• Current hype creates new record for NFT sales
• Researchers find three critical factors in pricing
• Majority of NFTs are sold for only small sums
NFTs appear to be the next big thing after cryptocurrencies. The hype surrounding non-fungible tokens has already ensured that more and more companies are dealing with the new trend. Among others, brewery group AB InBev recently launched an NFT collection of digital Budweiser cans that sold out in less than an hour. However, some NFTs from the collection were resold shortly thereafter at hefty price premiums. Digital art is also popular. In March, artist Beeple’s NFT artwork “Everydays: The First 5000 Days” fetched approximately $69 million at auction house Christie’s. As “DW” reports, this is the highest sum ever paid for an NFT artwork.
According to the magazine, JPMorgan estimates that the global NFT market is worth the equivalent of 6.3 billion euros – and theoretically everyone can have a piece of the pie. In principle, an NFT can be created and sold by anyone. However, this does not automatically mean that a high price is then also achieved. A team of researchers led by Dr. Matthieu Nadini from the British Alan Turing Institute (ATI) has examined the market for non-fungible tokens and identified three factors that play an important role in the pricing of digital assets.
These qualities make an NFT valuable
The scientists examined a total of 4.7 million NFTs from a wide range of categories such as art, collectibles or gaming items that were exchanged by more than 500,000 buyers and sellers between June 2017 and April 2021 and presented their results on the ATI website as well as in Nature magazine. One of the researchers’ first findings is that “the prices in the NFT market are very heterogeneous”. As the study authors write, 75 percent of the examined NFTs brought in less than $15 when they were sold. Only 1 percent of the 4.7 million items surveyed fetched prices over $1,500. ‘Some – very few – are very successful, a few sell well and the majority are worthless,’ summarized Dr. Andrea Baronchelli, one of the scientists involved in the study, summarized the situation to “DW”.
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However, according to the study authors, there are some factors that decide whether an NFT will be successful or not – and which could make it possible to “precisely predict NFT prices”. Only “three factors would explain up to 70 percent of the diversity in NFT prices,” the study continues. According to the researchers, these three factors are the prices in previous sales of related NFTs, the visual characteristics of the token and the prominence of the buyer and seller. The previous sales of related NFTs, i.e. other tokens from the same collection, would have proven by far to be the most important factor for the price. They would explain up to 50 percent of the price variability, the study authors write. Special visual characteristics would affect the price by 10 to 20 percent and the popularity of the traders also plays a role with 10 percent. In short, one can say that anyone who has already made a lot of money with an NFT sale and offers a reasonably well-known token has a good chance of making a lot of money again.
Critically question the methodology of the study
However, the results of the ATI study should be treated with some caution. On the one hand, most of the data comes from a time when the NFT boom had not yet really picked up speed. Because according to ATI, a new record for NFT sales was only achieved in the first half of 2021 with a total of 2.5 billion US dollars. However, the study only considered the first four months of the year – and a long period before that. On the other hand, the data examined was only collected from NFT marketplaces and not directly from the corresponding blockchain – mostly that of Ethereum – so that the study authors, according to their own statements, may have missed some important, independent transactions. Furthermore, apart from the three factors mentioned, no other factors were examined, although it is quite conceivable that the identity of the NFT originator and the attention on social media could have a decisive influence on the price.
Is the NFT market threatened with a crash?
However, the study is likely to be right on the crucial point: it will hardly be possible to earn money with most NFTs. “Every day there are 10,000 new pieces for sale […] There aren’t 10,000 new buyers every day to keep up this incredible production,” said Dr. Mauro Martino, another contributor to the study, according to DW. A strong market shakeout is unlikely to be avoidable in the long term under such circumstances. “If we assume so “That the enthusiasm for NFTs today is very similar to the enthusiasm for cryptocurrencies at the beginning, then we can also assume a larger correction,” his colleague Dr. Andrea Baronchelli is quoted as saying by “DW”. However, what such a correction in NFTs could look like , is completely open, according to the researcher, since there is “nothing comparable” so far.
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