Rare NFTs Can Quickly Lose Value When Collectors Get Tired of Them
According to a survey conducted by a group of researchers, rare NFTs can quickly lose value when collectors get bored of them.
Non-fungible tokens (NFTs), like cryptocurrencies, may explode in value, with some fetching collectors thousands or maybe even millions of dollars. While rarer NFTs are often more valued, according to research, uniqueness isn’t everything in this digital economy. In fact, the sheer demand for rare NFTs might depreciate their value.
The researchers analyzed the “Bored Ape Yacht Club” of NFTs. This NFT set, like a stamp collection, features 10,000 computer-generated cartoon ape pictures, each with unique accessories, attire, and fur colors.
The picture grows uncommon as the Bored Ape becomes more unusual. Meanwhile, more common apes are worth less on the NFT markets.
When everything is ‘rare’, how ‘rare’ is ‘rare’?
According to the study, when the Bored Ape NFTs were released, apes with the most unusual traits instantly skyrocketed in value, and every collector was seeking for them. This, however, backfired on those wishing to invest in these images.
Researchers discovered that when rarer NFTs got more valued, they got more visible, therefore making them far more common.
The researcher compares it to someone who wants to learn about dogs. The best way would be to just visit a dog park and observe the various breeds. Collectors in the NFT world, on the other hand, performed the equivalent of visiting an experimental breeder and looking at dog breeds that you wouldn’t ordinarily see in the real world.
To put this notion to the test, the researchers selected the most rare Bored Ape NFTs and compared their findings to the values of those pictures over time. When the Bored Ape collection initially came, the rarity had a strong relationship to value, but that correlation vanished when new collectors began trading these NFTs.
Rethinking NFT investments
According to the study’s authors, this might lead to a redesign of the NFT marketplaces and induce investors to place less value on rare photos.
The study also discovered that specific aspects of these images depreciated quicker than others. Apes with distinctively colored backgrounds, for example, preserved their worth better than others. Those with varied colored fur, on the other hand, lost value more faster.
The team’s findings will be presented at the Cognitive Science Society Conference.