What’s the Value of an NFT: A Look into Traditional Art Market Principles
When buying and selling NFT artworks, it can be challenging to know if you’re pricing or purchasing the NFT at a sensible price. This can be complicated even more by the volatility of Ethereum and the other cryptocurrencies being used to buy and sell NFTs.
But it’s helpful to remember that the value of an NFT is determined by many of the same factors that determine the value of traditional art.
To understand this, let’s look at some of the aspects of artwork that make them valuable.
What makes art valuable anyways?
At the end of the day, the value of NFT artworks is determined by many of the same factors that determine the prices of traditional artworks: the notoriety of the artist, the value of other works sold by the same artist, scarcity of their work, provenance, historical significance and the amount of work and skill required to produce the work.
Pricing artwork can be a bit more of an art than a science, but the following aspects all contribute to the price of an artwork to varying degrees.
Let’s break it down aspect by aspect.
Authenticity
In all art and collectibles markets, to be truly collectible an object should be authentic, meaning that it can be attributed to an artist or specific maker with certainty.
If an artwork is determined to be a forgery or fraudulent, it almost never retains its previous value that was dependent on its perceived authenticity.
German philosopher Walter Benjamin in his famous essay “The Work of Art in the Age of Mechanical Reproduction” talks about the importance of the “aura of authenticity” for valuing works. He argued that “mechanical reproduction devalues the aura (uniqueness) of an objet d’art,” largely because these mechanical reproductions, posters, and prints were never in the same place and time as the artist creating the original. (It’s a little mystical in my opinion…)
He wrote this work in the 1930s, so he couldn’t have been aware of the future potential of digital artwork, which lacks physicality in the traditional sense. Perhaps he would have felt that NFTs had some sort of “aura of authenticity” since the artist goes through the process of minting a 1/1 and the blockchain forever links owner and creator.
Regardless of what Benjamin would have argued, I do believe that an authentic 1/1 NFT produced by an artist does bear an “aura of authenticity.”
One reason a buyer collects an NFT artwork is to feel connected to an artist. They value a particular artist, and by collecting one of their works, the artwork forms a bridge or bond between the artist and collector.
Regarding NFTs, authenticity is one of the most important aspects to confirm before purchasing an NFT. It is incredibly important for collectors to do their due diligence, especially on unverified marketplaces.
Double-check the artist’s social media to confirm their marketplace links. Do not purchase NFTs where you can’t confirm that the artist is actually behind the account. If you don’t, you could find yourself with a valueless NFT or unconsciously participating in art fraud.
If you are an artist, make it easy for a collector to confirm that your NFT marketplace accounts are authentic. Include detailed bio information and social media links. On your social media accounts include links to your marketplace accounts and things like Stories posting your recently dropped NFTs.
Scarcity
The art market is just like any other market, in that it’s ruled by supply and demand. As an artist, you control the supply of your work.
Art collectors of both NFTs and analog art look for the rarity of the artist on the market. If you’ve flooded the market with many editioned NFTs and unique works, your work might be slightly devalued.
From the demand side, enough potential collectors must be interested in your NFT. If I mint 1000 editions of my work, I create a massive supply, and unfortunately, if I were an average artist starting out with NFTs, I wouldn’t have thousands of interested collectors, so my supply would be much higher than my demand, and the price I could ask for my editioned NFT would be quite low.
Also, consider edition quantities when assessing the price of a work. A single edition 1/1 artwork is worth far more than NFTs in an edition of 100.
NFT marketplace Nifty Gateway runs time-constrained open editions. For example on February 25, Nifty Gateway hosted a 7-minute open edition for Trevor Jones’ “Bitcoin Angel.” People could buy as many editions as they wanted for $777 within that 7-minute window. He sold 4,157 editions, earning $3,229,989.
To put this in perspective, “Bitcoin Angel 1/1” last sold for around $206K, and his most expensive work “Genesis’’ sold for $540K. Although there was a lottery aspect to this open edition with owners being able to potentially receive a commissioned self-portrait or a 1/1 NFT of my Conor McGregor portrait, the price for this large quantity edition is massively over-inflated compared to the prices of his single edition work. This makes me doubt that the work will hold its value long term. (However, he is quite renowned in the NFT space, so perhaps his popularity will cause the limited edition to retain its high value.)
