How do NFTs Gain Value? 7 Factors + Case Studies
NFTs have made waves over time and caused a big ripple in the web3 space. We know they are initially tagged with a price called mint price.
But have you ever wondered how the price of an NFT keeps growing till it is 3x, 4x… 10x the initial price it was minted?
Have you ever been saddled with questions on how NFTs gain value over time?
Then this is the place to get all of those answers.
Why Do NFTs Have Value?
NFTs are valuable because they revolutionize the way artists monetize their work and the traditional approach of art ownership.
This digital shift opened a world of massive opportunities where collectors can enjoy the exclusivity of their collections, artists can spark up their creativity, and enthusiasts can soak themselves in the richness of the digital art around them.
A lot of people have questioned the value of these intangible creations, but in this new world, value is perceived differently.
You see, NFTs derive their value from the power of perception and a communal agreement on their significance.
It’s a community-driven ecosystem where the shared level of appreciation of an NFT’s craftsmanship, rarity, and significance fuels its value.
Scarcity is also another driving force of value in this new world. Every token stands for a one-of-a-kind piece of art or content.
The artificial scarcity (limited collection supply) coupled with the burning desire to possess something truly exclusive and unique gives these digital gems a sense of value.
NFTs have also opened the doors for artists to skip the middleman relationship and connect directly with their audience.
Taking it a step further, NFTs penetrated the world of gaming and virtual realms. Digital items take a life of their own and can help enhance gameplay or reflect a player’s distinct identity.
Another fun point to note about NFTs is the ability to trace the owner of a particular digital item. It adds a deeper level of value and excitement because gamers can now acquire these super rare items for utility and increased social status.
Now that we know why NFTs have value. You may be wondering if NFTs can go up in value.
Well, they can. Let’s talk about what causes NFTs’ value to go up.
7 Ways NFTs Can Gain Value
So how do NFTs gain value? Let’s analyze how NFTs can leap in value from these seven angles.
- Valuable Partnerships and Collaborations
- Narrative and Storytelling
- Exclusivity and VIP Access
- Community Sentiment
- Physical-Digital Integration
- Philanthropic Causes
- Secondary Market Activity
Let’s run over how each of these points works out in building the value of an NFT.
Valuable Partnerships and Collaborations
To generate more interest in their projects, NFT founders can run unique partnerships with relevant communities, celebrities, or brands.
These partnerships will be aimed at providing more value to their holders and the way the project is perceived.
Partnerships with brands or businesses can give the project more credibility and exposure and boost the demand on the secondary market.
A typical instance is when the NBA hosted a collaboration with Dapper Labs to create NBA Top Shot.
NBA Top Shot offers officially licensed basketball highlight moments.
They saw a significant rise in value and popularity when they ran a collaboration with the National Basketball Association (NBA) and the National Basketball Players Association (NBPA).
These partnerships gave NBA Top Shot access to official NBA content and helped them bring digital collectible moments from NBA games to fans all around the world.
Narrative and Storytelling
NFT projects that craft a compelling story around their NFTs can captivate the imagination of collectors and enthusiasts
It could be a compelling backstory, an intriguing narrative, or an immersive fictional world.
The point is to create something that emotionally connects and immerses the audience in the project’s vision.
A very good example is the World of Women (WoW). When they launched the WoW collection, they didn’t have a story backing it, but they did have a compelling vision.
Then they decided to release a daughter collection of 22,222 NFT pieces – WoW Galaxy.
Now they needed something beyond the vision to ensure that they are perceived as valuable.
So they crafted an engaging narrative that generated hype and drove up their value.
Exclusivity and VIP Access
Some NFTs spark up a deep desire to own them by granting VIP privileges or exclusive access.
It could be access to private events (virtual or real-life), meetings with creators or an exclusive value of some sort.
The boardroom is a very good example of an NFT project that has scaled in value by leveraging this approach.
The NFTs in the Boardroom project grant access to private boardroom meetings, where holders can partake in decision-making processes related to the growth of a decentralized autonomous organization (DAO).
