If you’ve been following the cryptocurrency world, you may have heard of NFTs. These digital collectibles have taken the crypto world by storm, with some people even spending millions of dollars on them. For the year 2021 alone, the NFT market was worth over $4.36 billion. So why are NFTs so expensive? Let’s take a look.
What Makes NFTs Sell at Such High Prices?
There are multiple reasons why NFTs cost as much as millions of dollars. Let’s explore five of the most important factors that triggered the rise in the cost of these digital assets.
The NFT Bubble
The NFT bubble is credited as being one of the biggest reasons behind the insanely expensive price tags on certain NFTs. A bubble, in this context, refers to a time when an invention or revolution of some sort becomes increasingly popular. The perfect example of a bubble is the dot-com bubble that lasted between the years 1995 and 2000.
The dot-com bubble was an era of immense success for internet-based companies. Blue chip startups received vast sums of venture capital, while share prices for tech-infused companies like the Nasdaq exchange more than quadrupled.
This can be assumed to be the case with NFTs. Less than five years ago, these digital assets were not very well known. However, with people having a lot of free time during Covid-19-instigated lockdowns and the tough financial times that followed, many took a keen interest in these monetizable blockchain assets. This resulted in an NFT craze that saw more people buying the assets, which pumped their value.
Rarity
Another factor behind the ever-soaring NFT prices is their rarity. Non-fungible tokens are pieces of code stored on a blockchain. This means all NFTs are unique. Despite sharing similarities
with other NFTs within their collection, these assets are literally one of a kind
For instance, one of the most popular NFTs, Bored Yacht Apes, is a collection of 10,000 pixelated-ape images. However, each Ape has distinct characteristics, with some apes having more unique characteristics than others.
The higher an NFT’s rarity, the more people deem it valuable. This has made NFT rarity a fully-fledged metric for determining which assets deserve a high valuation. In turn, NFT enthusiasts and investors are willing to buy rare NFTs at increasingly high prices.
Association With Celebrities
Celebrity endorsement is one of the best strategies for inflating the value of an item, and NFTs are no different. Since their rise, NFT projects have been notorious for soliciting the creme-de-la-creme of the entertainment and music scenes to create hype for them, too.
Judging from NFT projects like The Sandbox, associating an NFT with a celebrity is almost a guarantee that its price will soar. The Sandbox is a metaverse-based NFT game that encourages players to buy virtual pieces of land to create their own parallel digital universe.
In 2021, The Sandbox announced that Snoop Dogg bought a piece of land in the game, and instantly, the land value around this area skyrocketed. A few months later, a buyer bought a neighboring parcel for $480,000, mainly because of its proximity to the renowned rapper’s digital estate.
Utility
Besides the hype, the other reason why NFTs are valuable is their utility. The fact that these assets can generate real-life money drives many to invest in them, bolstering their prices.
A sector that has contributed largely towards this is crypto gaming. Many crypto gamers joined the sector because of its opportunity to generate profits. Many of these games ask players to buy NFTs, but the gamers earn from their gaming efforts and make back what they spent, plus profit.
NFTs are also traded on secondary NFT marketplaces. NFT traders buy or acquire the assets at a lower price, then flip them for a profit. Such levels of utility have made NFTs highly sought after, and the rise in demand has made them expensive.
NFT Price Predictions
The leading reason why people keep expensive NFTs is the market forecast for these assets. According to market and consumer data body, Statista, the revenue from NFTs is expected to rise by 227.26% annually. At the same time, another site places the sector’s worth at $7390.8 million within the same period.
Such promises of high returns on investment trigger a staggering increase in the value of NFTs. As more people rush to buy the assets, hoping their value will appreciate over time, the tokens’ perceived value hits the roof, and their prices follow closely behind.
Are All NFTs Valuable?
Although some NFTs are highly valuable, not all NFTs are worth investing in. When investing in NFTs, you need to be cautious not to put your money on low-value NFTs or rug pulls. It is important to do your own research on an NFT before buying one. You should also avoid spending money you cannot afford to lose on NFTs. This is because they are crypto assets and the crypto space is highly volatile, meaning prices can tank at any time.
FAQs
What Makes an NFT So Valuable?
The value of an NFT comes from various factors. These factors include the NFT’s rarity, association with celebrities or famous people, utility, and promising price predictions. All these factors increase the asset’s perceived value and, consequently, its price.
Should I Invest in NFTs?
NFTs are an excellent investment, but you need to be careful with them. For a start, get as much knowledge as you can before investing, because there’s a lot you need to know to make a good investment.
Also, only invest an amount of money that you would not mind losing. Although NFTs are secure investments, they belong to the crypto space, and crypto markets are unpredictable.
Which Is The Most Expensive NFT
The most expensive NFT in recent times was The Merge. This digital piece of art was sold at an auction in December 2021 for a staggering $19.8 million.
