While NFTs have been around for quite some time, 2021 is the year they finally went mainstream. Most estimates now place the NFT market at $41 billion for 2021 alone (Business Insider) and are predicted to soon overtake legacy/fine art (~$50bn annually).
The question is, which NFTs are most likely to hold their value, and how is the $41bn distributed? To give you an idea, there were 23,122,065 NFTs on OpenSea yesterday, and 23,151,602 today, meaning nearly 30k were added overnight (OpenSea). If you do the math, while many NFTs are doing quite well, it is almost certain that the vast majority of the NFTs being created will NOT have value a year or two from now. Here’s why:
Let’s take the market cap, $41bn, and subtract the top 5 NFTs, a little over $10bn (APN News). That leaves $31bn. Divide that by 23,151,602 (keep in mind, this is the number of unique NFTs, many of them have MULTIPLE of each, sometimes thousands). That leaves $1,339 USD or 0.4eth each. Not too bad! Next up, how much does it cost to launch a new contract on Ethereum? You’re looking at easily $2000 or more in gas fees, putting us at -$661. Next up, each purchase or transfer costs around $30–$60 in gas depending on the time of day. Lastly, we’re ONLY talking about OpenSea, there are plenty of other NFT markets, which means I’m giving a best-case scenario, not to mention leaving out the 2.5% or more that go directly to the exchange you’re using.
What I’m trying to say is, NOT ALL NFTs will go up in value. Yes, they’re a blast to collect, some will moon, and if you just love the art, this article doesn’t matter. But if you’re trying to find NFTs that WILL hold value over time, here’s why I think historical NFTs are your best bet.
I believe the following attributes account for the valuation of all NFTs:
However, the attributes above are NOT weighted equally, nor is the ratio of what gives a project value the same for all NFTs.
The “Newly Minted NFT”
For an NFT launched today, its value is almost entirely dependent on influencers to launch successfully. Without them, it’s incredibly difficult to build out a community or sell a single NFT. Sadly for new mints, this isn’t “Field of Dreams”. If you just made the 30,000,000th NFT, it doesn’t matter how good of an artist you are, 99% of the time you’ll be focused on marketing to get word out, and the odds of success aren’t high.
The “Survivor”
Next up, let’s look at an NFT released over the last year or so, with a fairly decent amount of volume and a solid price. At this point, the creator/team as well as the community are the most important keys to success, as well as maintaining value.
If the Discord is lively and excited, people are probably going to keep buying into the project. If the creator(s) decide to collect the ETH and move on with their life, there’s a pretty good chance the project will stagnate.
At that point, liquidity dries up, people aren’t able to find anyone willing to buy the NFT from them, and you end up with what is commonly referred to as “bag holders”. (Conversely, if the creator and community do a solid job, there’s a good chance that all of them will benefit as the NFT gradually develops a history and longevity).
The important thing here is that the number of holders steadily increases, and remain passionate. If you do well enough, you’ll also get to compete with 20 other NFTs that all decided to plagiarize everything from your name to your art. (Still doable, but frustrating). If you make it here, you’re likely 1/100,000, so fantastic job!
The “Mooned NFT”
This is the reason why NFTs are a blast. Bored Ape Yacht Club, CryptoPunks, and just a handful of others make the cut. By being at the right place, at the right time, with the right marketing, influencers, team, Steph Curry, and Meme-ability, a TINY amount of NFTs become worth millions, and eventually billions. I would argue initially, influencers were incredibly important, but at a certain point, these have become historical by being the first to grow so large and well known. As long as NFTs exist, and a quantum computer doesn’t break Ethereum somehow one day, BAYC and CryptoPunks will have value.
They’re cool, they’re unique, yet they’re incredibly risky bets. There are few things more stressful than placing the equivalent of a paid-off mansion on red at the roulette table, trust me. If you stumbled upon one of these before they went big, congrats! IMHO, they are perhaps the riskiest bet of all ONCE they have mooned. (That doesn’t mean they won’t go up in value, I think they will, but I don’t think this is where you find another +1000x gain, they’re already there)
The “Utility NFT”
For a month or two, this was THE thing. Wolf Game lead the pack (and got to experience competing with 100 clones launched per night). The concept behind it WAS unique. Would it have succeeded as well as it did without influencers tweeting about it? I don’t think so. IMHO, utility is a good way to differentiate to GET an influencer or two but is a short-term shot of adrenaline. I am (perhaps wrongly) bearish on most “utility” NFTs, because they’re so easy to clone, and most of them end up feeling gimmicky, not to mention being incredibly easy to game for those who are technical.
And finally, the “Historical NFT”
This is the whole point of the article, great job making it down here! A historic NFT is one that launched early, before the giant rush of 2021. What makes them unique is that the value is almost entirely in their history. In many cases, the creator or dev team that made it no longer even exists. To be completely transparent and to prove my point, I created PixelMap in 2016. It is now the oldest Ethereum NFT on OpenSea and the second oldest Eth NFT overall. The domain pixelmap.io was down from 2017–2021. Once it was rediscovered, people began buying it directly from Etherscan, before it was even listed on OpenSea.
Does the creator, influencers, art, community, etc. all matter for early NFTs? Yes, of course, and I’m lucky enough to have a fantastic community helping me. But before all of those existed, people were ALREADY buying the tiles up, the inherent value just from being one of the very first. Every single day more people in the NFT space start asking WHAT are the first NFTs, and the market has been gradually moving more to them.
If you think about any collectible, the oldest is almost always the most valuable, and I believe the same will be true for NFTs. If you’ve never looked into them, here are some fantastic examples.
This is by no means an exhaustive list, but just to give you an idea:
There are a lot more to choose from, (2015–2019) is really the sweet spot. The older the better. My point is, that tomorrow when another 30,000 NFTs are listed on OpenSea, there will still only be 1 NFT released in 2015, 1 NFT in 2016, and just a handful in 2017. NFTs have two possibilities. They’re a fad and will eventually die out, or they’ll stick around and become even more valuable, there really is no middle ground. And if they do continue to grow, historic NFTs are both the safest, and best bet for finding the next moon.
References:
OpenSea https://opensea.io/assets
Business Insider https://markets.businessinsider.com/news/currencies/nft-market-41-billion-nearing-fine-art-market-size-2022-1