NFTs
What happened to NFTs?
The allure of non-fungible tokens (NFTs) that once captivated the cryptocurrency industry has quickly faded. But why?
NFTs have surged onto the cryptocurrency scene in 2021, with the Bored Ape Yacht Club (BAYC) and the CryptoPunks series being prominent successful examples.
Previously, iterations of these digital artworks could fetch prices in the millions of pounds, but now these series of NFTs are selling for tens of thousands.
The beginning of the NFT bubble
2021 has seen a slew of high-profile NFT transactions, peaking in March when an artist called Beeple sold an NFT for a record $69 million (£53 million) at a Christie’s auction. Then in December 2021, a web3 artist called Pak dethroned Beeple with his NFT, Merge, which sold for $91.8 million.
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NFTs are unique assets that represent ownership of a specific digital item or piece of content, usually a JPEG of a digital artwork. They reside on blockchains, which are decentralized digital ledgers that power major cryptocurrencies such as bitcoin (BTC-USD) and ethereum (ETH-USD).
By 2022, however, the NFT bubble was beginning to burst, with NFT trading volumes dropping by more than 97% from January to September of that year, decreasing from $17 billion in trading volume in January 2022 to $470 million in September 2022, according to Dune Analysis.
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To illustrate the scale of the collapse in the NFT market, monthly sales of NFT artworks peaked at over 117,000 in August 2021 but have since fallen by over 98% to 1,764 in the month of June 2024, according to Statista data.
Celebrity-Owned NFTs Plummet in Value
NFTs owned by social media influencers and celebrities, which started out as valuable digital collectibles, have since plummeted in price.
In June 2021, for example, rapper Eminem purchased the Bored Ape 9055 NFT, which features a hat the rapper often wears, a large chain, and a gold jacket. Eminem paid 123.45 ether for the NFT that same month. At the time, the purchase cost around $300,000.
The story continues
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However, the Bored Ape Yacht Club NFT collection currently has a minimum price of around 12 ether, which is around $37,000. Although the unique characteristics of Eminem’s Bored Ape mean it could be worth more than the average BAYC NFT.
Why did the NFT market crash?
The decline of the NFT market can be attributed to several major factors, with market saturation playing a significant role.
During the NFT boom of 2021, the number of web3 projects skyrocketed, with over 1.5 million NFTs traded in a single month.
This surge has led to an overwhelming supply of NFTs, far exceeding collector demand. The proliferation of various types of NFTs, from music to gaming assets to visual artworks across multiple blockchains, has further contributed to saturation, ultimately cooling the market.
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Additionally, the market has suffered from rampant scams and fraud. An influx of unregulated investments, hackers, and scammers have quickly exploited the space, leading to significant losses for many investors.
Furthermore, the collapse of major crypto platforms such as FTX and the Terra blockchain has shaken investor confidence. These systemic failures, coupled with the broader economic impact of the COVID-19 pandemic and rising inflation, have shifted investors’ priorities and spending habits, contributing to the overall decline of the NFT market.
Currently, the NFT market remains active, but operates on a much smaller scale compared to its peak in 2021. According to Statista datathe former leading NFT marketplace, OpenSea, had a lower trading volume in March 2024 than that of new competitor, Blur.
But trading volume in this market is also falling, with daily transaction activity on July 10 for the market being just $1.15 million, significantly lower than the market’s average daily trading volume the previous month of around $15 million, according to DappRadar data.
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