What’s happening with NFTs? Maybe you’ve asked some people, and some are still enthusiastic about these assets, while others suggest that the whole NFT market is about to bite the dust.
The consensus is that the reality’s a little more complex than that. NFT markets have grown a lot in recent years, but new concerns about crypto and blockchain assets are diminishing the outlook on things like NFTs right now.
Before we begin, I need to disclose I’m not a financial adviser, and the following is not financial advice. If you need financial advice, seek a professional financial advisor.
Bitcoin Cut In Half
Simply speaking, Bitcoin is the first cryptocurrency (hence the fame of Satoshi) and the largest of its kind. It’s the “brand-name” or “household name” that we think of when we think about cryptocurrencies in general.
To date, there are dozens, even hundreds of alternative blockchain coins and tokens available on exchanges. Still, Bitcoin is really the only one publicly traded through ATMs and other simple, easy on-ramps.
Ethereum is a runner-up that’s often available on the street or through basic exchange and wallet operations, but Bitcoin is still number one when it comes to cryptocurrency, and experts look at its dominance to try to understand the market.
With that in mind, Bitcoin right now is at less than half of its all-time high.
To put this in perspective, many people became Bitcoin millionaires as the coin skyrocketed from early values around $100 or $200 per coin up to the soaring heights of $60,000 per coin a couple of years ago.
That led people to surmise that Bitcoin was eventually going to $100,000 and then to $1,000,000 within a few years. Now, recently, Bitcoin has sat under the $30,000 mark, which has a really profound chilling effect on related markets.
Companies like Tesla and Microstrategy that made pure plays may be reconsidering; fewer new institutional buyers may be jumping in.
Analysts looking at volume and outflows have some concerning trend analyses right now. None of that is helping crypto.
De-pegging of Stablecoins
There’s also the recent problem with what happened to stablecoins like TerraUSD (UST) and Tether.
First, you have to understand what a stablecoin is. It’s a cryptocurrency that is backed by a fiat currency, such as the dollar. In fact, Tether and UST are both backed by the dollar. Their value is “pegged” to the value of one dollar.
So as UST cratered last week, its value dropped lower than a dollar. It went down to some fraction of a dollar, which got people worried.
Even Tether, a major stablecoin on the market, lost a few cents, and when it sat at $0.96, people considered that a de-pegging and thought about it quite a bit.
This and related problems with Terra’s $Luna token shook the cryptocurrency community, and it had a secondary effect on NFTs, too.
Stupid Crazy NFT Statistics
Another way to understand the collapse of NFTs and what’s happening right now is to take some basic numbers and look at them carefully.
Insiders report that in 2020, about $250 million worth of NFTs were sold.
The following year in 2021, minters and other parties sold roughly $25 billion in NFTs.
With all of that money in play and that level of growth, it makes sense for people to then hop on the NFT bandwagon. You could call it a bubble if you believe that market activity is unsustainable, as many do.
Looking at the numbers, you’re really just looking at aggregate volume. In this way, NFTs represent a commodity of sorts, but they’re not a commodity in the way that physical commodities are.
It’s unavoidable, in contrasting an NFT with something like wheat or coffee or pork bellies, to admit that the non-fungible token has a worth that is only tied to collectible markets and not to any kind of physical delivery.
Some people take that to mean that NFTs don’t involve investing “in the real world.” But there are exceptions to that rule – if you know someone who has celebrity star power and an NFT lineup, you can make informed choices about what these assets will be worth in the future, at least to some extent.
Then there’s the timing of NFT trades and what that represents to skeptics who always talk about “tulip mania.” We’ll get some more of that idea in a moment.
What we find now, though, is that NFT marketplaces are reporting that sales are diminishing right now. For instance, some cite a value of $500 million of NFTs sold in one week this month, and $255 million the next week, for a 50% decrease.
That’s no small potatoes in any market, and as a rapid about-face, it’s making headlines, next to the whole Terra fiasco and Bitcoin’s currently low values.
So people who are looking for short-term aggregate selling are seeing the opposite and getting nervous about the values of NFTs in general.
The Chimerical Value of NFTs
As we pointed out in another article, NFTs are worth what people want to pay for them.
The value of an NFT is usually linked to a celebrity like an athlete or musician or famous artist or to some kind of digital art that people feel is worth money.
Otherwise, a lot of people feel there is no viable reason to buy these assets at all. At least the utility of NFTs is becoming more well known; for example, if you purchase certain NFTs, they come with perks like VIP access at events or the ability to redeem a physical copy.
And many creators are taking cues from lists like this to make their NFTs more exciting and potentially valuable. This guide seems to help: 10 Things That Make a Good NFT Project.
Here’s the other part of the equation, though. Many experts believe that the vast majority of NFT buyers are looking to resell these assets later for a profit.
That’s a pretty shaky proposition since it’s hard to see how NFTs (most of them) will appreciate in value when in fact, most seem to decline in value. If an athlete or musician continues to expand their career, some of these might be worth more money later. On the other hand, market changes could make a lot of them virtually worthless at any given time.
The amount of interest in reselling NFTs is one factor that puts downward pressure on the market in general, as people get skeptical about these types of assets. They’re very intangible, and that’s a problem for common enthusiasm and buy-in.
There’s also the specter of gas fees on the most common blockchains used to mint and sell NFTs.
Ethereum was the main platform for a long time. But then the gas fees got out of hand – so high that artists trying to sell digital art through an NFT might have gas fees higher than the price at which they listed the intellectual property.
Gas fees are so crazy that we wanted to drop even further analysis on their ups and downs of them, and you can see what I’m talking about in this article, “What is the Average Cost to Mint and Sell an NFT? (Top Marketplace Examples)“
That’s led to all sorts of reshuffling as people move toward blockchains like Solana, and that may be successful, but it could involve some growing pains.
In fact, this proliferation of coins and tokens might cause some profound confusion, too.
Early on in the days of cryptocurrency, people were talking about the “altcoin graveyard” – how a flavor of the month cryptocurrency might not really last.
Fast forward a few years, and we’ve seen that many of these coins did last – and so did Bitcoin. But it stands to reason that people will have their favorite blockchains eventually, and others will be shunted onto the dust heap of history. So it may also go with NFTs.
In that process, there can be quite a bit of volatility and sudden change. That’s a big disclaimer for traders and investors who want to get involved in new and improved blockchains and put value into these types of assets as capital reserves or for capital gains.
NFTs and Eventual Use Cases
Some people who are holding firm on the value of NFTs believe that we will see much more buying interest as we move into the future of the Internet called Web3.
Web3 is very much conjoined with the idea of the meta-verse, a virtual space where people can mingle represented by digital avatars.
If there is suddenly a massive demand for avatars, NFTs can fill that need by offering affordable visual artwork that can be used to represent an individual on a platform.
Young people understand this concept, with in-player gaming items like skins and virtual real estate commanding incredible prices in a fiat market.
But the big question is whether this NFT market is going to start growing again or not. That’s the best way to understand what some call the NFT bubble and what you might see as a collapse of the marketplace from which NFTs might not recover.
We can tack this NFT collapse as just another reason some artists hate the idea of NFTs.
All new things and technology have growing pains, and that’s what I believe we are seeing. I’m still very pro on NFTs and love the idea of Web3 and the decentralization of currency and power.
That being said, we need to continue to educate ourselves and our community and understand the current state of affairs. If you are new to the NFT game, then, of course, you are going to be spooked, and that’s understandable. That being said, I think some further education can significantly help, and that’s why I’m recommending these articles: