supply and demand curve with pricefloor

The NFT ‘Price Floor’ Explained

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An NFT price floor is the lowest price of any of the NFTs that are for sale (sticker price). Note that this doesn’t include NFTs that sold through through auctions, whose prices are usually a little bit lower. Think about going to the car wash, and being presented options for the $10, $15, $20, $25 car washes. The $10 wash would be the price floor for all the washes.

As a rule, it’s always good to see that the price floor of the NFT collection in question is at or above what it was when you purchased your item from the collection. This doesn’t guarantee that you’ll make a profitable sale, but it increases the odds of you making money on your trade.

Auction prices are lower

Back to the car wash with the $10 price floor. Now think about a guy off to the side of the carwash whose willing to negotiate the price of his $10 wash card and you get him down to $8. Even though you got the cheapest wash for $8, the sticker price of the cheapest wash is still $10. $10 is the price floor.

Bid price vs. for sale price with NFTs

When you are buying or selling something in a marketplace, there is always a bid price and a for sale price. The bid price is the amount that someone is willing to pay for an item, while the for sale price is the amount that the owner of the item is asking for it. In capital markets (the stock market, futures markets, etc.) the difference between these two items is called the “bid-ask spread.” I’ll show you below how big gaps can be between bid and ask prices with NFTs.

Auction prices are most often lower than sticker prices and floor prices.

Let’s take a look at an NFT collection on OpenSea- I’m looking at CyberBrokers, currently the top collection on OpenSea by volume at the time of writing. By default, when you click on a collection’s page, the NFTs should be organized by price (low to high). We can see that the price floor for the collection is 3.98 Ethereum, or about $10,200 at the time of this writing.

The cheapest sticker price for an NFT from this collection is 3.98 ETH

Now I’m going to flip over to the recently sold page on the same collection and look at what some of the items have been selling for. Sure enough, it looks like the last item that recently sold through an auction (just 4 minutes prior), sold for 3.3 Ethereum, or 17% below the price floor. It’s good to get stuff cheap. Like Warren Buffett has said before- “whether it’s socks or stocks, I like to buy things on sale.”

On the right side of a collection’s homepage you can select this option from the drop-down
The last NFT sold for 17% below the floor price through an auction

Supply and demand laws apply to NFT markets the same way they apply to all other markets- if there are more buy orders than sell orders, the price of an item increases. The opposite is true with price decreases- there are more sell orders than there are buy orders.

NFT markets are less liquid. It takes far longer for an NFT to sell than it takes for a crypto sell on an exchange. Provided you’re selling at market price, crypto trades execute in seconds. NFT sales can take hours, days, or weeks until someone comes along and decides to buy your NFT. The lesson here is to only sink into NFTs what you’re willing to lose, and to make sure you’re not going to get caught in some situation where you have to sell the NFT at a loss just because you need cash. Not financial advice, of course!

My own experience buying and selling NFTs

I’ll be honest here- I haven’t made gains on any NFTs I’ve bought and sold- only losses and sorrow. I held an NFT from a top-100 collection on OpenSea for a few months. After a few months price stagnation, it started declining and I panicked a bit. I found myself reading articles about how NFTs are dumb and I even wrote one about the things I hate about NFTs. I lost my confidence in the NFT I was holding and decided to sell.

I listed the NFT for a little below the price floor, and it sold within 12 hours. I found the process of selling on OpenSea easy but expensive. For starters, OpenSea takes 2.5% off the top of all transactions. In addition to that, I have to pay a one-time “first listing” Ethereum gas fee of about $60, and then another gas fee to actually sell my NFT that was about $50. Between the gas fees and OpenSea fees to sell my NFT, it was enough money to buy field-level seats at an NFL game. NFT markets are expensive and inefficient. BUT if you’re a savvy investor you can exploit those inefficiencies and make some gains.

I realized after the fact that I can’t quite tolerate the risk I thought I might be able to when I bought the NFT. At the end of the day it can be really easy to start having doubts and thinking that this is all bullshit. One day the NFT I sold might be worth 10x what it was when I bought it, but I think that’s unlikely. If it does moon, shame on me for have paper hands!

Be wary, be smart

It’s likely that there’s far too much speculation in both NFT and crypto markets right now. The ‘greater fool theory’ is at work- people are overpaying for really dumb shit and hoping to turn around and find a greater fool to sell it for more to. Don’t get burned. Only get into collections that you actually really like and appreciate, and are willing to suffer through crypto winters with. Stay safe out there!

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