Many influencers are starting to make their own NFT collectibles. Some of them are their own art (think Beeple), some preserve precious memories (think Jack’s first tweet), and some are a variety of other digital moments (think NBA Top Shot). Despite all of the headlines we are hearing of NFTs making new records and so on, most influencers and creators are having a hard time selling their NFTs.
Here are three risks that your collectors might be considering:
Supply and Demand Risk
Kaws has a strong enough market that he can make most of his “toys” open edition, meaning that there is not a specific number that he is creating and he has the right to re-open the edition. Thus, with a Kaws toy the price can only rise so much and if it does, there’s the risk that Kaws will just create more himself. In other words, the supply side is infinite. Yet there is enough demand to ensure that the market doesn’t collapse.
For other sellers, they’ve built a community and have taken an art dealers approach to it. Still others offer a reward for holding their NFT. These things and other tactics ensure that others want your NFT and coupled with the next section of investment risk will ensure that the price of your NFT goes up, even with escalating gas fees.
Like the art market though, the NFT market is relatively thin. If your NFT goes up 20x, you might have a lot of sellers in the market that feel that they would be fiscally responsible to sell. However, the market might not be able to support that and with the increased supply on the market, the price may come crashing down.
Not every NFT will go up unfortunately. And when you are plunking down the cost of a few months of rent on one, you had better figure out how to get that money out. As a seller of NFTs it’s your role to ensure that there is a healthy market for your work out there so that other collectors can get their money out if they need to. However, we’ve seen massive NFT crashes like the Squid Game and the Pudgy Penguins NFT projects.
Even so there are many things you can do to mitigate risk for yourself and your collectors. One of the most obvious is to profit only if your NFT goes up. This means you set a low minting price, 0.1 ETH, for example, and you make royalties on the resale of the NFT. You only start making “real” money when the market is self-sustaining and you can even code the resale to be a healthy 10%.
Superman died in the comic book Superman 75, which made it one of the top selling comic books ever. However when he came back to life, the value of Superman 75 plummeted. What happens if your persona were ever to change?
The most recent example was Tom Brady’s last touchdown ball. The Rams beat Brady’s Buccaneers in the last round of the playoffs. With about three minutes left in the game, Brady connected with wide receiver Mike Evans for a 55 yard touchdown which cut the Rams lead to a touchdown. Evans flipped the ball into the stands, not knowing that this would be it. While the auction house predicted a one million dollar sale, the ball eventually ended at $518,628 after 23 bids. And shortly after the hammer fell on his last touchdown ball, Tom Brady did the unthinkable. He came out of retirement.
Now the future of the ball is in flux. Is it really Brady’s last touchdown? What will happen to the value of it? Or will it become a dubious piece of human culture like Banksy’s shredded Girl with Balloon, now renamed Love is in the Bin, which after the shred sold for 25x more (25.4 million) than the original purchase price of a bit over 1.4 million dollars.
If you happened upon the collectibles market during the pandemic, consider yourself lucky. Some of us that have been collecting since we were kids, have been waiting our entire lifetime to make a few bucks on those “junk wax” baseball cards. And we are still waiting.
Do you have a fun or interesting story about something you’ve made as a collectible or something you’ve collected? Let us know!