Value is determined by the buyer

Bored Ape floor price

As of today, the floor price for a Bored Ape Yacht Club NFT on OpenSea is 87.5 ETH (Ethereum) – approximately $108,000. Last year’s bull run, when ETH was hovering between $2,500 to $4,000, many apes were sold north of a hundred. A JPEG photo of a primate on the blockchain is selling for hundreds. Absurd?

You probably have heard of the name Babe Ruth – a hall of fame baseball player. What if I tell you that a 1933 Babe Ruth baseball card has been sold for $4.2 million? That 100 grand ape photo doesn’t sound so expensive anymore.

1933 Babe Ruth baseball card

Let us take it up a notch. In 2017, a Leonardo Da Vinci painting of Jesus Christ sold for $450.3 million. Okay seriously, that Bored Ape NFT is now looking so cheap!

Leonardo da Vinci, Salvator Mundi (ca. 1500)

Being in the crypto space for over a year now, I have been thinking of the concept of value. How do we measure how much something is worth? Do we just add all the raw materials, labor cost, marketing expense, and middlemen markup? Why is Bitcoin $20,000 and not $1,000?

How do we explain a Babe Ruth baseball card selling for $4.2 million? The cost of making one baseball card with today’s tech is under a dollar. So how do we justify a $4.2 million price tag? The narrative and history of the baseball card? The fact that Babe Ruth is a hall of fame baseball player?

In a recent interview on his thoughts on Bitcoin, Warren Buffet states “If you … owned all of the bitcoin in the world and you offered it to me for $25, I wouldn’t take it.” Buffet’s thoughts on the value of Bitcoin does not seem to affect its price as it is currently hovering around $20,000 to $30,000 (although more than 50% drawdown from its all time high price of $68,000 in November 2021). The question is, why is a non-tangible asset like Bitcoin valued in the thousands? Is it because of speculators? The narrative that Bitcoin is digital gold?

Mark Cuban had an interesting blog post on digital assets where he states that, “valuing something we own has always been more art than science.” I couldn’t agree more. Nevertheless, I feel like the concept of value could be explained simply.

The value of a service, good, tangible/intangible asset is determined by how much a buyer is willing to pay for it. An ape photo for hundreds, a baseball card for $4.2 mil, and a painting for $450 mil are sold because a buyer is willing to pay for it at that price. Sure, the narrative, marketing, scarcity, and hype could have helped but it could not fully explain why it sold at those prices. A Da Vinci sold for $450 million, but why is it not a Michaelangelo, Rembrandt, Monet, or Picasso painting? Is Leonardo the best painter of them all? Did Leonardo have the best marketing team?

The “real” value of something does not exist. Value is not objective but subjective. Value of something is determined by how much a buyer is willing to pay for it.