The definative checklist to determine which NFT collectibles will have long term value.
9 key considerations when assessing the longterm value of an NFT and scarce digital assets.
The following content are my opinions only and are not intended as financial advice. Please do your own research.
1. The scarcity of the digital asset
Economies and markets are driven by supply and demand. Blockchain as a technology has ensured that the supply of a digital asset can be capped. This is important because the limited supply of the digital asset is the fundamental starting point if it is to have value. If there are only 10 of a particular digital asset verses a digital asset with 10,000 — naturally this is likely to have bearing on its market value. However, this is only half of the equation.
For the digital asset to be attributed value in the marketplace, its scarcity must also be accompanied with one or more of the attributes outlined below in order to generate demand.
The extent of this demand combined with its scarcity is ultimately what will determine the value of the digital asset.
2. The significance and popularity of the issuer (and popularity of the game if it is a gaming item).
I can mint and issue digital assets using a range of different platforms right now. But neither you nor anyone else is likely to want them. However, when Paris Hilton released her minted drawing of a cat, people were clambering all over each other to get their hands on it. The issuer can have a very signficant influence on the value and collector interest for an asset in the marketplace.
The same comparative scale of value can be applied if a simple unknown game with a low user-base issues digital gaming items. It can still have some value, but it will be much lower than if gaming items were to be issued for use in some of the most popular and well-known games with millions of users across the world.
(Important Note: Initiatives such as Enjin’s ‘Multiverse’ is a highly innovative ‘collective impact’ approach that significantly increases the value proposition of small indie games and their NFTs by enabling them to collaborate and use single gaming items across multiple games).
Fundamentally, it is useful to consider if there is an existing large customer base or ‘community’ that will be interested in the digital asset issued.
3. The significance of the digital asset and what it represents
Is it the 1st generation item within a series? Or perhaps is it memorabilia representing a moment or period of ‘micro’ or ‘macro’ significance? For example, it may represent ‘a first’ for the game/company (micro) or alternatively ‘a first’ for an entire industry (macro). Either way these can become valued collector’s items that are highly sought after.
The significant future value of such items can often catch people by surprise, but one can foresee this if they ask themselves two questions:
a) “Does this digital asset (now or in the future) represent a significant and broadly recognised ‘moment or period’ that can’t ever be repeated (eg. a first)?”
OR
b) “Does this digital asset (now or in the future) represent something of considerable sentimental value to people?” Eg. ‘Oh, I used to love …’, ‘I spent my childhood…’
Just take a look at all the retro movies and games that are tapping into people’s sentimentality that are making a lot of money.
If the answer is ‘yes’ to either one of the above questions, then I would suggest the asset has got potential value. If the answer is ‘yes’ to both of those questions, then if the price is right — what are you waiting for!?
4. The order in which the individual NFTs were minted
Simply put, is it a #1 or #71 or #741? This can have significant bearing on comparative value.
5. The utility of the digital asset
Does it bring rewards to owner (eg. unique airdrops, discount purchases or special access rights etc)? If it is a gaming digital asset, does it look good in game and/or do something useful for the owner in game?
Taking it a step further, does it have utility beyond one game and can it be used in multiple games or settings — thus increasing its value proposition?).
A further consideration is if the type of NFT allows the owner to ‘stake it’ and/or even rent it out to others, and thus can earn additional returns by owning it. This sort of functionality and defi integration is an area of emerging innovation that will soon come to greater prominence.
6. If it is an Enjin NFT — the amount and value of the ENJ that the digital asset has been infused with.
This can be relevant as a ‘price signal’ that may identify an item as being more ‘special’ than others. However, the inherent ENJ value may merely set the digital asset’s minimum value, whereas many of the other factors above have more bearing on its maximum market value (to undertand ENJ infusion see https://enjin.io/).
7. The ‘look’, ‘sound’ and ‘image’ of the digital item
This can definately have an infuence on an item’s value, and especially in reference to cryptoart NFTs. But interestingly this is often not as influential as one might expect. As a general rule, this attribute can be a very subjective judgement and ‘its beauty is in the eye of the beholder’.
There are strong parallels with how value is assessed for physical art pieces and albums which can also be applied here in the digital space.
8. What did it previously sell for?
A simple but important consideration that almost goes without saying. How has the market valued this digital asset to date? Similarly, how is the market valuing any other digital assets that could be considered comparable to this one?
