Let’s talk about NFT projects and “the floor.” As you likely know “the floor” is the absolute lowest price at which you can buy a piece from an artist or from a collection right this very second. This comes from the “price floor” idea in the Law of Supply and Demand where there is a minimum viable price that something must be sold for in order to cover the costs of supplying it. With digital artwork you have different production concerns so “price floor” became “floor price” and is now just called “the floor.” Let’s unpack this a bit more.
First and foremost it’s important to understand that the value of anything is decided by two people. The buyer, and the seller. Other people might have an opinion about it but that doesn’t matter. If I want to sell you something and you agree to the price, it irrelevant if your neighbor thinks that’s a good price. With retail prices of various products a significant amount of work is done to decide what the public will accept as a reasonable price. With used, secondary, etc sales it is more hands on. Craigslists, eBay, your local farmers market, a yard sale, whatever – all of this commerce depends on just two people agreeing on a price and it’s understood that sale stands alone and it’s indicative of an entire market. This is why people walk away from a yard sale saying “I got such a good deal on this lamp!” rather than “I can’t believe the floor price on hammers is crashing.”
I should take a moment to give some context as to why I think I’m qualified to run my mouth about shit like this. Between 1999 and 2007 I co-owned and operated an art gallery called sixspace, originally in Chicago and then later in Los Angeles. We produced monthly exhibitions by many artists including some that we directly managed as well. In addition to our in-house exhibitions we also collaborated with other galleries on events and participated in global art fairs. After the gallery closed I maintained relationships with both artists and collectors which have turned into multi-decade friendships. An art collector myself, I began buying work from artists and galleries in the mid 90’s and nearing 30 years later almost every inch of my living space (and probably too much storage space) is filled with art. So while I agree that the NFT space is too new to have experts about any of it, I have a lifetime of experience buying and selling art.
Like all art, most NFTs are illiquid. This means just because someone wants to buy something doesn’t mean there is anything available at a price they are willing to pay. Similarly just because someone wants to sell something doesn’t mean there is anyone willing to pay the price they are asking. I own pieces by world famous artists and if I wanted to sell them It would take weeks/months of working with dealers and/or other collectors to find someone who wanted to buy them at a price I’d be comfortable taking. That’s illiquidity. If it was liquid I would just snap and they would be sold but that’s not how most art works.
With stocks or other investments it’s less of an issue as all shares are equal, with artwork there are more details to consider. Not the least of which is aesthetics, that is what does this piece of art actually look like? Not everyone buys or sells art for the same reason. Not every single piece created by an artist is the same. In the physical art world there are artists I love with pieces I’ve chosen not to buy because they just didn’t work for me personally. Maybe the color or the theme or something was just not to my taste, but another piece by the same artist was a direct hit. With NFTs, especially with larger collections how it looks plays into what someone is planning to do with it, as does various functions or rarities – so trying to project the demand for any one piece onto an entire body of work is a mistake.
Additionally, “the floor” lacks any context. It is ignorant of what other sales might be happening in an artists body of work (or in this case an NFT collection), it is ignorant of what personal, medical or business issues might be going on in the sellers life. The assertion that “the floor” says anything about anything other than what one person is willing to sell a piece for is absolute ignorance. And because these works are largely illiquid, if someone needs to get liquid fast – perhaps they have another opportunity they’d rather pursue or an emergency medical expense or any number of millions of reasons they might want to sell, this often means they are going to have to sell something below it’s potential value. Because again, lack of context. If a work is offered for sale for $1000 and someone buys it for $1000, all anyone knows is that it sold for $1000. Maybe the buyer would have paid $1500. Maybe the seller was willing to go down to $500. Who knows? Conversely, the very fact that a piece is available to be purchased at a “floor” price means currently, at this moment, no one is willing to pay that price being asked. If they were, it wouldn’t be for sale, it would be sold. So at any given moment “the floor” can be above or below the actual value of the work. Sometimes both at the same time.
Much more useful metrics for gauging current demand for a project are average sale price over some period of time (24h, 7d, 30d, etc which takes into account all the mid and higher end sales missed in “floor” discussions), what % of the collection is for sale and how that is changing over time (a decreasing % shows increasing demand), and how distributed the collection is. Do a few people own all of them (bad) or do lots of people own a few of them (good)? There are tools like Nansen, Icy and others which are helpful for a more comprehensive understanding.
Traders, flippers and speculators would have you believe otherwise. In any given project community would-be investors try to convince everyone listening that the “floor” is the end all be all metric for determining success or failure. The same people obsessing about “the floor” are the ones demanding roadmaps and asking about utility. Could you imagine anything more absurd than walking into an art gallery, walking up to an artist and demanding they tell you about their roadmap? Or saying “This is a lovely painting, I know exactly the place I want to hang it in my living room – but first can you tell me what the utility of this is?” Or, more egregious of all, contacting an artist and saying “I bought a piece from your gallery exhibition last year, what are you doing today to increase the value of it?”
If someone came into my gallery asking something like that I’d throw them out on the street.
An artist’s job is to make art. Making more art is the only roadmap they need. End of story. The work they made yesterday benefits and is complimented by the work they make tomorrow. Demand for work they made yesterday is increased by the work they make tomorrow. If you are worried about or trying increase the value of art work you own, hounding the artist is a waste of your time. You are distracting them from doing the one thing they are best suited to do, making art. What you can and should be doing is finding a way to increase demand for that artists work. Tell your friends, talk about why you love it, what attracted you to the work in the first place, why did you decide to buy it? As a collector, I love hearing these things from other collectors, and I’ve bought a lot of work because another collector tipped me off to something incredible. This is good for the artist, the collectors, the market and valuations.
You know what isn’t good for the artist, the collectors, the market or valuations? Crying about “the floor.” When I’m looking into a project if I see people throwing a fit about “the floor” I know that a lot of the owners bought in for the wrong reason and will be dumping soon so I would be stupid to buy in at whatever prices are offered today, rest assured they will be lower tomorrow. On the other hand when I discover something see collectors talking about how much they love the work, love the artist, love the project, I kick myself for not learning about it earlier. And because I know this, when I do see someone having a panic attack about “the floor” I know only one of two things can be true – either they are purposely trying to sabotage the valuations to drive prices down (potentially so they can buy in at a lower price) or they are an idiot. In either case, I know right away to ignore anything they say.
This all holds true in the regular art world where sales take days, weeks, sometimes months to complete. In the Digital/NFT space where sales happen in minutes, sometimes in seconds it’s even more true. Manipulation is real, and so are idiots. It’s best to avoid both. Buy art you love, by artists you respect. Do that, and you’ll never be disappointed.