The NFT bubble has finally burst, or has it?

2021 was an outstanding year for NFTs, with global sales of around $25 billion. From cartoon PFPs to music NFTs, art and more, individual NFTs raised hundreds of thousands of dollars – some even millions. From top brands to celebrities and even some governments, everyone wanted a piece of the NFT frenzy. But towards the end of 2021, the early signs of a slowdown became visible. As the new year wore on, crypto winter set in and things took a turn for the worse. In the wake of the FTX chaos, some recent reports suggest that NFT sales have hit a 16-month low. This begs the question: has the NFT bubble finally burst? More importantly, what is the cause of the NFT crash?

But first – what exactly is an NFT bubble?

What is an NFT bubble?

In the investment world, a “bubble” refers to an economic situation in which the price of an asset increases rapidly. These soaring values ​​are typically driven by high demands from new investors and are speculative. Naturally, as demand decreases, the price of these assets will also decrease. This steep price drop is what is called a “bubble burst” or a “crash”. The same applies to the NFT industry.

CryptoPunks, which was available for free in 2017, started selling for millions of dollars last year. When Beep sold its ‘Everydays: The first 5000 days’ for $69 million, all the media attention fell on NFTs. The subsequent success of the Bored Ape Yacht Club saw a flurry of NFT projects on the scene.

But here’s the thing – when investments are driven by hype, people often end up investing in assets that have no intrinsic value. More often than not, it is driven by the fear of missing out. So much so that even photos of rocks and selfies of a computer science student (Ghozali every day) started fetching thousands of dollars. These were classic signs of a bubble, which was sure to burst sometime.

Is the NFT bubble bursting?

In general, there are three clear signs of a bursting economic bubble: falling prices, large sales and minimal media coverage. For NFTs, the first sign is well underway. From around 225,000 in September 2021, NFT sales fell 92% to 19,000 in May. The numbers have only gone down, with $3.4 billion in sales in Q3 2022, compared to $8.4 billion in Q2. Meanwhile, NFT sales volumes for November fell to the lowest since July 2021. As per Bloombergonly among the best NFT marketplaces Magical Eden reported growth in sales last month.

Media coverage and investor interest are also declining, as evidenced by Google’s trend data (image below). This year, while NFT searches peaked in late January, it has since witnessed a sharp decline.

Some NFTs that sell for millions are not even worth a fraction of their prices today. For example, last year crypto entrepreneur Sina Estavi bought NFT of Twitter founder Jack Dorsey’s first tweet for a staggering $2.9 million. But when Estavi put it up for sale in April this year, bids barely reached $280. This is a typical example of an NFT bubble burst.

At the same time, some of the best NT collections are also seeing a significant drop in floor prices.

Top NFT collections are now trading at around 1-3 ETH

Once the stuff of celebrity dreams and a lot of hype, BAYC’s Otherdeed today has a floor of just 1.3 ETH. When Bored Ape’s Yuga Labs introduced Otherside metaverse project early this year cost the virtual country 305 APE (about $7,000 at the time). At today’s market prices, the floor is barely 1,500 dollars.

Moonbirds Oddities tells a similar story at a floor price of 1.3 ETH. Meanwhile, Cool Cats, one of the industry’s favorite blue chip pools, is trading at 2.89 ETH. To put things into perspective, at the top last year, a single Cool Cat NFT averaged $92,000. Women’s world, who has been at the forefront of Web3 women’s empowerment, has also met with a similar fate. From a peak of around $40,000 in March 2022, the floor has fallen to around $2,300 today (1.95 ETH).

All things considered, it is likely that the NFT bubble has burst or is well on its way to bursting. To be sure, none of this is surprising. The NFT industry is in its infancy. For any new technology, a turbulent initial period is a given.

Why do NFTs crash?

So what is causing the NFT bubble to burst?

The current crypto winter is considered one of the biggest contributors to the bursting of the NFT bubble. According to CoinMarket cap, the global cryptocurrency market shrank from $1.02 trillion to $983.72 billion early this year. This was spurred by rising interest rates, a looming recession and the Luna-Terra crash, among other factors. Consequently, the prices of almost all cryptos crashed, including Ethereum, which accounts for the majority of NFT trades.

Then came the FTX collapse, which made matters worse. Once one of the top cryptocurrency exchanges, FTX filed for bankruptcy in early November, adding yet another blow to the crumbling crypto market. In turn, the prices of several NFT projects also fell, including many blockchain game, Boring monkeysand Solana NFTs.

This has also led to investors being cautious with their investment choices. Like Binance CEO Changpeng Zhao so, “It’s going to really shake the confidence of the credibility of the trust in this industry. So now people are withdrawing funds from centralized exchanges and the volume will decrease.”

Apart from these, regulatory uncertainty, increasing NFT fraud and a disproportionate number of buyers and sellers have also contributed to the NFT crash. The lack of utility of many NFT projects has also been brought under increasing attention. While some of these are short-term trends that will change with market corrections, others need larger movements in the industry.

Is the NFT market dead?

The NFT bubble bursting is not necessarily bad for the NFT space. In fact, this could be good news for artists and creators. First, the focus now shifts from hype to utility; from just jpeg files to real values. The projects that survive this bear market will be those that offer more to community members and are worthy of investment.

“The bigger story here is not so much that NFTs are down, but that the market for them is changing,” crypto venture firm SuperLayers’ Mahesh Vellanki told Quartz. “We are seeing more competition and in turn more creative projects being built on a wider range of chains.”

In other words, people are (finally) looking at the big picture – NFTs are, and always have been, about more than just cartoon PFPs. Going forward, this means a focus on more interesting use cases like NFT tickets, merch, charity fundraising and other real tools. Additionally, this is also likely to result in users investing in artists and creators that they truly believe in; rather than FOMO-driven investments in just about any outlandish “asset”.

“It’s like the smoke clears and we get a chance to see what it is about this technology that continues to be valuable to collectors and creators alike,” said photographer Brittany Pierre The Telegraph. “Proven builders and projects are being focused on now. We’re all down, so we’re all helping each other. The community is closer than ever.”

In conclusion, the NFT bubble may have burst; but NFTs are far from dead. But who and which projects survive remains to be seen. For now, there is no telling how long the bear market will last. For projects that are struggling, this could be your cue to incorporate some significant changes and follow market sentiments to turn the tide in your favor.