The Price of NFTs
A few years ago there was a great documentary film called “The Price of Everything” directed by Nathaniel Kahn (he also directed the film “My Architect” about his father Louis Kahn, famed brutalist architect). It was an incredibly insightful look at the contemporary art world and the economics surrounding it. It examined perspectives from both the artist and the collector, pointing out the contradictions and complexities of some of the highest priced artworks in the world. The title of the film comes from “Lady Windermere’s Fan” by Oscar Wilde. It is a quote from the art collector Stefan Edlis.
“There are a lot of people who know the price of everything and the value of nothing.”
The reason why I bring this up is that there has been a lot of talk recently about the price of NFTs and the price of ETH, but this quote points us to the real question. What is the value of NFTs? What is the value of ETH?
I think a lot of people will have a lot of different answers to these questions, so you’ll have to take what I say with a large grain of salt. This is just one person’s framework for trying to sort out the chaos and I highly encourage you to examine other points of view and come to your own conclusions on how to process everything that is going on. Also you should take your personal financial situation into consideration and make the right decision for you. If you need fiat to take care of things in the physical world, you should act accordingly. If you have a bit more financial freedom and you can keep more of your assets in crypto, also act accordingly. There is no one right answer. Each answer should be personalized to your situation and your world view. And only you will know what that answer will be.
Now with that said, here are my personal thoughts on how I’m thinking through all that is going on with NFTs and ETH.
Let’s look at ETH first. Where do you think it will be 10 years from now? Will it still be around or will it be stagnant or will it have grown ten fold? This is the question many in the crypto world are asking themselves. When people talk about thinking of prices in terms of ETH and not fiat, they are telling you to make an investment in the future of ETH and in larger part cryptocurrency. And this should be thought of as a long-term bet, not a short-term one. I’m personally just getting into cryptocurrency and so I still need to ask myself this hard question. When I look at Bitcoin and Ethereum, I feel like I’m so late to the game, but then when I look at NFTs and what crypto could be used for, I think I’m still very early. It’s a struggle for me and it’s something I’m still educating myself about on a continual basis. But you should take a moment to ask yourself that question, do you fundamentally believe in Ethereum and its future? Don’t just assume it’s all true and believe the hype. Do your homework and make sure it all makes sense to you. This is the value you are investing in when you think about the price of ETH.
Now let’s ask the same question about NFTs. What is the value of an NFT? Why do you buy or sell NFTs? Some people see it as an investment and others got into it because they love the art. But this is not a binary distinction, investor vs. art lover, but a spectrum. It is often a blend of the two, where one is weighted more than the other, and this balance is often what characterizes a particular NFT platform. From my experience, Nifty Gateway is weighted more towards the investment side of things, catering towards the higher end of the market, with a fair number of people listing NFTs with a big mark-up right after purchase. Foundation and SuperRare are weighted more towards the art lovers where most of the NFTs purchased on those platforms tend to be held and not re-listed. Rarible is a balance of the two, since it’s a good place for collectibles where many artists tend to sell their “1 of many” NFTs versus “1 of 1”. So the price of an NFT needs to reflect what people value in each of those situations.
But the thing you also need to remember about pricing an NFT is that you are selling into an open market. It may seem like you are going into a retail store, where you pay the listed price with some haggling, but it’s a market. It’s not like buying prints or anything like a Shopify experience. In a market, you need to have a price match, where the price a seller is willing to sell is lower than the price that the buyer is willing to buy. If that never happens, you will never have a transaction. If I were an artist, I’d experiment with prices both across NFT platforms but also within a platform. You will make pricing mistakes along the way, but the benefit is that you that you will learn much faster by making those mistakes than by doing research online to find the perfect price. The other thing I’d do is develop close relationships with collectors. Not just the big ones, but of all sizes and really get to know them. But you should go in with the mindset that if this collector never buys an NFT from me, it will still be valuable and worth my time. It’s about gaining perspective and information that you would not have otherwise had and also gaining their trust and confidence in you because even if this collector does not buy an NFT from you, I’m pretty sure in the long-term they will run into a collector who will want to buy one of your NFTs. Given the current volatility of both NFTs and ETH right now, a good relationship with a trusted set of collectors is where I’d focus most of my effort. I think it is what will get you closer to success in the long-term. With Twitter and other social media platforms, it’s so easy to connect with collectors from all across the world. It’s probably the part of NFTs which I love the most. When I first got into NFTs, I was focused on the transaction, but what I found was that NFTs are actually another form of a social network, it gives a reason for people to connect in a meaningful way. When I’ve bought physical art, I’ve visited many artists at their home and purchased an artwork right off their wall or just the other day an artist came by my house to show my wife and I some pieces that were not shown at a gallery we had recently visited. I think this same dynamic plays out for digital art, except it’s much faster, easier, and the people you connect with are all over the world. It’s weird to think about NFTs as a “social network”, but I think there is some truth to that perspective.
The last thing I’ll leave you with is that what I think about most when I’m trying to decide whether to buy an NFT is not the price, but the ratio of value to price. The higher the ratio, the more likely I am to buy it, the lower the ratio, the less likely. And value for me lies mostly in my emotional connection with the piece. I have to feel it deep inside myself. I have to get lost in it. I have to love it. Sometimes the price is high enough (at least for my budget) that the ratio goes too low and I can’t bring myself to buy it, even though I truly love the piece. And sometimes it goes the other way, where I’m just blown away by the piece and the price is lower than I expect, so I immediately put in a bid.
I will also add that who you are as a person matters to me. If you are not kind, if you are not a positive member of the NFT community, then it definitely lowers the overall value of your artwork for me. I have no issue with people who actively promote their work, but if all you do is talk about your own art and don’t actively support other artists in the community, then it’s definitely a turn off. But there are also some artists who have such a good heart and are amazing community members, but I just don’t connect with their art. I feel bad for them and want to buy their art just to support them, but in the end I don’t think that’d be good for either of us. I’d own a piece I really didn’t like and the artist would not really have a collector, but more of a charitable donation. Both sides feel bad in the end, but even so I still want to be an advocate for that artist. I want to find other ways to support them and help them find the collector that truly connects with their work.
I hope that this has helped some of you get a better sense of how to think about the price of NFTs and ETH, but at least it should give you some insight into what one (small-time) collector values as he looks at all the wonderful art that all of you have created.