When considering an NFT’s pricing to date, you may see value that the market has not yet sufficiently identified. Thus, you may feel this justifies purchasing this ‘hidden gem’ even if there has not been high demand nor high value attributed to it previously. However, here in lies the opportunity for significant gain and also considerable risk. It is important to consider ‘why hasn’t the market seen its value to date?’ If there is good explanation for this that is expected to change, then you might have found a winner. However, always keep in mind that if the market never sees that value that you do, then you may never receive a return on that investment.
9. The longer-term prospects for demand
This is another very influential attribute as buyers assess the current and future value of a digital item. Is the digital asset used in a game that will remain popular for some time and/or significantly grow in popularity? Will new utility be applied over time? If the digital asset represents a ‘micro’ or ‘macro’ significant moment/period — will this still be remembered as being significant when looking back in the future (either for objective or sentimental reasons)? Is there a new cohort of customers soon to enter the marketplace that this asset will appeal to?
Over to you…
The above checklist may provide some guidance when assessing potential demand and the subsequent value of NFT digital assets.
Assuming ‘limited supply’ as the starting point, a digital asset needs to only additionally carry just one of the above attributes to potentially drive future demand and value for that item. However, if you identify a digital asset that is assessed as being high on multiple domains, then I would suggest this is a pretty strong indicator of its potential future value.
Am I too late to buy any digital assets with BIG future value potential?
Cryptopunks have been considered the pinicle of NFTs and a blue-chip investment in this space. These assets score highly against many of the aforementioned criteria. However the problem for most people is that they have discovered this too late and the cryptopunks are already out of reach for the average investor. So are there any other digital assets left that might see similar sorts of increases in the future?
If you have happened upon this article not long after its publishing date, and you’ve made it all all the way to this point… you may well be rewarded…
By applying the above criteria you will discover that there are actually some other ‘gold standard’ NFTs / scarce digital assets that the market at large has not yet fully discovered and has not yet priced out of reach.
Specifically, Cryptopunks’ high value is primarily derived from:
- Having major historical significance as a ‘first’ in the scarce digital asset space.
- Leading the early innovation and technological breakthroughs that have laid the foundation for this whole new asset class that will proliferate our society.
- Being highly exposed/known to this new market. The market understands their significance and can get easy access to trade them.
However, unbeknowns to most, there are two other key projects/digital asset sets that are actually superior to Cryptopunks in each domain above except for No. 3 (ie. they are still largely undiscovered by the market and difficult to find.)
Those assets are: Spells of Genesis (2015) and RarePepes (2016).
Most of the market do not yet know that the very first NFTs and scarce digital assets (such as these two sets) were actually tokenised to Bitcoin well before this activity was taking place on Ethereum (and in the case of Spells of Genesis — even before Ethereum was birthed).
What does this mean…?
It means that there are the very earliest of ALL digital assets in the marketplace right now which pre-date cryptopunks, but (at the time of writing) can still be purchased for a fraction of their price. These are the original and oldest of digital antiques – and which are tokenised to Bitcoin, the original and most secure blockchain of all (a more secure proposition than most)
The price of these assets have been steadily rising, however, in my view, there are two factors that are temporarily suppressing an exponential rise in the price of these assets right now:
a) The lack of market understanding and awareness of the full history of NFTs/ the birth of tokenised digtial assets.
b) The difficulty the broader market has in getting access to these original digital assets that are presently traded on Counterparty — a protocol platform built on Bitcoin.
However, amidst the evolution of NFTs it has become increasingly clear that the future of digital asset marketplaces will consist of ‘chain-agnostic’ platforms. These emerging platforms will throw open the doors of trade and will expose to the market these revolutionary BTC assets that have laid the foundation for all that has followed.
I recommend you do your own research into this rich history and these unique assets before the broader market makes these discoveries. You may also find a few other vintage projects/assets on the Counterparty platform while you’re there (including Force of Will, Age of Chains, Bit Girls, Die Cast, Memory Chain, Bitcorn and even the aptly named ‘THING’, one of the earliest tokenised digital assets — which took the form of a title that was tokenised on BTC as early as 7 April, 2014).
To help your research I have provided a list of articles and links below (certainly not exhaustive).
And finally, no article about the origins of NFTs would be complete without giving due recognition and respect in particular to these two early innovators who pioneered this new world of tokenised digital assets and who have laid the foundation for all that has followed:
Shaban Shaame (Spells of Genesis) https://twitter.com/shaban_shaame
Joe Looney (RarePepe Project & THING) https://twitter.com/wasthatawolf
(Along with the visionary Counterparty developers such as the late John Villar, jdogresorg and others who made it all possible).
Markets, Articles & Links
Markets: