Understanding NFT valuation: Part II

In Part II, we are going to continue extending our breakdown of the drivers of speculative value and move on to Intrinsic value. Next up, we examine how supply can affect speculative value in a project. In case you missed it – Part I can be found here.

A few definitions from our previous blog – we described intrinsic value as the utility (long-term) of an asset (e.g. discounted value of the future cash flows of a company), and speculative value as value created from people believing an asset has value. 

Holders and Circulating Supply

NFTs that are out of circulation (i.e. ‘HODLed’) do not take part in price determination. As a result, a lower circulating supply for a given demand means elevated price. This is however, artificial – i.e. the ‘Hodlers’ are holding the NFTs in anticipation of greater profits. Thus, the composition of holders of a project is an indicator of the belief a community has in a particular project. If a large percentage have been holding for a significant proportion of the project’s lifetime, it likely means that they expect long-term price appreciation and an ability for the project to deliver. The chart below shows the composition of holders by their holding periods. As you can see, these blue chip projects tend to have a majority in long term holders.

Source: Hyperglade research, nftgo.io data

Takeaway: Analyze the composition of the holders in a project. Is there a large proportion holding on to the NFTs? Or do they sell easily (i.e. ‘paper hands‘). Use tools to gather this data, e.g. https://icy.tools/.

Individual Rarity

Rarity in this context means inter-collection rarity, i.e. how rare are the features of one NFT to any other in the collection, and how does that affect the price?

NFT rarity is generally measured by the combination of traits. The number of all possible traits = properties (e.g. hair, face, arms, etc.) x attributes per property (black hair, white hair, red hair, etc.). The final NFT rarity is the value of a certain combination of traits for a given NFT. Just for illustration purposes a few methods to calculate rarity include; 

– Trait Rarity: comparing the rarest trait of each NFT

– Average Trait Rarity; e.g. for two traits, 50% rarity and 10% rarity, we average trait rarity (50+10)/2 = 30%)

– Statistical Rarity: geometric multiplication of trait rarities (10% * 50% = 5%) for the example above

Takeaway:  Understand the rarity metric used by a particular community for a project. Use this to estimate if your particular NFT is fair valued given the context of your collection. 

Intrinsic Value

Intrinsic value is tangible measurable value in the form of utility. More often than not intrinsic value exists regardless of the current price or hype, or even to a certain extent, current market conditions. It is generally built over the long-term, more difficult to manipulate, and more sustainable than speculative value. Intrinsic value will ultimately come down to application of utility.


The most sustainable form of value comes when a project delivers long-term recurring value to the investors. Thus, we have to examine the tangible benefits that the investors get from purchasing these NFTs. There can be many varieties and we have listed a few (non exhaustive) applications below. 

Digital and cryptocurrency

Many NFTs give benefits from an investment perspective. For example, several NFTs from DEXs (decentralized exchanges) give higher staking rewards if you own their NFT. In this case, it is quite easy to calculate the intrinsic value of the NFT to the investor – it is the incremental investment benefit you get from owning it. 


With many brands exploring their play in the metaverse, there are bound to be tangible (albeit) digital use cases for NFTs. For example, if it is access to a certain digital estate or special discounts on digital goods, there will certainly be a utility in owning that NFT.

Real World

Many real world applications for NFTs are popping up. Lifetime access to concerts and backstages, free passes to exclusive clubs, and even the ability to track supply chains are being explored. Real world applications such as these would bring collateral value to the NFT. 

Takeaway:  Understand whether you want the utility being offered by the NFT. If it’s the resale value you are after, understand if there will be sustained demand for the proposed utility case. 

Team and Roadmap

While a team isn’t a measurable asset, competent teams with a solid plan and on-time execution have the potential to create value regardless of how many people believe in a project. Thus, this tends to be more intrinsic value in nature rather than speculative.

Takeaway:  Verify the team’s history and their other projects (a team may or may not be publicly revealed or ‘doxxed’, however, verification is generally easier when they are doxxed). Closely examine the roadmap; can they achieve the given targets? Have they stuck to their current/previous timelines?


Wrapping it all up, when investing in a project it’s most important to have discipline. Understand the drivers of value, build a set of trading/investing criteria, allocate a pool of money (that you can afford to lose), and stick to them. The above is only meant as a guideline and there is no substitute for experience. Start with small investments, track your investment performance, update your research methodology, rinse and repeat. The more you explore the space, the more you will understand the nuances and how they all interrelate. Good luck!