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5 tips on how to value NFTs in 2022

Posted: 2 June 2022 2:30 pm
News
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It's tricky to assess the value of an NFT. Here's what to look for before purchasing this digital asset.



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NFTs are among the newest frontiers in crypto. Some investors have made fortunes buying Bored Apes or CryptoPunks early on, while many others have purchased images of cartoon animals that haven't done as well.

What is an NFT?

While the first NFT was created in 2014, this type of token didn't become popular until 2021. Now, NFT is a household term, and owning certain blue chip NFTs has become quite the status symbol.

Finder spoke with Josh Gilbert, market analyst at eToro Australia, about how to best assess the value of NFTs.

1. Determine the utility of the NFT

While many people consider NFTs to be glorified JPEGs, some NFTs have notable utility.

Josh Gilbert explains:

"Utility is a huge factor when valuing NFTs. Take, for example, the Bored Ape Yacht Club. Users receive free NFT airdrops worth thousands of dollars, access to exclusive events, merchandise, etc. This can provide tremendous value to an owner."

One of the airdrops that Gilbert refers to is the ApeCoin (APE) airdrop of early 2022. Bored Ape holders received up to 10,950 APE tokens each (issued by ApeCoin DAO, part of the Bored Ape ecosystem), simply for being owners of Bored Ape NFTs.

Bored Ape holders are invited to real-life and metaverse events. These events are quite exclusive, as there are only 6,300 Bored Ape holders in the world.

2. Determine how rare the NFT is

The rarity of an NFT often affects its value.

Gilbert discusses the importance of assessing rarity:

"Rarity also plays a significant role, given that often the rarer the NFT, the higher the value. I'd make sure to use a rarity checker. These sites can help identify the rarity of the NFT you're buying."

Rarity checker sites include rarity.tools, Rarity Sniper and NFT Rarity Explorer.

To provide further context on rarity, let's consider the CryptoPunks NFTs. There are only 10,000 CryptoPunks, which makes them pretty rare in general. Only 44 CryptoPunks have beanies, however, and these CryptoPunks can fetch up to six times more than a CryptoPunk without a beanie.

You can also use sites like icy.tools to discover, track and analyse trending NFTs.

3. Do your due diligence to avoid scams

Gilbert recommends asking yourself four questions before purchasing an NFT:

• What is the road map?
• Who is behind the project?
• What are the creators' backstories?
• And, most importantly, is the community that supports the project composed of legit NFT collectors — or at least in part?

The eToro analyst also suggests using different social media platforms as resources:

"It's always a good idea to check out an NFT project on social channels such as Twitter and Discord. A strong community is required for a project to be long-lasting and successful. This also lets you see what other people are saying about the project.

Avoid clicking on broken links from social media, DMs from unrecognisable Discord users, and don't interact with cold messages and emails. Unfortunately, if it seems too good to be true, it often is."

4. Learn to use blockchain explorers

Blockchains are essentially shared, public ledgers or records of transactions. As a result, you can see on the blockchain how much the NFT you're interested in buying has been traded and for how much.

Gilbert touches on the importance of familiarizing yourself with blockchain explorers:

"Examine the history and wallet records of any project that grabs your attention. This is when blockchain's transparency comes in handy. With EtherScan, you can view all of a wallet's transactions on the Ethereum blockchain."

5. Make a plan to safely store your NFT

Before you purchase your NFT, you need to plan where you'll store it. If you did choose the right cartoon animal NFT — in other words, found your golden ticket to financial freedom — you'd want to keep it safe.

Gilbert understands the importance of keeping your NFTs safe, warning:

"There are risks to storing assets in a hot wallet. Never give away your seed phrase or private key to your crypto wallet to anyone. New users might not know how important this is, but anybody can enter your wallet with this information.

A hot wallet is a wallet that's always connected to the Internet, including wallets on a centralized crypto exchange like eToro or a browser extension wallet like Metamask."

How to buy an NFT via eToro, Metamask and OpenSea

Gilbert suggests a hardware wallet for the strongest security:

"Users can acquire a Ledger to store NFTs for maximum security."

Finder's Ledger Nano X Review

Bottom line

NFTs have surged in popularity over the past year, and series of NFTs like Bored Ape Yacht Club and CryptoPunks have become incredibly valuable.

Before you buy an NFT, use the five expert tips from eToro as a guide to valuing NFTs you're interested in. And be sure you have a plan to store them safely.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
Finder or the author may own cryptocurrency discussed on this page.
Image: Getty.

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eToro disclaimer: eToro Service ARSN 637 489 466 promoted by eToro AUS Capital Limited ACN 612 791 803 AFSL 491139. Capital at risk. Other fees apply. See PDS and TMD. This communication is general information and education purposes only and should not be taken as financial product advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial product. It has been prepared without taking your objectives, financial situation or needs into account. Any references to past performance and future indications are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication

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