What does the term “floor price” mean? The floor price is one of the few basic terms discussed whenever people talk about NFT projects, especially upcoming projects. If you’re new to the immersive world of crypto or the NFT space, you might be confused by it. That’s why you need to know that there are many things that go into defining NFT floor price.
The floor price of NFT is important for several reasons, but it might help us understand it a little better if we look at what floor price means in the world of the traditional economy.
What is floor price for NFT?
The floor price is a term used to describe the lowest possible price for which a certain product or service can be sold. In the traditional sense, the floor price is determined by a governing entity based on the market.
In the world of NFT, the floor price is the most commonly used benchmark used to determine the value of the NFT project. Once the new project is announced, the speculation about its floor price will undoubtedly make it more anticipated. This floor price is essentially determined by the person or team behind the project, and once the NFTs get minted and their value increases, so does the floor price.
For example, an NFT project that has been around since 2017, EtherRock is now worth millions of dollars. Only 100 of these NFTs were minted, which makes them relatively rare.
The first EtherRock NFT ever sold was bought for 300 dollars, but last year, a single EtherRock NFT was sold for 1.3 million dollars. Out of these 100 non-fungible tokens, the cheapest one represents the floor price for this collection of NFTs.
Another example is yet another long-standing NFT project called CryptoPunks. Many of the tokens from that collection sell for millions of dollars.
If these examples are not quite making sense, let me simplify further the meaning of floor price for NFT using an example.
Let’s say there are 10 NFTs in an imaginary collection. There are only 10 of them, and nine of those NFTs are sold for 10 ETH, and only one is sold for five ETH. The floor price for this imaginary NFT is 5 ETH; that’s why it is sometimes called the entry price.
However, now that you know what floor price NFT is, it is important to note that this floor price NFT does not accurately represent the actual value of the NFT.
Now, determining NFTs’ value and how much they might be worth some time down the line is a very unpredictable and complicated process, but it always starts with talking about the floor price. Let’s see how it’s determined and what it depends on.
READ ALSO: 10 Easiest Strategies To Get The Whitelist In NFT
Some factors that determine NFT floor price
Once the NFT project is up and running and the minting has been finished, the project’s creator no longer sets the floor price. It’s set by the market and a few other factors. Several variables determine NFT floor price.
Yet, the most important ones are market demand, investment potential, asset uniqueness, and utility. Additionally, the popularity of the creator and emotions of people looking to buy, or even the cultural significance an NFT might have in the given moment.
Market demand is, by most accounts, the number one factor that determines the floor price of an NFT. Market demand might be dictated by many things, like rarity, uniqueness or creator’s popularity, and so on. If the demand on the market for an NFT project is high, then it’s only logical that the floor price will go up.
Another thing that has a significant impact on the floor price of an NFT project or specific NFTs in that collection is the suggested return on investment (ROI). This essentially means that if there is an expectation of NFT’s value increasing in the future, then the floor price will also be higher than it would be otherwise.
What seems to be the common denominator for all of these factors is the overall excitement of the community. If for whatever reason, the community believes that the NFT has the potential to grow, then it most likely will.
If you’re hoping to soon create your own NFT project and are trying to understand the ballpark for the floor price, then there are some things you might want to look out for.
When it comes to new NFT projects, it’s important to set the floor price in a way that doesn’t make it suspicious. This means that you don’t want to underestimate your project too much because people will know you don’t believe in it.
On the other hand, it’s crucial not to overestimate your project because people won’t purchase a new project for too high of a price.
Much like determining the value of an NFT, determining the floor price of an NFT is not something that is guaranteed to be done in the same way every time.
The NFT market is incredibly volatile, and it may sometimes seem like there are no actual rules, and it’s overly complicated to even attempt to invest in anything. Yet, there is a method to the NFT market madness; if there wasn’t, then NFTs wouldn’t be as big as they are now.
How is the NFT floor price derived?
Now that we know what is floor price NFT and the factors determining the NFT floor price, it’s time to see how one would be able to calculate the floor price. This is especially important for people who might be new to the NFT space.
If you know how to calculate the floor price of an NFT project you’re interested in, your chance of making a bad investment goes down rapidly.
Let’s say you’re browsing through an NFT marketplace, whichever one you prefer to use. As you’re looking around, a specific NFT catches your eye because the listed price is low, and your impulse is to buy, but before you do that, here is what you should do. You need to go to the project’s page and sort the prices from lowest to highest.
Once you’ve done that, you can see that there are several NFTs with lower prices than the initial NFT floor price. This happens because other buyers have sent their offers or bids for auctions.
Some NFT marketplaces, like OpenSea, are built to work a lot like eBay, and buyers have the option to send their bid, which is lower than the floor price set by the holder.
To circumvent these lower-than-floor prices, click the buy-now button. This will take you to the particular page that only contains the NFTs you can buy, and this is also the place where you can see what the NFT floor price is.
You can use several tools to track floor prices, so that part of the process could be simplified for you. One of the most popular floor tracking tools is called the Rarity tool. It tracks all kinds of metrics for NFTs, and floor price is one of them.
NFT floor price manipulation
Since floor price is one of the main factors we consider when determining the value of a certain NFT collection, this means that this price might be subject to manipulation. This only makes sense because the more people believe in the value of something, the more they are likely to buy it.
This is usually the motive of fraudulent sellers who set their prices unreasonably high or simply drive the sales with “fake” sales to their other wallets. Others might go as far as to attempt to crash the market by selling the bulk of their own NFTs, which scares other holders into selling out for a low price.
The NFT community is trying to combat these manipulations by encouraging holders not to sell for low prices.
One way how you, as a potential buyer, can avoid NFT floor price manipulation is by doing thorough research before making the purchase. So, this should be a big red flag if you see one NFT from a specific project being listed with a far lower price than the other NFTs from the same collection. There should be a bigger portion of NFTs with a similar price.
It’s also crucial to check the trading volume of NFTs because it can also tell you whether or not the floor price is being manipulated. Trading volume tells us how often NFTs are being traded. If the price is low, but the NFTs are not being traded much, it’s a clear sign that their value is lower than the stated price and that the holder is just trying to get rid of the unwanted assets.
NFT floor price flipping
This is the method used by experienced traders and investors. These people have spent plenty of time tracking the market, and they usually know how to use floor prices to their advantage. The idea is simple, you buy NFTs at a low floor price and sell them for a higher price. The execution is not always so simple.
You will be looking for people who are willing to sell their NFTs for a low price, either because they are panic-selling or because they simply don’t know what they have. If you want to try it, go to the marketplace and look for recently listed NFTs.