Is That JPEG Worth 70 Million Dollars? Value Creation and Perceptions of Non-Fungible Tokens in a Bubble Economy

Abstract

Non-fungible tokens (NFTs) have sparked questions about value. The mystery created by the millions of dollars paid for some NFTs while others are virtually worthless challenges our understanding of what constitutes value. In our attempt to shed light on the value of NFTs, especially during their dramatic rise in the early 2020s, we develop a theoretical analysis of the extrinsic factors shaping NFT value based on a perfect storm of individual, social, marketing, and environmental factors. After detailing the effects of each of these factors in shaping NFT valuation, we develop a new understanding of value in a frenzy of celebrity influence, social media, decentralized authority, unregulated markets, marketing hype, and media magnification. We also articulate the intrinsic factors that still affect value as well. Finally, we offer advice on how to make sense of value creation and perceptions of the NFT bubble. While our paper started as an attempt to discuss intrinsic object-based valuation, we found that in the NFT bubble economy and its aftermath, extrinsic, social, and situational factors came to dominate valuation. We end the paper by outlining a research agenda that can push our understanding of the impact of such factors as cryptocurrency and metaverse markets develop.