How to Value your NFTs Collection
Let’s imagine for a moment that you jumped on the NFTs train, perhaps in the spring of 2021, in the days when Bloomberg, Forbes, Vice, and many others were beginning to discuss the phenomenon, tickling the imaginations of those who saw themselves as future collectors or digital patrons.
We also imagine that you chose to participate as an investor without having achieved a significant experience. Let’s say you moved in the hope of acquiring a rarity or simply to make your portfolio of non-traditional positions a little sexier. Nothing wrong with that, just business as usual in the Cryptoworld and probably the most genuine predisposition with which most of us enter small investments.
Congratulations, of course. After all, this market has almost reached the size of the global Fine Arts market, the world of Christie’s and Sotheby’s for instance (41b vs 50b traditional market, Chainalysis data). You are, virtually, on a moving train. But what do you have to do now?
The reality, after the enthusiasm, is that you need to separate the “cultural” part of your action from the possibilities of economic return. You have contributed to the growth of a technology that will be responsible, for many, for the next direction of the Internet, Web3, or Metaverse. You have also supported — perhaps most nobly — artists and creators who for years have not found a serious way to exploit the Net. For others, however, you have only funded a market that rewards the projects of those who were after all already popular (stars, celebrities, brands in various rise or decline) or even helped trigger a giant pyramid scheme or a potential money laundering tool (United States Treasury, February 2022). Extremes always make a scene.
Whatever your stance on the matter (do you really have any way of knowing?), the time has now come to figure out what to do with your work.
1. After the purchase, the mistake is not to think about the safe.
Impulsive or meditated, your choice has been made, and now the first point to ensure is the security of the purchased certificate. NFTs are crypto assets, authenticity, and uniqueness statements that exist thanks to the blockchain (mainly based on Ethereum). You don’t own the art; you own the certificate. That’s what you need to protect. Even if a hacker can’t replicate your asset, it can be lost by you (yeah…) or — as for everything — stolen. So, before you even think about calculating the value growth, make sure you don’t lose possession of the asset as a whole. The cases, even exemplary ones, are many.
The first choice is where to keep what you have purchased. The general recommendation, from many parts, is not to keep it inside the marketplace (in many, it is not possible now), but inside a non-custodial wallet (Electro, Exodus, Zengo). You have probably already met this term in the crypto world: it can be a third party who owns your wallet’s keys and acts as your bank, or you can be your bank. In this case, all the information stays with you, along with the keys to Uncle Scrooge’s deposit.
On that note, it’s also time to think about cold storage. ‘Cold’ storage is simply any storage device (e.g., a classic drive) that is not on the network and is not accessible without physically coming into contact with the object. As long as you don’t lose your passwords or your device, you’re safe (alas, even losing the device…well, it happens). Speaking of art, you can consider a marketplace as a gallery and the place where the certificate physically resides as your safe.
Custodian wallets, on the other hand (Binance, BitGo, blockchain.com) represent an alternative for those who do not wish to take care of all these steps themselves.
2. Identify the value matrix of your asset
There is no formula for determining the value of the asset you have purchased, nor can you refer to this market with the same rules you use to trade crypto. The economic value you can realize from the sale is not (only) the result of predefined variables but rather the expression of several factors that fluctuate over time. Terms differ, but there is consensus on the dimensions of Popularity and Utility of the asset. Let’s explore them together and find out later what other, less apparent indicators.
2.1 Popularity and Longevity
Creators, investors, or simply enthusiasts of the NFTs world like to put the value dimension (not the economic one) of their business first. With at least 5 years of history, but only a few actual months of the (dizzying) boom, this world has a component of technological enthusiasm and (seemingly) genuine interest in the remuneration of digital art creators. However, the NFTs that get the most attention are spin-offs of projects that already have authority in the offline world. Often they are “goodies” made available by those who already have a dominant position in the world of entertainment, sports, or in general. You need to come to terms with this dimension and forget, for a moment, the more idealistic component of your financial operation. It is easier to predict the success of an asset that already lives on pre-acquired fame in another domain or an influential person has previously owned that.
The list is long: Messi or Snoop Dog, Bulgari or Dolce & Gabbana, Steve Aoki or 3LAU. The choice of those who have applied digital skin to their products is endless. But how much does having purchased part of a “famous” project predict the value over time? In other words, how much does the launch hype affect the asset’s value?
Let’s try to see the digital counterpart to this phenomenon. Ignore the real-world fame component for a moment. Popularity isn’t just a celebrity issue. When approaching a project (almost always the purchase is for one element of a larger thematic collection) the importance of the creator can also be measured on purely online parameters. First of all, the existence of a platform with which the work’s creator communicates actively and frequently. You need to assess the creator’s ability to create interest in their products and return additional free information or goods to those who have purchased the work. You can determine the conversation online and on social media and — in general — try to understand how much a community has developed around the project. Remember that, even with popularity in the physical world, demand is unlikely to sustain the price over time without a community of interested users.
