Why Are NFTs So Expensive?
Why are NFTs so expensive, and what gives them their value?
NFTs first started to capture mass market attention during the year 2020. Non-Fungible tokens are essentially unique assets which give users exclusive ownership over a specific asset in the blockchain. Usually, NFTs come in the form of art, music, or drawings.
So, why do NFTs sell for so much? In 2021, NFT sales hit around $25 billion, compared to only $94.9 million in the year before, indicating a rapid period of growth. However, Between 2021 and 2022, the number of NFT sales taking place each day has fallen. The threat of the overpriced NFT has led to a reduction in daily active sales volume to around 31,400 sales per day as of July 2022.
Why Are NFTs Valuable in Today’s Market?
NFTs are a form of non-fungible and speculative asset. They can’t be broken down into smaller pieces, or exchanged for something of an “equal value” like fiat money. This makes NFT value difficult to understand. Ultimately, the value of NFT assets is subjective.
Similar to purchasing a piece of art in the gallery landscape, many pieces are priced based on what someone is willing to pay for it. For instance, the first ever tweet was sold for almost $3 million, but it didn’t have a specific analyst value like a stock or share.
For the most part, what makes NFTs valuable is their meaning to the owner. Some people believe holding onto a specific piece of NFT art or music will mean they can sell it for a higher price in the future, while others aren’t worried about NFT art prices or future valuations at all.
Some people invest in NFTs because of the unique benefits they offer. For instance, purchasing a Bored Ape Yacht Club NFT comes with access to a specific exclusive club. NFT worth can sometimes be attributed to their community popularity. For instance, a BAYC NFT is likely to attract more attention, because many celebrities and big names own one of these NFTs.
How Are NFT Prices Changing?
NFT values are affected by a number of factors, including market hype, and changes in the blockchain. For instance, many nonfungible tokens run on the Ethereum network. This means when the price of ETH goes up, most people imagine their NFT valuation will increase too.
However, this isn’t always the case. Ether prices soared by 54% between the months of June and August 2022. However, the price of expensive and popular NFTs hasn’t increased nearly as much. The floor price for a Bored Ape Yacht Club NFT increased by around 15% in the same period, while the floor prices of CryptoPunks NFTs increased by 13%. Currently, a Bored Yacht Club token will cost around 72.88 ETH.
Each NFT price is variable based on the popularity of the current item on sale. For instance, according to the CoinMarketCap NFT tracker, the current NFT with the highest sales and the biggest price is the “Bored Ape Yacht Club” collection. Followed by CryptoPunks, and the Mutant Ape Yacht Club.
Overall, sales volume among NFTs is dropping at the moment, which may be an indicator we’re moving beyond the “Bubble” for NFT collections.
Why Do People Buy NFTs at a High Price?
The lack of a clear answer to questions like “What makes NFT art so valuable” has left people wondering why anyone would spend so much on a digital asset. Currently, around 23% of millennials in the US are already collecting NFTs, either as an investment or a hobby.
Interestingly, a high NFT price doesn’t necessarily stop people with lower earnings from getting involved either. People who earn less than $25,000 per year are likely to invest in NFTs at the same rate as those earning over $150,000 according to one study.
While some people don’t understand the price of NFTs at all, others believe buying NFTs now will mean they’ll hold additional value in future. While there’s no guarantee an NFT will increase in price, the same could be said for many speculative investments. Other people simply invest in NFTs, so they have ownership over a specific asset. NFT art price may well increase in the future of the metaverse when people have more opportunities to showcase their collections.
Are NFTs Worth It?
Answering the question “Why are some NFTs so expensive” can be complex. Different NFTs have different levels of value for their owners. However, from a financial perspective, there does seem to be a potential benefit to owning an NFT.
For instance, according to one report, the market for NFTs is expected to reach $122.43 billion by 2028, with a CAGR of around 42.10%. Many popular NFTs have successfully increased in value over the years, which could be why so many people see investing in this area to be a good idea.