Three Arrows offers a gloomy portrait of the NFT bubble

Crypto fans who invested in high-flying and incredibly expensive non-fungible tokens (NFT) collectibles have reason to be nervous that the collapse of a high-flying crypto hedge fund could force an unwanted reality check into how far the market has actually collapsed.

Three Arrows Capital collapsed after losing a fortune in an obscure decentralized finance (DeFi) token called “stored Ethereum,” or stETH. The insolvency spread throughout the crypto, sending several large crypto borrowers such as Voyager Digital and BlockFi to their knees.

See also: Reckless crypto lending, opaque operations paved the way for Voyager Digital to go bankrupt

The wallet in which Three Arrows Capital – often called 3AC – stored its NFT investments is now worth $ 3.87 million, according to DeFi tracking site DappRadar.

NFTs are a type of cryptocurrency where each token is unique – the non-fungible part – and can contain media, including art, music, videos and documents. They are even tested by large banks and financial institutions (FIs) to settle eight- and nine-digit financial instrument transactions.

Related: What are NFTs and why are they Crypto’s latest “Next Big Thing?”

Three Arrows sold its NFT portfolio as shares in a fund called Starry Night, curated by a prominent but anonymous NFT collector named Vincent Van Dough, CoinDesk reported.

NFT craze began in March 2021, when digital artist Mike “Beeple” Winklemann sold a collage of 5,000 works – not the individual works themselves, mind you – for almost $ 69 million at the prestigious auction house Christie’s.

Sixteen months later, 8-bit pixelated picture mohawk and earring-sporting CryptoPunks and nicely dressed comics from the Bored Ape Yacht Club (BAYC) regularly brought in hundreds of thousands and even millions of dollars at the best auction houses and NFT marketplaces.

The bottom fell out of the NFT market, along with bitcoin and the rest of the crypto market, and sales are down 84% since June last year, according to the NFT tracking site CryptoSlam.

Read more: Would a Seismic NFT Shakeout Really Be Bad? Some say no

At the peak in September last year, weekly NFT sales were around 225,000, and new token launches were significantly higher than resale.

Now the weekly sales figure for new NFTs is about 22,000 – less than 10% of the highest – as sales of new tokens fell by 6,400 while the secondary market almost tripled by 16,000, according to NonFungible.

This suggests that not only are far fewer NFT collections being launched, but that far more are trying to get rid of them – bringing us back to the true value of that $ 21 million NFT investment.

On Friday, the estimated value of Starry Night was $ 4.2 million. But TR1, a UK-listed digital asset fund that is Starry Night’s sole institutional investor, has written off the entire value of the Starry Night investment, CoinDesk said.

In May, The Wall Street Journal reported that the NFT bubble had “flattened”, pointing out that another early, oddly priced NFT from former Twitter boss Jack Dorsey’s first tweet – which sold for $ 2.9 million in March 2021 – was added out at auction and then bids top well below $ 1000. But people still bought, albeit for far less money.

That is no longer the case.

Which indicates that NFT investors with a good ear for the market have come out or are hanging on hoping for better days. But the bubble was dependent on a boom in making new NFTs as much as it did their resale at sky-high prices.

The Compulsory Liquidation 3AC’s Starry Night collection is about to show a true picture of the market, and it can be much less fantastic than its namesake.

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