MOBA game built on NFTs with rarity tiers such as “Mystic,” “Fuzzy Mystic”, and “Origins,” that affect market value.
Valuing the Subjective: Crypto-Art Markets
Buying a piece of crypto-art just because it’s an NFT is like buying a painting just because it used expensive paint and a top-of-the-line canvas.
From a market perspective, the secondary order of curation can add just as much (if not more) value to a piece as the artist(s) themselves. Curation (the process culling and promoting certain pieces) can add further context to a piece, generating new interest from a wider audience (win-win for both artist(s) and collectors).
At the same time, be careful of shilling tactics and pump-and-dump scams. NFT collectors on Twitter especially can sway speculators to “ape” into certain projects. This is why I prefer to follow artists who are also collectors (i.e. FVCKRENDER and Tim Riopelle, who I interviewed in this recent article), and NFT “whales” who have been in the sector for ages, who tend to hold quality projects for the long term, like DCinvestor.
Reputable curated crypto-art platforms like SuperRare, KnownOrigin, NiftyGateway, and Art Blocks, are usually where collectors will look first for “blue-chip” crypto-art (see Part 1 if you missed it). Recently, we are also seeing a merging of social media and community curation on platforms like Showtime and Lazy (I’m also tracking JPG: a new on-chain curation protocol). Trending pieces are sometimes also featured on platforms like OpenSea and Foundation, based on their own curation process.
Collectors often prefer specific genres and/or similar styles; this can provide insight when analyzing new or under-the-radar projects (i.e. it’s not much of a secret these days, but the majority of curated Art Blocks projects were once a steal compared to today). It’s interesting: though crypto-art collectors tend to prefer similar styles from certain artists, they want as much variety as possible from generative art projects (something much easier said than done, since all pieces from a collection are created using the same algorithm). Fidenza is a prime example of the latter, and has become one of the top curated projects from Art Blocks.
Your NFT Valuation Toolkit 🛠
If you are interested in doing any NFT trading, be sure to familiarize yourself with this list of essential tools:
ArtCentral.io is a slick analytics platform for NFTs. It features a data-driven marketplace explorer, portfolio manager, and upcoming drop calendar.
CryptoArt.io is an easy to navigate data viewer for crypto-art sales on multiple blockchains (not just Ethereum).
CryptoSlam is a clean, concise way to track daily and weekly volume on NFT projects and fan tokens (popular with European football clubs ⚽️).
DappRadar's NFT page tracks transactions for NFT dApps, and can be useful to see both the most popular projects, as well as the top platforms in each sector.
DeGenData is an NFT trader’s essential dashboard, complete with market data and analytics for several popular NFT collectible projects.
Feeling overwhelmed by the vast number of NFT-art marketplaces out there? Though still very new, Masterpiece.so tracks data from popular online marketplaces and institutional auction houses like Christie’s.
NFT Price Floor and WGMI are quick ways to check the “floor price” (lowest price available from a given collection) for several popular projects.
NonFungible.com is a great one-stop shop for tracking NFT markets, staying up to date with news, and learning about various projects. They also release well-researched quarterly and annual reports on the NFT space, as well as a weekly newsletter (I’m a subscriber myself).
OpenSea’s rankings page offers an up-to-date, searchable list of all the popular NFT projects on the platform.
Rarity.tools ranks each unique NFT from a given project (specifically collectible and generative art) based on a “rarity score” (detailed here) calculated using the various traits held by each NFT. It also features details on upcoming projects, and the prices for NFTs it tracks (if they are for sale).
Upshot is a collector-centric peer prediction protocol, kind of like a screening/hot-or-not dating app 💋 (for NFTs 🤓). Users share their expertise in a particular niche by choosing which NFTs they think are valuable, and are rewarded in tokens ($USDC and $UPT) based on the quality of their answers.
If you’re on Twitter and want real-time data in your feed, there are also bot-accounts that post when an NFT for a given project moves, like @CryptoPunksBot for CryptoPunks.
It’s also worth noting that while most sales occur in the primary market, more money flows through fewer transactions on the secondary market. This suggests that collectibles that have retained demand over time (i.e. Punks, blue-chip crypto-art) are more in demand.
Q2 2021 data courtesy of nonfungible.com (note that this tracks ERC-721 NFTs on Ethereum mainnet only (ERC-1155 NFTs and layer 2’s are not accounted for)
Peer-to-Peer Trading
For the most part, NFT sales take place on aggregate eBay-like marketplaces like OpenSea and Rarible, niche-specific marketplaces like Hic et Nunc for indie crypto-art and Art Blocks for new generative art, and dApp-specific marketplaces (mostly for gaming) like the Axie Infinity, ImmutableX (Gods Unchained), The Sandbox, and Decentraland marketplaces.
However, what if we want to recapture that feeling of bartering with someone one-on-one at a schoolyard or a swap meet? One option to consider are NFT for NFT swaps.
If the trade looks fair (i.e. my three avatar collection NFTs for your single Art Blocks edition), we can send the NFTs directly to each other’s wallets and skip the whole cryptocurrency transaction altogether (i.e. in ETH). You own your NFTs, after all - they aren’t locked to a specific platform, as long as you hold them in your own (non-custodial) wallet.
To mitigate counter-party risk, NEVER send directly to the other address, especially if you barely know who’s on the other end (i.e. no communication outside of DMs), and/or if you’re being asked to send first.
"Don't trust, verify!"