This aspect is a fundamental indicator for understanding value. Popularity can, in fact, be a general evaluation of how well known a project is or an indicator of how much enthusiasm a small hyperactive niche continues to keep it alive, acting as an indicator of Longevity.
2.2 Beyond the obvious, decisive factors in the future.
That’s is the area where NFTs decisively disentangle themselves from the world of artistic experience and intersect technology and culture. At least the one with a lowercase “c”. It’s also a list of reflections that don’t involve those who invested in speculating in the short term but think to keep their certificates at least in the medium or long term.
In the first term, you have to consider that the technology behind them is subject to fluctuations and changes. Today most NFTs are based on Ethereum. What will happen to the NFTs you’ve purchased if this crypto’s fortunes change? In 2018 TechCrunch’s talk of an inevitable collapse was early or simply wrong?
The consensus seems to be optimistic about Ethereum, and there are no particular conceptual obstacles (just technical points) to moving NFTs to different blockchains. However, the argument must be considered. You have not only purchased a digital asset, you have also expressed confidence in technology and a way to use it. Some might argue that the same thing happens when investing in financial instruments that become obsolete or no longer usable as a result of practices or laws. However, it must be considered that the speed of re-engineering of the world of traditional savings is much slower than the innovation we associate with cryptocurrencies. It is virtually impossible not to exit or convert a financial position in the current market. However, this does not mean that the value remains stable by converting it; quite the contrary.
The other factor is Memorability. Some memes — simple viral messages, sometimes repeated obsessively, that capture truth or contradiction — have become NFTs. Possessing the original formula repeated countless times in our culture has value by definition. Memes are by nature transient and connected to what’s going on around us. They are part of this process when they take an iconic stance that transcends a single issue or (nerdy?) community of interest.
Along this axis, there is also a historic value that can be certified through NFTs. It’s that dimension between memorabilia and document. Think of the sale of Jack Dorsey’s first tweet or in general, the possession of the first spark of a new way to communicate, produce or create meaning in society.
The last one we suggest considering is the phenomenon of Collective Owned Branding, which is those universes of signs and meanings that we traditionally attribute to the “brand” and historically are owned by an individual or a company. NFTs, bring something new to this world. Ownership of an original concept and future economic revenues can be managed through digital certificates. Consequently, they can be owned by thousands of individuals simultaneously. They can be responsible for the brand’s future direction directly and without representation. It is not the same as owning shares in a company and could resemble, with different limitations, owning shares in a cooperative.
If Disney decided to abandon Star Wars tomorrow, they could sell this universe to their fans.
3. Approaches to Revaluation and Final Considerations
As with many other collectibles, the NFT market is defined by the community participating in it every day. The frequency with which new items are produced, the level of engagement and discussion, and the enthusiasm and confidence in the technology are all components of the price you will sell.
But going back to the original question — does your collection have value? — the last variable to consider is your predisposition. In the markets, value is a function of supply and demand. Still, in collectibles, the latter includes several circumstances that those who made the initial investment do not immediately think about. In the component of revaluation of the good is included not only its desirability or the economic investment, but also the time, the network and the knowledge necessary to obtain a winning distribution.
Take the classic case of vinyl. There are decisive choices between the valuation of a collection and the final price at which it is sold. Selling a hundred vinyl — in one fell swoop — to a used record store does not involve the same effort (and is not the same price) as selling and shipping them one by one. It’s inevitable; someone has to take on the cost involved in appraising, organizing a sale, handling returns or complaints. In the NFT world, this dimension seems to be overtaken by technology and the intangible share, but that’s a superficial assessment.
First, selling your collection, you may want to spend time and attention looking for a different exchange platform than the one you made your purchase with. Each Marketplace has its audience and demographics. Pricing, even just changing distribution locations, can vary. Secondly, before selling, you could evaluate additional certification mechanisms, perhaps attesting not to the originality but to the historical, artistic or cultural value of what you are selling. In this way, you will allow your certificates to benefit from an organic sense and certain completeness that a list of random pieces does not have. In this sense, there is no lack of intermediaries and realities that are growing to provide a context of interpretation for future buyers. So, your next NFT investment could also return value to the assets you currently own and not be valued individually.
Finally, along the dimension of time and knowledge, you might consider becoming a public expert in the subject matter yourself, or in other words, an influencer. It’s a revaluation strategy with barriers, but in principle, it’s a legitimate business perspective. Remember that the price of an NFT also depends on who previously owned it (popularity factor). By becoming influential in a particular industry, your assets may retrospectively gain value because they have passed through you (i.e., because they have been chosen with your expertise).
Kindly remember that this article does not contain investment guidance. Want to find out if my consulting firm, Manet Homines, can help your business? Contact us here or visit www.manethomines.com