Non-fungible tokens, known popularly as NFTs, are part of a growing investment opportunity that has exploded in recent years. While some have still debated on jumping into this new investment venture, others are actively adding NFTs to their collections and seeing the profit potential.
As more NFT creators emerge daily, the marketplace is rapidly expanding and we're seeing the NFT world grow as a result. Approaching NFTs as a newcomer can be a challenge because a lot is uncertain about this market. It's hard to decipher which NFTs are valuable and which ones are less desirable as investments. Can NFTs lose value? Is there a certain trait to look out for when buying NFTs?
Each NFT has its own value, which can fluctuate depending on market data and the popularity of the NFT project or collection it's in. So why do some NFTs have such high value while others fall short?
With the NFT market constantly changing and evolving, one of the most common questions potential investors ask is, “can NFTs lose value?” In this guide, we'll look at the reasons how NFTs could lose value and what can help gain value, instead.
How Do NFTs Lose Value?
There are a number of factors that influence what makes an NFT valuable. For example, NFT creators who already have a widely-known digital presence or social influence may mint instantly valuable NFTs whereas unknown artists and creators start from the bottom to work their way up. Like any goods, the NFT marketplace is driven by supply and demand with NFT rarity being a heavy influence on the value of any given token.
In the NFT space, can NFTs lose their value? The answer is that they can. Here are a few ways on how NFTs could lose value:
- Lacking uniqueness
- Heavily saturated markets
- Scammers and hackers
- Losing social proof.
Lacking Uniqueness
More popular NFT collection tokens will be of high value because they're unique to the market. The uniqueness of an NFT is calculated by its rarity and the number of unique traits or features it has.
NFTs can lose their value due to the lack of uniqueness from other NFTs on the market. If you're an NFT creator, making similar versions of what you've already put on the market may cannibalize the rarity of the others in your collection, causing them to lose value and become less attractive to investors.
The more unique the token, the more interest buyers will have in purchasing it. After all, unique NFTs stand out from the crowd in the rapidly saturating NFT marketplace.
Heavily Saturated Markets
We couldn’t answer the question, “can NFTs lose value?” without discussing heavily saturated markets. When it comes to trading NFTs, the reason why some drop in value is due to the oversaturation of similar NFTs on the market.
Despite being a fairly new investment opportunity, there can be too many NFTs available and not enough demand from investors.
There are plenty of creators looking to sell NFTs on the market, meaning the markets themselves are growing in supply and outweighing growth of the investor pool. If the right audience isn't available for the NFTs being minted, there will be fewer sales and less value.
A high saturation level of the market also makes it difficult for new NFTs to break through and become valuable. The way to counteract this issue is by having an NFT creator generate an edition of one piece of art. It’s important to not release too many editions, however, otherwise it can tank the value. After all, 1 of 500 pieces is more rare than 1 of 10,000 pieces!
Scammers and Hackers
Scammers and hackers aren’t new to the online world. When you spend money online, it certainly attracts those that want to exploit individual users for more.
The most common scams currently causing issues with NFT investors are on the popular streaming platform Discord. Discord hack scams occur when a hacker breaks into a Discord server and gives themselves administrator access. They can then post out links advertising minting. If a user clicks the link, the hacker is able to gain access to that user’s information, including their blockchain access and information.
There are also copycats who'll screenshot an asset, mint an NFT, and claim it to be legitimate. The potential vulnerability to hackers and scammers makes NFTs a concern for some investors. Doing your research, however, is a simple and effective way to weed out the fakes and ensure you’re making sound investments.
Losing Social Proof
NFTs can drop in value when it loses appeal to the investors or the market in general. The NFT market relies heavily on social proof and what's being talked about by the community. Not all NFTs will get the same air time as others. A lack of social status will make them less attractive to buyers who are using chats and forums for information on popular tokens.
That's why it's so important for creators to focus on promoting their NFTs beyond just minting them and getting them on the market. Like a social media platform, the way you get more followers is by promoting your brand. The more you get your NFTs out there, the more notoriety they will gain that could improve their value.
If there's nothing being done to promote an NFT, then how do investors know that non-fungible token exists? Monitoring the social culture of the NFT market and how it's influenced by the real world is important to avoid losing money on NFTs.