-ethos of the Bitcoin and crypto community
Instead, use the tools available that offer free (minus network transaction fees) escrow-like, peer-to-peer transactions, such as:
Make sure what you’re buying isn’t a knock-off. Always check the first transaction to see where who created the NFT in the first place (Etherscan and most marketplaces show the full transaction history of an NFT).
Take note of built-in costs when buying and selling NFTs, including transaction, platform, and royalty fees (it’s standard for crypto-art NFTs to add ~10% to secondary sales, which goes back to support the artist(s)).
If many NFTs are held in fewer hands, it could be a red flag. Growth of the community could be stunted, or even worse, the market could get flooded with supply that crushes demand (particularly devastating in illiquid markets like NFTs). NFTs from Larva Labs are generally the most distributed and imho, have the most dedicated communities behind them. Research how the NFTs were distributed in the first place (public fair launch vs. private pre-minting).
Just being rare and unique doesn’t make something valuable (sorry, no one else wants that 1/1 tchotchke you minted, snowflake ❄).
There can be a lot of cross-over when trying to determine which market an NFT falls into (is it art or a collectible? 🤷♀️). The best way to learn is by doing: experience firsthand what the community is doing with their NFTs by hopping into the project’s Discord server or a Twitter space. For games, create an account and actually play the game (many people don’t do this and just chase rising numbers). For crypto-art, reach out to the artist and get to know the message behind the work.
When a collection drops, be prepared for higher than normal transaction fees, depending on demand (it’s not unusual for gas fees to spike well over the cost of the NFTs themselves during these events). This is because there is a bidding war on the network (so many users are trying to get their transaction filled at the same time). If you need a refresher on some blockchain basics like gas fees, check out this previous article 👇
💡 Market theory states that the value of an asset comes from the consensus of market participants. Just because we don’t think a particular NFT project makes sense or that we would never pay such a price, the fact is that there are buyers and sellers out there who do.
Ask Yourself: “Why Am I Buying or Selling This NFT?”
Are you interested in crypto-art for a speculative flip (be honest!), or are you a genuine fan of the artist with the intent to hold for the long term, and see NFTs as a way of investing in a part of their journey. There is no right or wrong reason, but hopefully you can be honest with yourself, and know why you’re doing what you’re doing. In any case, learning and gaining experience is rarely a negative if done responsibly, and if artists can benefit financially and focus more of their time on their work, I’m all for it!
Unless someone plans to make flipping NFTs their full-time job (and even then), most people chasing shiny objects and hype in these highly volatile, speculative markets are likely in for a rough ride. I believe it’s worth reminding ourselves of some conventional investment wisdom:
know the risks involved and your own risk tolerance (do your homework!)
manage your emotions (if you’re having trouble sleeping, you might be over-exposed)
are the markets in a state of fear or euphoria? “YOLO,” “FOMO,” or because of some Tik-Tok influencer are not good reasons to buy or sell (or to do anything for that matter!)
past prices are not an indicator of future performance (the market doesn’t care if you bought at a higher price yesterday than buyers are willing to pay today)
invest in things you understand, that align with your values and interests (i.e. crypto-art NFTs might make more sense to some, while digital sports collectibles or video game NFTs might make more sense to others).
Go in knowing whether you’re in it for a trade or for a longterm hold - in the case of the latter, secondary market volatility should just be background music. 😌
Ultimately, don’t forget that collecting NFTs should be FUN! If you went into a project for the art, but now find yourself stressed-out, buying and selling based on rarity scores, take a moment to make sure that’s what you want.
NFT Collectibles in the Years Ahead
Today, most unique things (physical and digital) still exist off-chain (not as NFTs), but the merging of digital and physical ownership as NFTs is inevitable, in my view. Expect to see ongoing, exponential growth of the supply of collectible “stuff” available as NFTs in the coming years.
We touched on it a bit with VeeFriends in Part 1, but a can see a day soon where a wallet full of event ticket NFTs will be a huge status symbol. “Proof of attendance” for exclusive past events like conferences and concerts will speak volumes about the holder’s ranking in a community.
NFTs are a huge catalyst for the mainstream adoption of Web3, and similar to what we saw with comic books and anime, it’s pulling crypto from an underground culture of tech geeks, and making it cool and accessible to everyone.
Personally, I try not to tread too much in shorter-term, speculative NFT trading, and usually try to buy something because of the art and/or with the intent of supporting the creator at a fair price (i.e. crypto-art), or for utility (i.e. game assets and tokenized domain names). That said, it’s nearly impossible to be in crypto and NFTs and be completely unaffected by the emotions present in markets, so if you feel a bit of “FOMO” every now and then, know that you’re not alone. 👍🤗
That said, please don’t come to me asking for trading advice. 😅 At the end of the day, my goal here is to help inform and empower my subscribers and the NFT community as a whole.
If you have any questions about crypto, NFTs, or anything else I can assist with, please don’t hesitate to reach out! If you have your own NFT story to share, or your own take on what the NFT collectibles market might look like in the future, I’d love to hear from you! 😁
As always, thank you so much for taking time to share this journey together with me into the world of NFTs. I hope you found the content helpful, and maybe even fun to read! 😁 If you would like to help support the NFT Droplets newsletter, please do Share this article with someone who would find it helpful.
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⚠ Disclaimer ⚠
Cryptocurrencies and NFTs are a speculative asset class. Be aware of the risks involved and know that you could lose money. Everything I share references an opinion and is for information and entertainment purposes only. It is not intended to be investment advice. Please consult a licensed professional before making any investment decision.
