Oct 11 2022
What Is NFT Floor Price? And Other Questions Answered
Also known as entry price, the term was borrowed from commodities trading. An enforced floor price mitigated aggressive undercutting, enforcing a minimum sale price. Now it’s a key aspect of being a successful NFT investor. Read on to learn everything you need to know about the phenomenon.
What is an NFT floor price?
It’s the lowest price that an NFT can be bought for within a collection. The initial floor price for freshly minted NFTs will be set by the creator, while any subsequent owners will set their floor price when they list it for resale. Here’s a floor price list of the top 5 NFTs at the time of writing this, courtesy of the floor price tracker, NFT Price Floor.
On secondary markets, the floor price will increase as an NFT gets more prominent and desirable – or decrease should the NFT lose interest and people want to cash out of their investment. It’s essentially another way of determining value. Just make sure you don’t confuse it with the average price. That’s the average price that an NFT within a collection sells for. The average price could be quite far or quite close to the floor price depending on various factors that this blog will cover.
Why are NFT floor prices important?
They can be a great way of valuing NFTs. And as mentioned, they’re integral to determining which way their value is heading – a lower or higher floor price on a secondary market acts as an investing signal. Floor price isn’t everything though- it’s important, but it’s only one of several factors to consider.
How is NFT floor price calculated?
Calculated isn’t really the correct term. The price is simply set by whoever owns and lists the NFT. Much like how someone would list one of their items on eBay. The real question, one best answered by one of our other blogs, is
what makes an NFT valuable? Because there are many factors that influence the demand for an NFT. Factors like creator status, the community that surrounds it, rarity, etc. will all affect the NFT floor price.
What does it mean to “sweep the floor”?
This is the bulk buying of NFTs at the NFT floor price. This can be done by anyone. There are a couple of motivations for this. One is the understandable desire to capitalise on a well-priced NFT before selling it on at a higher floor price. This is why we limited the number of NFTs per customer for our
Skyscraper CollectionNFT mint. The sweeper can also take advantage of lower
NFT gas feesby using an aggregator service. The second reason, outlined below, is a little sneakier.
What are the pros and cons of buying an NFT at the floor price?
Pro: Flipping the NFTs for a profit
You might see an NFT with a drastically lower price than the rest of the NFTs within its collection. This will make a collection’s floor price misleadingly low; the floor price might be 0.5 ETH but every other NFT in the collection could be at 5 or more ETH. This would make the NFT floor price more of an exception than a rule. This would also help the buyer potentially flip the NFT for a profit. We touch on more of this below.
Con: Floor price manipulation
Performed by both buyers and an NFT’s creators alike, here a floor price is inflated after a floor sweep; all that demand must mean the NFT is desirable, no? Not necessarily. As mentioned, the floor sweepers can take advantage of this supposed demand and resell the NFT at a dubiously inflated price. All too often, this leaves whoever purchases the NFT next time around holding something less valuable than they’d anticipated.
You should be researching every NFT you purchase so carefully that you can spot anything that so much as resembles the sign of a sweep. If the NFT doesn’t seem to have a community or long-term value but the floor has been swept and the secondary market price is high, then this can be a tell-tale sign of manipulation.
Seeing a low number of unique owners on an NFT project can also be a red flag. The best way to outsmart the price manipulators is by joining a project’s Discord/Telegram/Twitter or other social channels. Here you’ll get to know the project most intimately.
Another common price manipulation technique is where big NFT players offload large amounts of NFTs at low prices, pushing the floor price down. This can make other owners of that NFT scared, feel the NFT is tanking, and sell off more of their NFTs, potentially reducing the floor price even more. Then the big NFT player can swoop in and buy back more NFTs at what should be a temporarily low price, before making further profits when the NFT’s value normalizes.
What’s a floor cap?
Multiply the NFT floor price by the NFT’s total supply and you’ve got the floor capitalization; i.e. the bare minimum the NFT collection is valued at. It’s good to view this figure along with its estimated market cap, which is the NFT’s average price over a week, multiplied by its total supply.
How does floor price relate to flipping NFTs?
Offering investment advice isn’t within the scope of this blog. But we can present a few basic areas that pertain to floor prices, which need to be taken into consideration should you wish to get into NFT flipping.
First is the aforementioned floor price in relation to other prices within the NFT collection. Make sure you view other prices carefully. If there’s one outlier NFT with a significantly lower floor price than the bulk of its peer group, then this could be an opportunity to get a discount.
Equally, as a seller, don’t be put off by a low floor price. If only one or a few NFTs are priced on/near the floor price and the rest of the collection is much higher, there’s no need to slash your asking price. The seller behind the low price could be selling for all kinds of reasons; they need the cash quickly, they’re trying to influence the market, etc.
You’ll also want to look at trading volume. If an NFT is trading slowly, then a floor price you see on an NFT could be asking too much and few people want to buy it. Similarly, a high trading volume is usually a sign of high demand. So if coupled with a good floor price for the NFT, you could be looking at an opportunity.
One possible exception to all this is when an NFT becomes highly desirable and its trading volume slows. Bored Ape Yacht Club has reached this point and has an understandably low trading volume; the utilities are so juicy and the future value looks so promising that selling would be daft.
As with any investment, don’t rush your decisions. Whilst a quality NFT project will have a rising floor price, that’s not a hard and fast rule. Sometimes floor prices drop because of minor, temporary dips in the market, and (some) investors get impatient, looking for a quick exit. As we’ve discussed, a pump in an NFT’s value can be artificial. Or it could be linked to genuine advances in the project; new utilities, new team, etc. You’ve got to look at each NFT on a case-by-case basis.
The NFT game is one of knowledge and patience. Resources like this
NFT Price Floor trackerand the
NFT calendarcan be great ways of staying abreast of important information. And when it comes to metaverse real estate NFTs,
VerseProp’s platformoffers the kind of data and insights the serious investor needs. Floor price, buyer history, and the advanced insights that you won’t find on places like OpenSea or Rarible.
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