“Legacy” NFT Prices Are Rising, But What Exactly Makes a Collection Blue Chip?

Blue chip NFTs are a popular buzzword found scattered across Twitter and various crypto media outlets. The term “blue chip” is borrowed from traditional finance, where stocks that are considered established extensions of companies are known for their quality, reliability, and financial stability. But what exactly are blue chip NFTs and how are they identified?

Nansen Research analyst Louisa Choe comments to Cointelegraph that since NFTs are still in their infancy, it is “sometimes difficult to apply these criteria as NFT is still an evolving asset class.” The general consensus is that the coveted blue chip is the asset with the lowest volatility, meaning it retains its value over time.

Let’s examine some of the factors that go into determining whether or not a particular NFT project qualifies for blue chip status.

Volume is only one piece of the puzzle

Together, NFT investors, like any trader, look at the total sales volume and total market cap of the collection. When an NFT collection reaches or exceeds the coveted 10 Ether ($30,624) level, collectors typically consider it blue-chip status. Total sales volume is also another data point that NFT traders look to to determine if the market is healthy.

While large volumes are desirable, are they sustainable and reflect blue chip status? Nansen updates its blue-chip index every 90 days and knows that “the market is young and fickle.” As such, controversy often erupts in the NFT market when a collection flies to the moon with no end in sight.

On April 16th, PROOF Collective launched its first Proof of Profile (PFP) collection, Moonbirds. The project literally rocketed to the moon and has already reached $220.8 million in total revenue on OpenSea. Although the project has barely been listed for a week, its explosive growth has led some NFT experts to speculate about its potential value, and some believe it has already been achieved Blue chip status.

Moonbirds all-time average selling price/volume. Source: OpenSea

However, there are experts who disagree with this opinion Volume is an indicator from blue-chip stats. Some NFT investors argue that attributing this data point as a measure of such an illiquid asset is difficult, and that the impression of a blue-chip NFT was that it could hold its value to survive a bear market.

Other NFT enthusiasts seem to lean on influencers and big-time players in the industry to determine which assets to line their pockets with.

Communities are more than the number of unique owners

It’s important to note that blue chip status isn’t defined by numbers alone, but by community sentiment and engagement. Trades can be replicated, but communities cannot. “Communities and thus the network effect are definitely key factors for the success of an NFT project,” says Choe. Often the first metric attempted to determine acceptance of a project is the number of unique owners. But even as a quantifiable metric, it’s not the most meaningful.

Accounting for the number of unique holders simply means recording the number of wallets that hold the particular asset. This being the case, an owner could own 1,000 assets and place each in their respective wallets, resulting in a measure of 1,000 unique owners, when in reality there is only one.

However, NFT investors often cite communities and the number of individual holders as a factor in why they consider an NFT to be of blue-chip caliber. In assigning blue-chip status to an NFT and considering its community, Choe explains that “…NFT projects aim to build an entire ecosystem that generates value, rather than focusing on one benefit.”

Communities are more than just numbers as they represent individuals with different beliefs and beliefs towards the project and within the ecosystem.

Part of the magic of Yuga Lab’s Bored Ape Yacht Club was that it was a bootstrap community performing what they didn’t expect. BAYC has not only amassed a total volume of over US$1 billion, but also attracted the attention of global mass media in just under a year.

If volume and the number of unique holders become a static focus for what qualifies as blue chip, then moonbirds flipping other blue chips in aggregate volume would make it one by default. In fact, Moonbirds has already attracted over 6,681 holders from a collection of 10,000 NFTs, and the most profitable former Moonbird holder made nearly $2 million from the sale of 45 MoonBirds. To date, some of the most profitable investors have made over $450,000.

It is often said that an asset is worth what the market is willing to pay for it, and sometimes the market’s perception of that valuation can pump or tip.

Related: Blue chip and metaverse NFTs are driving NFT market growth, according to Nansen report

Blue chip value goes beyond price

Market value and market capitalization are often used interchangeably, making it difficult to assess the true value of an NFT. Market value is nuanced in that it provides a broader view in determining a project’s financial health, but also determines investors’ relative investment opportunities.

Interestingly, market value determines how much an investor is willing to pay for an asset, but market value is also heavily influenced by market perception and sentiment. Volatile mood swings in overall sales volume, growth and members’ attunements to their assets through the sale can be seen in the NFT markets.

NFT markets are young and volatile because the largest blue chip to date, BAYC, hasn’t even celebrated its anniversary yet. Still, it has proven its ability to maintain and increase in value over time.

Bored Ape Yacht Club all-time floor prices. Source: NFT Price Floor

Liquidity in the sector often circulates from one project to another, resulting in some assets remaining illiquid in the sense that they cannot be readily sold when desired. However, the price of blue chip NFTs may change over time, but their value remains that they would be bought quickly if sold at or below the reserve price.

The market value is nuanced. Not only is it bolstered by market sentiment and their perception of a particular product/brand, but it is also at the mercy of the macro cryptocurrency market. Therefore, assets can be expected to decline and be risky. Despite the risk, many NFT collectors continue to invest their money where their beliefs lie, whether blindly or more strategically in hopes of landing a blue-chip investment.

Instead of price, volume history and brand value, time seems to be a heavily weighted factor when determining whether an NFT has reached blue chip status. This suggests tracking asset value over time rather than focusing on current performance to justify a project’s present value.

NFT investors will have their opinions on what qualifies as blue chip and it is important to reiterate how nascent the market is. A better assessment process is to track quarterly total sales volume, buyer and seller relationships, and project roadmap or community developments as components of blue chip status.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.