Many people think NFT trading is simple. After all, all you need to do is press buy, collect your primary purchase, and sit back as your bank account expands, right? Wrong.
The crypto ecosystem can feel overwhelming and mysterious to many new investors and buyers, especially when faced with the many financial concepts of trading a non-fungible token. One commonly misunderstood concept? Floor price.
Since crypto prices tend to fluctuate often, some digital assets are now worth hundreds of thousands of dollars. However, this doesn’t reflect the average item price. In reality, this is much lower, with some individual projects going for 0.01 ETH. But how can that be?
This is where understanding an NFT’s floor price and its implications can come in handy. But what’s a floor price, and how does it clue buyers and sellers in on an individual project’s value and whether you should invest? Keep reading to find out.
What’s An NFT Floor Price?
Simply put, a floor price is the lowest price a seller is willing to let go of an NFT art purchase. These prices don’t represent the average sale price for collection items. Instead, they only represent the price of individual assets on the cheaper end.
With this in mind, it’s important to note that a trading platform doesn’t determine the price floor. Instead, users who already own NFTs set prices on the secondary market. So, if a user buys an NFT at a regular price but later decides to resell it at 20% cheaper, then there will be a decrease in floor price.
To sum it up, floor prices are the cheapest possible sums you can pay for an NFT. Sellers, not trading platforms, define these prices.
Why It Matters
Since the current floor price doesn’t represent the value of a series of collectibles, why does it matter? The truth is that while it’s only one aspect of NFT trading, it serves as an essential metric when buying or selling digital art at a competitive price.
Evaluating Floor Prices On The Crypto Market
Floor price calculations are essential for making intelligent purchases on the crypto market. But how exactly can you use this to your advantage? Here’s how to think about floor prices when browsing marketplace listings.
As A Buyer
Engaging in the digital asset trade as a buyer can be pretty complicated. There’s a laundry list of things to consider before jumping in and dumping currency on a hot project. So, what should potential buyers know about floor prices when they’re ready to purchase?
As a newbie, it can be tempting to purchase the cheapest possible item in a project, which leads many traders to buy from the price floor. While this usually is a sound strategy for buyers, there are a few things you need to check before pressing that buy button.
The first is floor price relative to the average price. To check this, you’ll want to view other items in the same collection. For example, is the entire project going for 3 ETH, with the floor price only a little lower than that? If that’s the case, you may want to check the second most important thing: rarity.
We recommend verifying each item’s rarity using a tool like Rarity Sniper to get the best possible deal. After all, individual editions often come from a collection of attributes, with some being rarer than others.
For example, let’s say you want to buy a CryptoPunk. If the lowest price punk is only a 0.01 ETH difference from the next one, but the second cheapest option is much rarer, you should probably buy that instead.
Another thing new buyers want to consider is the sales volume vs. floor price. Is a low-priced NFT trading poorly? If so, you may want to pass on it for something that’ll appreciate over time.
As A Seller
Floor prices are an important metric to sellers because they clue you in on how much you can make off an NFT. Even if you have a low-rarity NFT in your crypto wallet, art pieces selling at floor price still give you an idea of how much you can make.
However, there are always outliers and exceptions to the rule. For example, items that normally go for seven-figure prices might sometimes be listed at a steal, which can be alarming to NFT holders.
Instead of panicking and relisting your NFT for a low price, you may just want to hold fast and wait for the market to stabilize. After all, listing NFTs way below market value isn’t sustainable, and sellers want to make a profit.
NFT Floor Prices: Final Thoughts
Floor prices are an essential metric when making intelligent choices about buying or selling NFTs on the crypto market. Unfortunately, they’re often easily overlooked or misunderstood by many new traders. With the information in this guide, you’ll understand how floor prices can inform your trading practice for the biggest gains possible.