Mark Tencaten | How to Evaluate the Worth and Value of NFTs

Saying that the cryptocurrency market never stops would not be an exaggeration. There are constantly fresh innovations happening. Assets of new sorts are continually emerging. While Bitcoin served as the industry's foundation, there are now more than 9000 other cryptocurrencies. Non-fungible tokens, or NFTs, are another significant cryptocurrency asset discussed in every technical and financial conversation besides cryptocurrencies.

Since last year, NFTs have exploded, breaking records in 2023. Million-dollar transactions occurred on a new NFT marketplace in its first month of operation. Adidas, Nike, Tech Mahindra, Microsoft, Disney, and other large corporations have entered the NFTs sea. New projects create their NFTs daily, each selling for millions of dollars.

But, in Mark Tencaten's opinion, the most important question is: How should one evaluate the worth of an NFT? Is the offer price appropriate for the NFT type you are purchasing? What details should you check before purchasing any NFT? As you read all the headlines around NFT, you must ask yourself these things. Please continue reading, as Mark Tencaten will answer all your concerns there.

Let's examine the variables that influence an NFT project's value.

How to Determine an NFT's Value

Why is it difficult to calculate an NFT's exact value? Given that this asset class is very new. While there is a set price for tangible treasures like the Mona Lisa artwork or physical collectibles like NBA player cards, investors may have to grit their teeth while determining whether the NFT they purchase is worthwhile and needed.

However, there are a few key elements explained by Mark Tencaten that one must take into account when determining the value of NFTs, given their quick and steady expansion into a number of industries within a short period of time and achieving high valuation levels.

Five Elements that affect an NFT Project's worth

1. Rareness

This factor determines the rarity or scarcity of the particular NFT. The original artwork from several renowned artists in the digital art business is a great example of a rare NFT. This category of NFTs occasionally includes NFTs produced by famous people. The impact an NFT will have, such as in the case of video games, is another element that contributes to its rarity. This category includes rare gaming objects that are NFTs.

Because of the intrinsic worth that these NFTs contain, people frequently find themselves drawn to them. The blockchain proof of ownership is in the control of the NFT's owner. This establishes the distinctiveness of those NFTs and establishes the premium value of those NFTs.

2. Utility

 Any NFT's utility value depends on how it may be put to use. The two main NFT categories with the highest utility value are tickets and game assets. For instance, Coachella has begun to offer NFTs for lifelong access to its event, which also come with benefits like front-row festival seats, tickets to every show, etc. A strong and uncommon Crypto Space Commander battleship sold for $45,250 in 2019 is another illustration of such an NFT. Utilizing an NFT in various applications is another approach to assessing its usefulness. Consider how valuable a battleship might become if used in a different game.

Interoperability in the game industry is still a long way off, though. This is due to the fact that game creators must first create expansive game ecosystems and appealing use cases. A relationship with another company that offers benefits to the owners of those NFTs is another option to boost the usability of the NFT.

3. Liquidity

The worth of an NFT increases with more liquidity. The fundamental factor that should cause an on-chain token to be worth more than an off-chain asset is liquidity. Due to the lower risk associated with owning NFTs, investors always choose to invest in NFTs with substantial trading volumes. NFTs created per the ERC standards can be purchased by potential purchasers who own Ether (ETH) and exchanged effortlessly across various platforms. This considerably raises those NFTs' worth. Non-Ethereum NFTs frequently have a lack of liquidity, which causes their value to be lowered. According to experts, businesses need to develop token economics to encourage users to interact with their NFTs more and exchange them, developing liquidity.

4. Future Worth

Future cash flow and valuation are the resultant elements that determine the NFT's future value. While speculation is the primary factor in valuation, it may also be the primary factor in price growth. For instance, in December 2017, the cost of CryptoKitty #18 increased thrice, from 9 ETH to 253 ETH. Few experts contend that price movement exclusively determined by valuation harms NFTs. Still, given human nature and the existence of speculation in the current financial system, this cannot be denied. Two key factors influencing the value are supply shortage and speculation.

Incorporating the price-performance charts for the NFT items into your speculative analysis is a terrific method to steer it. Future cash flow may come from interest or royalties collected by the NFT's original owner. In order to generate more cash flow, NFTs are frequently leased and collateralized. This is the case with game NFTs frequently when another player needs a rare NFT to create a particular quest, which raises the value of that NFT.

5. Ownership History

In some circumstances, the real identity of the seller and the past investors in an NFT will determine the value of that NFT. NFTs with a high ownership history valuation tend to be the creations of well-known artists or businesses with a strong brand identity.

Conclusion

Value, in general, is a function of individual judgment, yet intrinsic worth does adhere to some market principles. The rules for NFTs are predetermined by the five points Mark Tencaten mentioned above. These elements in and of themselves are dependent on the NFT issuer. The numerous possibilities that may be investigated are amplified by the adaptability that NFTs bring with them. NFTs are unquestionably more than just digital replicas of an object or collectibles. NFTs may be applied to practically everything in the real world, from marking goods to prevent theft to verifying voting rights and boarding passes.

Before buying any NFT, Mark Tencaten always advises doing your research. Before making a purchase, consider the NFT's rarity, utility, potential worth, liquidity of the system it is based on, and ownership history.