Blue-chip NFT is a popular buzzword that you will find scattered across Twitter and various crypto media. The term “blue chip” is borrowed from traditional finance, where stocks are considered the well-established extension of corporations known for their quality, reliability, and financial stability. But what exactly are first order NFTs and how are they identified?
Nansen Research Analyst Louisa Choe tells Cointelegraph that since NFTs are still nascent, “…it is sometimes challenging to apply this yardstick as NFTs as an asset class are still evolving.” The general consensus is that the most sought after blue chip is the asset with the lowest volatility, meaning that it holds its value over time.
Let’s explore some of the factors that play into determining whether or not a particular NFT project qualifies for blue chip status.
Volume is just one piece of the puzzle
Collectively, NFT investors, like any trader, look at the total sales volume and total market capitalization of the collection. Typically, when an NFT collection reaches or exceeds the sought-after level of 10 Ether ($30,624), it is considered by collectors to have achieved first-class status. Total sales volume is also another data point that NFT traders look to as a yardstick to determine if the market is healthy.
While high volumes are desirable, are they sustainable and reflect frontline status? Nansen updates its blue-chip index every 90 days, knowing “the market is young and fickle.” As such, controversy often brews in the NFT market when a collection shoots for the moon with little end in sight.
On April 16, PROOF Collective released its first Proof of Profile (PFP) collection, Moonbirds. The project has literally shot to the moon and has already surpassed $220.8 million in total sales volume on OpenSea. Although the project has barely been on the list for a week, its explosive growth has left some NFT insiders speculating on its potential value and some believe it has already reached blue chip status.
However, there are experts who disagree with the sentiment that volume is an indicator first-order statistics. Some NFT investors argue that it is difficult to assign this data point as a measure for such an illiquid asset and that the impression of a top-tier NFT was that it could hold its value by surviving a bear market.
Other NFT enthusiasts seem to lean on influencers and big players in the space to determine which assets to pack their bags with.
Communities are more than the number of unique owners
It is important to note that first-class status is not defined by numbers alone, but by the sentiment and dedication of the community. Exchanges can be replicated, but communities cannot. “Communities and therefore the network effect are definitely the key drivers of success for an NFT project,” says Choe. Often the first metric looked at to determine a project’s adoption is the number of unique incumbents. However, even as a quantifiable metric, it is not the most valid.
Accounting for the number of unique holders simply means that one is recording the number of wallets that have the particular asset. Since this is the case, an owner could own 1,000 assets and place each in their respective wallet, resulting in a measure of 1,000 unique holders when there is actually only one.
However, NFT investors often list the communities and number of unique holders as a factor for why they consider an NFT to be top-tier. Assigning frontline status to an NFT and considering its community, Choe explains that “…NFT projects seek to build an entire value-creating ecosystem rather than concentrating on a single utility.”
Originality— DaVinci Elo (@dzepss) March 4, 2022
Monetary value/social value
Communities are more than just numbers, as they represent individuals with different levels of belief and convictions towards the project and within the ecosystem.
Part of the magic of Yuga Lab’s Bored Ape Yacht Club was that it was a self-sustaining community that executed what they hadn’t anticipated. BAYC not only amassed over $1 billion in total volume, but also grabbed the attention of the global media in just under a year.
If volume and number of unique headlines become a static focal point for what is considered a blue chip, then Moonbirds, flipping other blue chips in sheer volume, would make it a default. In fact, Moonbirds have already earned over 6,681 holders from a collection of 10,000 NFTs and the most profitable former Moonbird holder made almost $2 million from the sale of 45 MoonBirds. To date, some of the most profitable investors have earned more than $450,000.
An asset is often said to be worth what the market is willing to pay for it, and sometimes the market’s perception can rise or fall from this valuation.
Related: Blue Chip and Metaverse NFT Drive NFT Market Growth, Says Nansen Report
First-class value extends beyond price
Market value and market capitalization are often used interchangeably, making it risky to assess the true value of an NFT. The market value is nuanced in the sense that it provides a broader vision to determine the financial situation of a project, but also determines the respective investment opportunities of the investors.
Interestingly, market value determines how much an investor is willing to pay for an asset, but market value is also heavily influenced by market perception and sentiment. For the NFT markets, volatile changes in sentiment can be seen in total sales volume, growth, and members voting with their assets selling.
NFT markets are young and fickle because the biggest blue chip yet, BAYC, hasn’t even reached its anniversary yet. However, it has shown its ability to maintain and increase its value over time.
Liquidity in the sector often circulates from project to project, leading to some assets remaining illiquid in the sense that they cannot be easily sold when desired. However, Tier 1 NFTs may fluctuate in price over time, but their value remains in the sense that if they were listed for sale at or below the minimum value, they would be bought quickly.
The market value is nuanced. It is not only compounded by market sentiment and its perception of a particular product/brand, but also at the mercy of the macro cryptocurrency market. Therefore, it is safe to assume that the assets will sink and are risky. Despite the risk, many NFT collectors continue to put their money where their convictions lie, either blindly or more strategically in the hope of getting a blue chip investment.
Rather than just price, volume history, and brand equity, time seems to be a big factor when it comes to determining whether an NFT has achieved top-of-the-line status. This suggests tracking the asset over time rather than focusing on momentary performance to justify the current value of a project.
NFT investors will have their opinions on what qualifies as a blue chip and it is important to reiterate how nascent the market is. A better evaluation process is to track total quarterly sales volume, buyer-seller ratios, and project roadmap or community developments as components of top-of-the-line status.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.