What makes an NFT valuable and can you be a data driven NFT investor? | by Jason Huynh | Feb, 2022

Your first thought could be to look at the cryptocurency price charts such as for ethereum or solana. But, this is the wrong tool for the job. If you were interested in taking advantage of crytocurrecy price fluctuations, this would be the right tool, but we’re investing for large capital gain here.

As you should be aware, NFTs are usually associated with digital art of some sort, so you’re better off using the mindset of an art dealer when investing in NFTs. So that raises the question: “What can the ‘tangible’ art world teach us about NFT investing?”

After conducting some research, I can answer that question for you. An article by Jason Bailey called “Can Machine Learning Predict the Price of Auction Art?” in the publication, HDSR, provides some good insight. The author’s research indicates that artist reputation and the number of bidders at auction are the best indicators for future price.

If you’re speculator, this may sound like real insight, but if you have a deep understanding of what investing should be, then it just makes sense. For example, why do many people buy tech stocks? Because many people are already investing in them. Why do people still buy established stocks like banks or utilities? Because they’ve been around long enough to have a decent reputation.

Firstly, the number of bidders is easy to find. If you go on OpenSea, you can easily see how many people are bidding for an NFT and at what price. The data is in front of your face. Common sense and simple maths should prevail here. If the artist is relatively unknown, but he has many bidders, then be suspicious. Alternatively, if the bids seem unreasonable (eg. No one seems to be bidding seriously) also be suspicious.

Secondly, the aspect of finding an artist with a good reputation or finding an artist who will develop a good reputation is harder to discover. Bailey’s research investigated text mining of artist social media accounts and their biographies, but found no real correlation between social media presence and their biographies, and art sale price. However, he did find that artists who were associated with prestigious institutions tend to sell their works at higher prices than those who were not associated with prestigious institutions.

So, what does this tell us about measuring reputation? Realistically, you can’t really find numerical ‘data’ to measure reputation. You can see for an artist how many pieces of work an artist has sold and for what price, but since the number of successful artist relative to the number of actual artist out there is a small proportion, you’re more or less seeing a correlation rather than actual causation.

Perhaps a better way to measure reputation is to see how popular and respected an artist is in his or her own niche. Other than reading the artist biography, you can see how well an artist trends on Google Trends and reviews of their work. However, trending on Google or even on other social media platforms doesn’t necessarily indicate a good reputation. For example, Elon Musk is often a trending topic but he has the reputation of being a hot-head.

Also, as mentioned, being associated with prestigious institution matters. For example, if your artist is an associated Marvel artist, then you at least know the artist may probably already have a good reputation and may want to retain it. Most likely, this information can be found easily on the artist’s Linkedin or other professional pages.

As a side note, you may also want to see what utility the NFT brings. Essentially, can the NFT bring out a feeling of awe towards the owner when she displays it among her peers? For instance, if you’re a Star Wars fan, having a Darth Vader avatar minted by Disney would make other Star Wars fans envious of you.