Another significant case study in this regard is that of Binance Mystery Mansion.
It is a project owned by Binance which offers its holders exclusive access and benefits to various Binance-related events.
The holders of this NFT enjoy access to private webinars, VIP status on the Binance platform and exclusive merchandise, among others.
Now this is a sure exclusive offer investors will be willing to put money in.
Community Sentiment
NFT projects with solid communities are perceived as more valuable than the ones without.
This is because success in the web3 space is heavily dependent on community.
A strong community backing for an NFT project means they naturally have people who will help promote the project, and that can lead to increased demand and higher mint prices.
For example, CryptoPunks built a strong community of collectors passionate about the project and drove up the value of the NFTs.
When the community behind a project perceives the project as something valuable, they help improve the secondary market activity and raise the floor price.
They also transform from just consumers to co-creators; in this case, they aren’t just waiting for what the project has for them.
They are also thinking of innovative ways they can create products and solutions.
It works well with projects that have given their holders commercial rights over the NFTs (like BAYC, WoW and Azuki.)
They can now create products and valuable content with the NFTs attached to it; this, in turn, helps to build the project.
Physical-Digital Integration
NFTs that serve as a bridge between the physical and digital worlds have proven to be valuable assets.
For instance, NFTs that come with physical counterparts or tangible assets, such as merchandise or limited-edition prints, can reel in collectors who enjoy the blend of physical and digital experiences.
When an NFT has real-world use cases, the value of such an NFT skyrockets.
The real-world use case could be access to exclusive content or experiences; a typical example is CryptoKaiju NFTs.
The CryptoKaiju NFT project combines the minted NFTs with a unique physical CryptoKaiju toy for all of their holders.
Philanthropic Causes
This approach to building the value of an NFT has mostly been overlooked.
NFTs that serve as a form of participation to holders for charitable causes or donations to specific organizations are perceived as very valuable.
The desire to be a part of something big is wired into the human brain.
When collectors see that holding an NFT makes them contributors to social impact, they easily perceive the NFT as something purposeful and worth the investment.
This is one of the approaches that the World of Women (WoW) leveraged in building the value is their NFTs.
Their initiative also attracted a donation of $25 million over the next 5 years from The Sandbox.
Secondary Market Activity
This is where the law of demand and supply comes to play.
The activities on the secondary market can’t greatly impact the value of an NFT.
If there is an increase in demand (significant trading activity) for an NFT, it can create FOMO (fear of missing out) and cause people to buy on the secondary.
When this happens, the price of that NFT on the secondary market tends to go up.
Increased demand leads to an increased perceived value which ultimately leads to an increased price.
A bunch of factors can cause an increased demand (trading activity); let’s explore 2 of them.
Valuable partnership and collaboration:
We saw this in action when a collaboration with a famous rapper and entrepreneur Jay-Z’s company, Roc Nation, brought about a limited-edition CryptoPunk.
This collaboration exhibited the intersection of music and NFTs.
It attracted attention and drove up the value of both the original CryptoPunks and the collaboration piece.
Celebrity endorsements:
When a celebrity purchases an NFT project, it serves as a form of endorsement or go-ahead to their fans.
It generates loads of hype and increased demand.
For example, in 2021, the Bored Ape Yacht Club (BAYC) NFT collection swelled in popularity after American rapper and entrepreneur Snoop Dogg minted many apes.
The price for BAYC NFTs rose from around $20,000 to over $300,000 in the succeeding weeks of Snoop Dogg’s purchase.
Final Words – Can NFTs Go Up In Value?
I am sure you can answer the above question after all we spoke about.
However, it is crucial to note that the value of NFTs is subject, and it varies based on market trends and sentiment.
In the web3 space, the direction of the market is in the hands of the people.
That’s why building a solid community is of utmost priority.
Always remember this
The more relevant use cases and problems an NFT project solves, the more perceived value it’ll have.
