After record sales that were as dizzying as they were surprising, the NFT market collapsed by more than 90%. A crisis that could lead to more interesting and mature prospects for the future.
His name is Pak and he is probably unknown to you. But in December 2021, this digital artist made $91.8 million for his The Merge collection, unrelated to the recent update to the Ethereum (ETH) protocol. This stratospheric figure is the apex of what is called the NFT bubble.
After a period of euphoria when certain collections took advantage of communications worthy of Hollywood blockbusters, the souffle has fallen. Between clearly overpriced, numerous scams and the general fall of the crypto market, the NFT market did not resist the deflation of the bubble. We are talking about a 92% drop in just a few months.
In addition to the numbers, it is the global market that is being completely overhauled. The goal now is to witness a cleanup, clear the market and bring NFTs into the age of maturity with other functionalities.
Records for the fall
2021: the explosion
NFTs were born in 2017 with CryptoKitties and CryptoPunks. These collections are then confidential and only known to the internet world. We already know that NFTs are unique digital works verified and secured by blockchain technology. But what we don’t know yet is that this market will become highly speculative less than four years later.
At the end of a year marked by numerous restrictions, the markets, both classical and crypto, are starting to climb to records. Among the crypto markets, one is making a lot of noise: that of NFTs. These digital works are picked up at exorbitant prices, with CryptoPunks costing several hundred thousand or even millions of dollars. The NFT craze reached its peak with the release of new collections such as the NBA Top Shots from Dapper Labs and especially the Bored Apes Yacht Club (BAYC) from Yuga Labs.
These grinning monkey heads sold for sky-high prices, hitting a record high of $3.41 million (819 ethers) for BAYC #8817. Rappers also joined in by proudly showing off their NFTs on social media. The climax was reached when Eminem and Snoop Dogg made a music video with their BAYC!
This madness lasted about a year. From March 2022, the market slowed and then declined in May 2022. This date is no coincidence. It corresponds to the moment when the Terra ecosystem (LUNA) collapsed. Since then, the market for NFTs (and cryptos) has not recovered.
It is not a small drop, but a vertical free fall. According to Chainalysis, a US firm specializing in blockchain data analysis, the average price of an NFT fell from $3,894 in May 2022 to $293 in July 2022. That’s a 92% drop in two months! And it hasn’t worked since.
All collections are affected. The former were the most confidential and the creators simply failed to sell their NFT. But the most famous, such as BAYC, have also been affected. While the latter remain the grail of the market, it is now very rare to see a sale over $300,000.
The explanation for this fall is twofold. The first relates to the NFT market itself. We had indeed clearly entered a speculative bubble. Like any bubble, deflation can be painful and it has been. The second explanation is the fall of the crypto market. Bitcoin has also lost nearly 70% of its value since its spring peaks in 2022. The same is true for ether, the cryptocurrency used to buy and sell most NFTs. As a result, the price falls mechanically if the asset used as a medium of exchange also falls. Since then, the NFT market has been at half-mast. And that’s good news for his future.
The end of speculation and scams
Needless to say, some people were shocked to see monkey heads being traded for millions of dollars. Not to mention the CryptoPunks and the CryptoKitties kittens. All this has a name: speculation.
The NFT market was one of the most speculative from mid-2021 to mid-2022. Almost anyone could launch their collection and win a small jackpot. Without going to the million, a lot of people have amassed at least several hundred dollars per NFT. One of the reasons was the possibility for the buyer to resell even more expensively.
This speculation has allowed the development of many scams. Indeed, with good communication, it was so easy to sell NFTs that some creators were smart. They associated the NFT with a smart contract stipulating an impossibility of sale or a redistribution of a large portion of the resale sum to the maker. Of course without informing the buyer in advance. The greed was so great that buyers blindly trusted everyone.
With the decline in crypto prices and the NFT market, ultra speculation has come to an end and scams are almost gone. This makes sense, as it is now nearly impossible to make a profit on resale. This cleanup made it possible to keep the good projects and especially to talk about the other, much more interesting features of the NFTs.
At the time of writing, BAYCs are trading from around 80 ethers. Its cousins, the Mutant Apes, of about 15 ethers. While one can dispute their aggressive marketing and their actual usefulness, these collections remain certain values, such as CryptoPunks and CryptoKitties.
Above all, we note that the future prospects of NFTs are good and go beyond digital art. Indeed, the NFT is above all a unique token, incorruptible and offers protection against counterfeiting. For example, luxury brands are beginning to associate some of their products with NFTs to ensure their authenticity. It is the same system as the ticket counter, which was most notably used during an Ed Sheeran concert.
Musical artists can collect their royalties in NFT and let their fans acquire albums themselves in the form of NFT. Fans will then have access to bonuses, reserved exclusively for NFT holders. So yes, NFTs can be used for much more than speculation and this is just the beginning of this revolutionary technology.