What Makes NFTs Go Up In Value?
While NFTs can drop in value, it’s also very possible (and the goal) that they can go up in value, as well! This potential increase in value is due to a number of factors. You’ve learned what can cause NFTs to lose value, so what makes NFTs go up in value, instead? Some factors to consider here include:
- Ownership history of an NFT
- NFT rarity score
- Popularity of a creator or NFT collection
Ownership History of an NFT
Can NFTs lose value? Yes, but one of the factors that can contribute to NFTs increasing in value, however, is its ownership history. The previous ownership of NFTs can influence its general value, especially if it's owned by someone who is popular on the market. These could be famous artists, celebrities, or other influencers with large social followings.
NFT ownership history is stored on a digital ledger. This digital ledger cannot be edited, modified, or deleted, meaning its history follows it as it is bought and sold by investors, collectors, and hobbyists.
NFT Rarity Score
NFT rarity refers to the frequency in which the traits and characteristics that comprise a token appear within its given collection. These scores are important because the rarer an NFT is, the more likely it is to be of higher value.
A new NFT can quickly become rare if it's unique and has a lot of rare traits. That said, being unique is only part of what makes rarity a factor in NFT value. It must also be an NFT people are interested in, meaning social proof plays an important role in boosting the value of rare NFTs, once more.
Popularity and Presence of the Creator or Collection
Going hand-in-hand with rarity to increase value is the popularity and presence of a particular NFT creator or collection. Social presence is very important on the NFT market and directly contributes to how popular a collection or creator becomes. The more widely known and sought-after an NFT creator or collection is, the higher its perceived value is. This raises the NFT floor price and signals profit potential for investors.
Why Do People Invest in NFTs?
With potential volatility and risk, why do people invest in NFTs? The draw of this new type of investment opportunity comes from a variety of factors. Just like any form of investment, the risk could be worth the payoff.
The most important thing you can do before investing in NFTs is to do your research and know what to look for to signal a good decision. A few reasons why NFTs make good opportunities for investors include:
- Decentralized market of NFTs
- Rarity of valuable NFTs
- Potential profitability
- Safety and security of blockchain technology
Decentralized NFT Market
As a decentralized market, the NFT marketplace is a different type of investment opportunity than more traditional methods. Digital markets like NFTs and cryptocurrency use a decentralized market where buyers and sellers communicate directly with one another, making transactions in real time.
These digital markets tend to be less regulated, meaning no middleman sets the rules or controls the market in their favor. Decentralized markets offer an opportunity for peers to trade without having to jump through various hoops found in traditional investing.
As these online marketplaces continue to grow, there's potential for more decentralization to occur, providing even more opportunities for NFT creators and buyers to access and store digital assets securely for long-term investment options.
Rarity of High-Value NFTs
Rarity doesn't always necessarily mean that the NFT itself is going to go up in value. It does, however, have a direct correlation with the potential profit that an investor could make if they buy the right NFT at the right time.
There have been plenty of examples where investors have successfully managed to attain rare NFTs and resell them for a large profit. These NFTs can help provide value and diversity to their investment portfolio. For some, it can also be a long-term investment that they can cash in on when the time is right.
Profit Potential of NFTs
Investors look for ways to make money, plain and simple. Whether it's a short-term investment or a long-term one, they hope to make a significant return on their money. NFTs are a new and exciting investment opportunity brimming with potential profitability for those who do their research and make the right decisions. Potential profitability of NFTs can vary wildly, from a few hundred dollars all the way up into the millions!
Safety and Security of Blockchain Technology
Finally, despite the risks that come with NFTs from scammers and hackers, there's a lot of safety and security provided within blockchain technology. As a result, investors are finding the improvements made to the market to make it more secure are enough to warrant investing in NFTs.
The NFT market continues to expand rapidly, changing more and more each day. As investors are continuing to discover the potential profitability in NFTs, they’re starting to look deeper into these opportunities and get creative with their investments. Can NFTs lose value? Yes. They can also grow in value to provide a huge payoff, as well! The most important thing you can do before investing in NFTs is to research your selections to make the most informed decision. Ready to get started? Check out a popular NFT marketplace platform like UCOLLEX and get going on your NFT investment journey.