Also, it’s worth noting that just because something is scarce, this doesn’t mean anyone will want it. At the end of the day, each one of these variables is just one more piece of the puzzle in figuring the value of an artwork.
Notoriety of the Artist
The notoriety (and popularity) of the artist is one of the most important aspects for determining the value of an artwork. It’s the reason why works by De Vinci, Van Gogh, and Monet sell for such high figures.
The more popular you are, the more collectors will be familiar with you and vie over your work, therefore raising prices.
In the new NFT art market, notoriety and popularity are often determined by an artist’s social media following.
Before his Christie’s auction in March, Beeple had over a million followers on Instagram, which certainly helped him rise as a star in the NFT space.
Also, the notoriety of artist Banksy helped propel the price of a “Burnt Banksy” in March to a staggering $380,000. This “artwork” was a video recording of a burning Banksy work entitled “Morons” in a park in Brooklyn. Although this group of artists was relatively unknown, by burning a work by Banksy, they were able to use Banksy’s notoriety to reach a high value in the art market.
Value of other works sold by the same artist
The value of an artwork is strongly affected by the prices of the artist’s other works. Before most collectors purchase an artwork, they try to gain insights into what the artist’s other artworks have sold for in the market.
With NFT artworks, all this sales data is visible and public on the blockchain. This makes art sales much more transparent and eases some of the concerns of potential collectors.
Before you buy, review what the artist has sold for previously and consider the prices of artworks by similar artists. One of the beauties of NFT art is that all this data is readily available. It’s also worth looking into the sales of their off-chain artworks.
If you’re an artist, be aware of your pricing strategy. Although you may need to list your work for lower prices to entice collectors early on, try not to underprice your artworks too much, as it could have a long-term effect on your pricing.
Provenance
Provenance, or who has previously owned the work, plays a significant role in the established analog art market. Although the NFT art market is new and provenance seems to play less of a defining role, it may be increasingly important as the technology and market become more established.
Certain collectors are developing a name for themselves, so I can imagine works owned by them will have added value in the future. This will all be recorded and visible on the blockchain, so it will be easier for potential future collectors to say, “Oh wow, I want to own this piece. Metakovan once owned this.”
Medium
The medium of the artwork is also correlated to the price of the artwork. The amount of work (time), the skill required, and the cost of materials should play into the price charged for the artwork.
If you had two artworks from the same artist, a simple 2D digital illustration and a complex video artwork with a custom-produced soundtrack, the video artwork would most likely be valued higher because it required more skill, time, and expense to create.
Historical Significance
The historical significance of a work can have a drastic impact on the value of an artwork. People often want to own a piece of history.
This is the main reason Jack Dorsey, the co-founder and chief executive of Twitter, was able to sell his first tweet on Twitter for over $2.9 million.
And Beeple’s “Everydays: the First 5000 Days” is valued largely because it was the first official moment where the art establishment opened itself to the revolutionary world of NFTs.
It could be interpreted as the mark of legitimacy needed for the whole NFT movement and arguably it was a turning point for NFTs that marked the peak hype for NFTs (so far) in 2021.
This historical significance is a major reason why Beeple was able to get $69 million for this work (but working on it every day straight for 13 years and being an Instagram celebrity didn’t hurt either…).
Personally, as a history buff and someone whose life has been shaped by the internet from a young age, I think it’s pretty intriguing that people are now able to collect moments from the history of the internet whether it’s the Charlie Bit My Finger video or the Nyan Cat meme and own pieces of humanity’s digitized history.
The relatability of the work
Lastly, the relatability of the work and the artwork’s ability to connect to others on a personal level can affect its art market value.
Does the concept or ideas behind the work resonate with others? Do people feel an emotional connection to it?
This aspect is far less easy to quantify or pin down. You know it when you see it. It’s far more personal, intimate, and subjective.
Valuing your NFT artwork
When pricing your NFT artworks and purchasing the next NFT for your collection consider these factors, it’s important to consider all of these art market aspects.
Examine the current prices for other similar NFTs by similar artists and try to determine if the price range is similar. Double-check the prices of the artist’s previous works.
By thinking critically about all these aspects, you’ll be on your way to starting to master the challenging art of pricing artworks.
I’d love to hear your thoughts and questions about pricing NFTs and applying traditional art market aspects to the NFT art market.
*Legal disclaimer: I am not a financial advisor. The advice here given is not financial advice, so please also do your own research when purchasing or selling NFT artworks.
