Why the NFT market will fall in 2022: We give you five reasons
The world of non-fungible tokens (NFTs) have plummeted after the initial hype that followed their rise to popularity. Many NFTs fell sharply in value, leading some to question their long-term viability. This was due to a combination of factors, but primarily due to the sale of digital assets over the past three months.
On the world’s largest NFT marketplace OpenSea, trading volume has fallen to 99 percent in four months between May and August 2022, according to DappRadar’s analytics platform. For context, NFT is a new type of blockchain-based asset that is unique and cannot be duplicated. Think of it like a baseball card or an autographed jersey—something unique, rather than something you can mass-produce. That makes NFTs basically virtual assets that can be used as collateral or standalone tokens. That said, there have been some major concerns about whether this technology is ready for prime time. There are valid questions about how widely adopted NFTs will become and whether we are just seeing the beginning of this trend or whether it will soon disappear. Today we discuss five main reasons why the NFT market has crashed so hard.
Lumpy response to shady practices
There are many sketchy projects in the blockchain space, but the NFT market is particularly rife with scams. A large part of the NFT market consists of shady creators who sell simple assets on marketplaces. This was a ripe opportunity for fraudsters given the relative ease of setting up a website and selling fake artwork or sports memorabilia. And the market reacts accordingly. The lukewarm response to shady practices in the NFT market is one of the main reasons why prices crashed so hard. The market is simply not taking off and people are not engaging in these basic marketplaces.
Intensive crypto sales
The global crypto market has shrunk from $1.02 trillion to $970.03 billion, a 15 percent decrease since January 2022, according to CoinMarket cap. All large cryptocurrencies have been trading in the red lately, with the fall testing even long-term investors. The price of Ethereum plunged more than 50 percent, this also had a direct impact on the floor price of NFTs.
FOMO and shaky investment sentiment
The massive peak in the NFT market was fueled by FOMO (fear of missing out), but now that prices have fallen significantly, investors are worried about making a shaky investment. As companies simply sell basic digital assets, this has caused investors to lose interest in the NFT market. This is reinforced by the fact that many of these low-value goods sit on centralized marketplaces, which creates a lot of uncertainty among investors.
Lack of clear use cases for NFTs
The main appeal of NFTs is that they have a fair value. What is sold on a marketplace can be resold later. While this works great for things like digital art, it’s not very useful for digital assets like clothing or sneakers. Sure, you can sell someone a pair of shoes, but what can you do with that pair of shoes? You can’t use them, and it’s not like you can sell them again later. There are no clear real-world use cases for NFTs, making it hard to see how these items will ever be worth anything. This is why almost all of the popular NFTs are digital art. It’s the only thing that makes sense in the real world. And while centralized marketplaces can help increase the value of NFTs, they simply aren’t going to be worth much if the underlying blockchain project fails.
NFTs are subject to the same issues as ICOs
There is a lot of hype in the blockchain space and it seems like every new project is going to change the world. But the truth is that only few of the blockchain projects are successful and the rest fail. Centralized marketplaces are middlemen who take a cut of every sale of digital assets. Also, they charge huge listing fees, and they don’t guarantee that they won’t sell you a fake item. So even with the success of centralized marketplaces, NFTs still face the same issues that Initial Coin Offerings (ICOs) face. Centralized marketplaces help increase the value of digital assets, but they can also screw over investors. The only difference is that ICOs promise to build blockchain projects, while centralized marketplaces are simply middlemen who take a cut of each sale.
The NFT market is crashing and is likely to remain depressed for some time. For investors, the crypto markets are very volatile and there is no doubt when the next bull run will come. When prices go up again, the NFT market could be the next hot investment.
