After record sales as dazzling as they were surprising, the NFT market collapsed by more than 90%. A crisis that could lead to more interesting and mature future prospects.
His name is Pak and he is probably unknown to you. However, in December 2021, this digital artist has pocketed $91.8 million for his The Merge collection, unrelated to the recent update of the Ethereum (ETH) protocol. This stratospheric figure is the top of what has been called the NFT bubble.
After a period of euphoria during which certain collections benefited from communication worthy of Hollywood blockbusters, the soufflé has fallen. Between obviously too high prices, numerous scams and the overall fall of the crypto market, the NFTs market did not resist the deflation of the bubble. We are talking about a 92% drop in just a few months.
Beyond the figures, it is the global market that is being completely overhauled. The objective now is: to witness a clean-up, clean up the market and bring in the NFT into the mature era with other features.
Records before the fall
2021: the explosion
NFTs were born in 2017 with CryptoKitties and CryptoPunks. These collections are then confidential and known only to the world of the Internet. We already know that the NFT’s are unique digital works, authenticated and secured by blockchain technology. But what we don’t yet know is that this market will become very speculative less than four years later.
At the end of a year 2020 marked by numerous confinements, the markets, both classic and crypto, are beginning to climb towards records. Among the crypto markets, one of them is making a lot of noise: that of NFTs. These digital works are snapped up at exorbitant prices, with CryptoPunks costing several hundred thousand or even millions of dollars. The madness nft reached its peak with the appearance of new collections, such as the NBA Top Shots from Dapper Labs and especially the Bored Apes Yacht Club (BAYC) from Yuga Labs.
These grimacing monkey heads snapped up at sky-high prices, with a record high of $3.41 million (819 ethers) for BAYC #8817. Rappers also joined in the fun by proudly showing off their NFTs on social media. The climax was reached when Eminem and Snoop Dogg shot a clip with their BAYC!
This madness lasted about a year. From March 2022, the market slowed down, before falling as early as May 2022. This date is no coincidence. It corresponds to the moment when the Terra (LUNA) ecosystem has collapsed. Since then, the market for NFTs (and cryptos) has not recovered.
2022: the fall
It is not a small drop, but a free fall vertically. According to Chainalysis, an American company 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 out since.
All collections have been affected. The first ones were the most confidential and the creators simply failed to sell their NFT. But the best known, like BAYC, have also been impacted. Although the latter remain the Grail of the market, it is now very rare to see a sale exceed 300,000 dollars.
The explanation for this fall is twofold. The first is related to the NFT market itself. Indeed, we had 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 almost 70% of its value since its spring 2022 highs. The same is true for ether, the crypto used to buy and sell the majority of 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 traded for millions of dollars. Not to mention the CryptoPunks and the CryptoKitties kittens. All this has a name: speculation.
The NFT market has been one of the most speculative around mid-2021 to mid-2022. Almost anyone could launch their collection and pocket a small jackpot. Without going up to the million, very many people have collected 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 major part of the sum of the resale to the creator. Of course, without informing the buyer beforehand. The greed was so great that buyers blindly trusted everyone.
With the fall in crypto prices and the NFT market, ultra speculation has ended and scams have all but disappeared. This is logical, since it is now almost impossible to make a profit on resale. This cleaning made it possible to keep the good projects and above all 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, from around 15 ethers. Although one can dispute their aggressive marketing and their real usefulness, these collections remain sure values, like CryptoPunks and CryptoKitties.
Above all, we note that the future prospects of NFTs are good and beyond digital art. Indeed, the NFT is above all a unique token, unforgeable and allowing to protect against counterfeiting. Thus, luxury brands are beginning to associate some of their products with NFTs, to ensure their authenticity. It’s the same system with the ticket office, which was notably used during an Ed Sheeran concert.
Musical artists can collect their royalties in NFT and can themselves allow their fans to acquire albums in the form of NFT. Fans then have access to bonuses, exclusively reserved for NFT holders. Then yes, NFTs can be used for much more only speculation and this is just the beginning of this revolutionary technology.
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Splendors and miseries of NFTs: a blessing in disguise
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