An NFT sold for $2.9 million is now worth $280: Has the bubble burst? | Economy and business

By early 2021, NFTs – or non-fungible tokens – were already part of popular culture. And the interest was increasing. Almost overnight, hundreds of artists became millionaires. Celebrities such as soccer player Cristiano Ronaldo and social media influencer Paris Hilton signed up to sell their own NFTs and become buyers. The fever peaked when an NFT of Twitter co-founder Jack Dorsey’s first tweet sold for $2.9 million. The tweet “Just setting up my twttr” – which Dorsey posted in March 2006 – was bought by Malaysia-based entrepreneur Sina Estavi on the Valuables platform. A year later, in April 2022, the tycoon attempted to resell the NFT at auction. He announced that half of the proceeds would go to charity. He expected to earn around $48 million. When the auction ended after seven days, the highest bid was just $280. Has the NFT bubble burst?

April 2022 – the date of the failed auction – is often cited as when the NFT bubble burst. At least by those who believe that this is really the case. NFTs are a virtual asset with associated certification of authenticity and proof of ownership generated using the same blockchain technology used by cryptocurrencies. NFT critics who say the trend is over point to a combination of factors: uncontrolled speculation, the fall of cryptocurrencies – NFTs are bought with Ethereum, the second most popular cryptocurrency after bitcoin – and the reorganization of the art sector, which grew unsustainably in the wake of The NFT boom. The NFT market has fallen 50% in one year. After peaking in late 2021 at nearly $2.9 billion, sales of art-related NFTs fell below $1.5 billion in 2022, according to the Art Basel and UBS Global Art Market annual report.

Clare McAndrew, founder of Art Economics and author of the report, can only recall a few similar incidents. “In the late 1980s, early 1990s, the market fell 60% in a year after the Japanese suddenly stopped buying.” Art was also a victim of the 2008 financial crisis, with losses of 40%. But the losses were not concentrated in one particular sector, as is the case now with NFTs.

The NFT sector admits that the valuations and amount paid for these digital works were at times exaggerated, even amounting to a bubble. “It’s clear that there was an unsustainable fervor from people launching projects and people buying them thinking they were going to rise,” said Raúl Marcos, CEO of Carbono.com, a platform that advises investors and designs project launch strategies for crypto entrepreneurs.

The falling value of cryptocurrencies has contributed to the volatility of NFT prices. Ethereum, the digital currency with which most of these works are paid for, fell 70% against the dollar in 2022, which automatically reduced the value of the images. And art sales on the Ethereum network went from 24% in 2020 to 8% in 2022, according to the Art Basel report. This year, however, the cryptocurrency is regaining ground, rising 65%. However, the value is still half of what it was during the peak in November 2021.

One of the problems NFTs face is a lack of liquidity. An investor can sell bitcoin or Ethereum at any time, as it is a market of buyers and sellers that operates 24 hours a day, seven days a week. But when someone sells an NFT, they have to set a price and wait, not knowing if someone will pay that amount or if the value will drop.

However, Raúl Marcos insists that NFTs continue to perform well, citing CryptoPunks and the ape avatars of the Bored Ape Yacht Club as examples. In these collections, the cheapest NFT artwork costs more than $100,000.

Beatriz Ordovás, senior director of Christie’s in Spain, says many NFTs were “not worth” the money paid for them, pointing out that some investors joined the trend purely to make money, lacking artistic knowledge. According to Ordovás, these buyers bought up NFTs to make a quick turnaround, but were soon disappointed, leading to a “mass withdrawal from the market.”

Christie’s went from earning more than $100 million from NFT sales to just $6 million in 2022. “In the last six months for which we have data, we have had very solid digital art sales,” the auction house said. “Very good artists, works that really pass the quality filter, continue to sell,” it added. Ordovás explains that not a single digital work has remained unsold. She calls it “logical organic growth.” “The industry continues to move forward, there are serious people paying attention to these sales, whether they are digital collectors or not,” she added.

There have also been changes in the NFT market: not only with the buyers, but also with respect to the artists. Like CryptoPunks, there continues to be a market for NFT animator Beeple. The graphic designer – whose real name is Michael Joseph Winkelmann – made history when his digital artwork was titled Weekdays – The first 5,000 days sold for more than $69 million at Christie’s in March 2021. Winkelmann continues to create digital art, but now complements this work with physical pieces, Ordovás explains.

The expert gives another example: Tyler Hobbs, the most visible face of so-called generative art, a discipline that, like NFTs, requires code to create. At the same time that the NFT market was falling, Hobbs was exhibiting in New York and selling his pieces for hundreds of thousands of dollars. “It’s very much an exploration of how digital art can become more human, and physical art more systematic,” Hobbs said in an interview with Background. “It is a mixture of works created by hand, created by machine or created by a combination of the two. […] There is a lot of fertile land there.”

Buyers are already looking for ways to recoup their investment and continue to support digital art. With this in mind, investors are now focusing on what is known as Web 3.0. If Web 1.0 was the Internet of links and Web 2.0 the Internet of social media, this new phase of the Internet aims to be more decentralized and democratic. And to achieve this, tokens and blockchain are set to play a key role. In other words, there is growing interest in how to create a system where users can buy and sell cryptocurrencies via secure platforms without intermediaries. “It’s always been a problem for a collector to understand how to get ownership of a digital work,” explains McAndrew, who is confident that new applications will allow transactions to be more direct. According to McAndrew, this shift will help the technology to be used in a more positive way, where the focus is not just on “speculation”.

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