In 2021, the world of non-fungible tokens (NFTs) has been characterized by excitement, wild speculation and over-hyped prices. Since then, however, the market has experienced a significant downturn, pushing rock bottom prices and trading volume.
Monthly trading volume for NFTs plummeted 81% between January 2022 and July 2023, while monthly NFT sales fell 61% over the same period. Similarly, the bottom prices of popular NFTs like Bored Ape Yacht Club and CryptoPunks have hit a two-year low.
NFTs do not recover after the collapse of the crypto market
Once considered the next big thing in the crypto world, NFTs have failed to bounce back from the 2022 crypto meltdown. Investors have seen the value of their blue-chip NFTs drop significantly while several platforms have been forced to shut down their operations. to end.
NFT marketplace Recur, backed by billionaire Steve Cohen and known for its Hello Kitty NFT partnership, has announced it is shutting down due to “unforeseen challenges and shifts in the business landscape.” Nifty’s, an NFT social media platform backed by Mark Cuban and Joe Lubin, has also decided to shut down its operations, citing failed investment opportunities.
Even platforms like Blur, a leading NFT marketplace, witnessed a staggering 96% drop in sales volume measured in Ether between late June and early August. OpenSea, the second largest NFT marketplace, has also seen a drop in trading volume of more than 90%.
The fear of increased scrutiny by the regulators adds to growing concerns within the NFT community. The US Securities and Exchange Commission recently filed its first enforcement action against Yuga Labs, alleging that the NFTs it offered were unregistered securities.
How NFTs rose to prominence
NFTs rose to prominence in 2017 with the release of Dapper Labs’ CryptoKitties, a game featuring tradable digital cats. The phenomenon caused such huge popularity that it overwhelmed the Ethereum network.
The subsequent success of Bored Ape Yacht Club, an NFT collection of cartoonish apes, further added to the hype. The industry even caught the attention of countless celebrities like Madonna, Paris Hilton, and Justin Bieber, who jumped on the NFT craze with bold investments.
In 2022, the NFT market had a trading volume of approximately $24.7 billion across various platforms, almost the same as the $25 billion in 2021. One of the top-selling NFT projects was Ethereum’s Bored Ape Yacht Club, which has a trading volume of nearly made $1.6 billion.
NFT market crash affects investors, makers and traders
Since peaking in 2022, the NFT market has seen a complete turnaround. Investor sentiment has turned sour: collectors have filed lawsuits against NFT makers and sellers over the rapid decline in the value of their artworks. Traders are also turning their attention to cryptocurrencies such as Bitcoin, which has experienced a 60% rally this year.
The downturn in the NFT market was particularly evident in NFTs with Profile Photos (PFP). These tokens are often featured on social media platforms and have depreciated significantly, leading many collectors to sell their holdings. Only collections like CryptoPunks have managed to maintain a degree of stability.
Meanwhile, the decline in the NFT market is partly attributed to the rise of merchant-driven markets, according to a Bloomberg report. The shift from a collector-driven market to a dealer-driven market has focused on floor items, incentivized bidding, lending, and inventory, eroding the original emphasis on rarity and intrinsic value.
It is worth noting that some industry players have moved away from the word NFTs. Instead, they have used alternative terms such as “digital art” or “digital collectibles.” For example, Sotheby’s now calls NFTs “generative art,” while Pudgy Penguins, an NFT project, calls their products “digital collectibles.”
Brands continue to launch NFTs as the market shows some resilience
While most of the NFT market is experiencing a drastic downturn, there is still some resilience. Sotheby’s sold a piece from the Grails collection for about $6.2 million in June, while Christie’s is seeing demand for creations by Canadian artist Mad Dog Jones.
Similarly, Lufthansa, one of Europe’s largest airline groups, recently launched Uptrip, a mobile app for its NFT loyalty program. The company’s passengers can use the app to scan their boarding passes and exchange them for NFT trading cards.
There is also a spike in interest in NFTs associated with the Bitcoin blockchain. As reported, these digital tokens experienced a huge spike in popularity in the second quarter of the year, with a significant increase of 2,834% compared to the first quarter.
Do you think NFTs can make a comeback? Let us know in the comments below.
