What does the rest of 2022 have in store for the NFT market?
Important points
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A deterioration in global economic / financial conditions has hit the NFT market hard in the first half of 2022.
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Despite poor price performance, NFTs are still marching towards the mainstream as creators take advantage of new uses.
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While some NFTs are at risk of falling under the US SEC area, most are likely to remain unregulated for the foreseeable future.
The NFT market’s ugly start to 2022
In many ways, market conditions for non-fungal tokens (NFTs) have deteriorated quite severely. After weekly NFT trading volumes reached nearly $ 1.0 billion in August 2021, according to CryptoSlam data, weekly trading volumes have been consistently below $ 50 million since mid-May, the worst since early 2021, before the first major explosion in NFT market.
Meanwhile, after the number of weekly NFT sales exceeded 1 million on a few occasions in 2021, according to CryptoSlam data, these numbers have also plummeted in recent months. So far this week, there have been less than 150,000 NFT sales, even at the worst level since early 2021.
The recent deterioration in market conditions is evident when looking at the recent fall in the price floors of the most popular NFT collections. Take the world-famous Bored Ape Yacht Club (BAYC) NFT collection (out of 10,000 cartoon monkeys). As of Sunday, the price floor (ie the cheapest BAYC NFT on the market at the moment) was around $ 132,000, down from over $ 400,000 as late as the end of April and at its worst level since October 2021.
Meanwhile, the price floor for one of the 10,000 CryptoPunk NFTs, one of the first to exploit the idea of a profile picture on social media as a digital collectible, was around $ 74,000, the lowest since early 2021.
Exacerbated global economic / macro conditions largely blamed
The recent poor performance of NFTs and the deterioration of market conditions are not surprising in light of an ongoing, still deteriorating bear market for cryptocurrencies. Digital assets, which are still seen by traditional investors as highly speculative / risk-sensitive assets, have been beaten in the midst of a deterioration in global economic conditions in 2022, as well as a tightening of global financial conditions.
In other words, inflation is still sky-high in many of the world’s major economies (such as the United States, the United Kingdom and the eurozone), and this is pushing large central banks to tighten monetary policy (ie interest rate increases). Tighter economic conditions tend to damage risk-sensitive assets (such as digital assets) as excess liquidity is drained from the system and the opportunity cost of not investing in safe government debt increases (ie when bond yields rise).
All the while, soaring inflation, the outbreak of war between Russia and Ukraine and recent shutdowns in China, in the midst of the ongoing zero-Covid-19 approach, are a halt to global economic growth. Many expect a recession in major global economies during the year.
NFT adoption is set to continue as new use cases take effect
The above may sound like doom and gloom. And for the owners of NFTs from some of the industry’s most well-known collections, the prospect of a significant price increase does not look good in the absence of a major improvement in global macroeconomic conditions (the same can be said for all crypto holders).
But if you take a look under the hood, the industry trends remain resoundingly positive, which indicates that the NFT market’s long-term outlook remains strong. Since the beginning of the year, most major social media companies have begun to take action to bring NFT functionality to their Goliath Web2 user bases.
Facebook and Instagram, both owned by Meta Platforms, are preparing features that will allow users to view NFTs as profile pictures and create new NFTs in the platform. Twitter has also unveiled a new NFT profile image verification feature, while Linktree has integrated various NFT features to allow users to stylize their pages.
Many companies have launched / announced plans to launch NFT marketplaces. While OpenSea is still the industry leader, Sotheby’s, Shopify and Gamestop have all launched NFT marketplaces.
Meanwhile, both OpenSea and Coinbase want to lower the barrier to NFT ownership by enabling their purchase through direct fiat payments, and Mastercard recently announced that it is partnering with various Web3 companies to offer a similar offering.
In the meantime, Meta Platforms has announced that they want NFTs to be a central part of the new metaverse, with users who can create and exchange NFTs within the platform.
Elsewhere, celebrities line up to release NFT collections that give them a new way to connect with fans. Celebrities including Kanye West, Billie Eilish, David Beckham, The Notorious BIG’s LLC and Chuck Norris have all applied for NFT trademark applications to the US Patent and Trademark Office.
Bela Hadid is reportedly set to soon drop its CY-B3LLA collection of 1111 NFTs, with collectors reportedly gaining access to meet Hadid in person at locations around the world, among other benefits. NFT sales seem to be a ubiquitous feature in the relationship between celebrity / artist / creator and their fans.
In addition, NFTs are becoming an increasingly popular way for non-profit / charitable organizations to engage with potential donors and raise money for their purposes. Australia Zoo announced this year its Wildlife Warriors NFT project, with all proceeds from the sale to fund the zoo’s conservation work.
Meanwhile, this year the World Wildlife Foundation (WWF) has launched its Non-Fungible Animals project to raise money for the conservation of ten animal species on the verge of extinction. WWF will release one NFT for each of these nearly extinct animals that are believed to be still alive and had reportedly already raised nearly $ 300,000 in early May.
NFTs have also been used to raise funds for other causes in support of those affected by Russia’s invasion of Ukraine. For example, just a few days after the start of the war, the newly created UkraineDAO had raised over $ 7 million through NFT sales.
Individually, NFTs are gaining more and more access instead of tickets, membership cards and usage symbols. Take, for example, the self-help guru and renowned entrepreneur Gary Vaynerchuck and his VeeFriends NFT collection.
Owning a VeeFriends NFT means access to Gary Vee’s various online communities (like his Discord group) and his annual NFT / Web3-focused conference called VeeCon.
Alternatively, you can take the NFT platform OneOf’s upcoming release of its OnePass NFTs. Buyers of the token will in the future be given early or exclusive access to a number of upcoming NFT drops on OneOf’s platforms. OnePass NFT holders will also receive four free NFTs per year, plus additional exclusive giveaways.
Although 2022 has not exactly been a year of positive price performance for NFTs, it has made great strides in introducing NFTs and their related technology into the social mainstream. Expect this trend to continue into 2023 and beyond.
When global macro conditions become positive, it would be surprising at all to see NFT prices rise significantly and even post new record highs. If inflation begins to decline later this year, giving central banks room to ease policy, this could be a story for 2022.
If not, NFT bulls may have to wait until 2023. But as long as industry trends remain positive, many believe the upturn is more a matter of when not.
NFT regulatory control?
Of course, when NFTs venture into the territory to guarantee the owner lucrative future benefits, they risk wandering into the territory to become securities.
Sources from the US Securities and Exchange Commission (SEC) told Bloomberg earlier this year that the US regulatory agency is interested in investigating illegal digital token offers and to see if NFTs should be considered securities. In recent months, the agency has searched various NFT creators, marketplaces and crypto exchanges with subpoenas to gather information.
“Given the breadth of the NFT landscape, certain parts of it may fall within our jurisdiction,” SEC Commissioner Hester Pierce said in an interview with CoinDesk earlier this year. “People need to think about potential places where NFTs can enter the securities regulation regime,” she added.
Pierce is referred to as the SEC’s crypto mom by many in the Web3 / crypto community because of her (usually) pro-crypto attitude.
If the SEC were to regard a certain part of the NFT market as falling within its regulatory scope, which could hinder growth in the short term, most of the NFT area would seem “safe” (from regulation) for the time being.
For example, this week, Senators Kirsten Gillibrand and Cynthia Lummis released a long-awaited bill aimed at implementing broad regulations across the entire cryptocurrency area. The bill, which marks the first major attempt by some U.S. lawmakers to regulate crypto, did not have much to say about NFTs.
This article was originally posted on FX Empire
