What is the Nft bubble?

Of CNBCTV18.com October 4, 2022, 3:55 p.m IST (updated)

NFTs burst onto the scene a couple of years ago and became instantly popular. Within a short time, retail investors, celebrities and the world’s biggest brands started jumping on the NFT bandwagon.

As such, the prices of these digital assets also skyrocketed, with some selling for millions of dollars apiece. However, as its popularity and sales increased, the term “NFT bubble” began to circulate, especially among critics.

What is the NFT bubble?

In the investment world, a bubble is an economic phenomenon characterized by the rapid increase in the market value or price of an asset or asset class. These exorbitant prices are fueled by massive demand and fueled by speculation, causing the market value of an asset to exceed its intrinsic value.

Of course, after a while, when the demand dries up, people realize the true value of these assets, and prices usually start deflating quickly. This sharp drop in value is referred to as a “crash” or a “bubble burst”.

In the case of NFTs, people were driven by FOMO. Everyone wanted to get their hands on the last NFTs before they sold out. The hope was to take advantage of inflated valuations in the future.

This huge demand sent the price of most NFTs skyrocketing. Even the most incredible NFTs that lacked utility and usefulness started selling for thousands of dollars.

Building the NFT bubble

NFTs have been around for a while, almost as early as 2014. However, it wasn’t until 2021 that these digital assets exploded. Trading volume for NFTs reached $17.6 billion in 2021, representing a 21,000 percent increase from the previous year, according to a report by Nonfungible.com.

Projects like CryptoPunks, which were developed in 2017 and sold for just a few dollars, began to charge thousands of dollars apiece in 2021. Judging by this success, more NFT projects poured into the scene, most of which found immediate success.

Beeple’s NFT ‘Everydays: The first 5000 days’ sold for USD 69.3 million. Then there was the Bored Ape Yacht Club, a collection of 10,000 NFTs, each going for hundreds of thousands of dollars, with buyers including some of the world’s top celebrities.

Even the most ridiculous NFTs started commanding outrageous price tags. For example, an image of Jack Dorsey’s first tweet to an NFT sold for US$2.9 million. On the other hand, a 22-year-old Indonesian student sold 1,000 deadpan selfies of himself as NFTs on OpenSea, each selling for thousands of dollars and making a cool million dollars almost overnight.

Judging by these unjustified prices and purchases, many critics believed that the NFT industry had formed a bubble, which was bound to burst at some point.

Has the NFT bubble burst?

There are three signs that an economic bubble has burst: falling prices, reduced media coverage and the onset of massive sales. The first condition seems to have happened already, with NFT sales tanking at the beginning of this year.

In January 2022, the total NFT sales on OpenSea, one of the largest NFT trading platforms in the world, was almost USD 4.85 billion. However, this number started to decline ever since then. In February it was $3.75 billion, and fell to $2.25 billion in March.

And OpenSea is not alone; overall sales for NFTs have also declined significantly. The third quarter of 2022 saw USD 3.4 billion in NFT sales, down from USD 12.5 billion in the first quarter of the year, according to a report from DappRadar.

Media coverage has also decreased, along with investor interest. Data from Google Trends supports this view. According to search term reports, NFTs reached their peak popularity at the start of the year, reaching a score of 100 (max score) towards the end of January.

However, the popularity of NFTs has declined since then, reaching a score of 11 between September 25th and October 1st. Around the same time, the term “Sell NFT” increased by 83 percent in Google’s search interest index, an indicator that users are looking to get rid of their NFTs.

Based on all these factors, one must assume that the NFT bubble has actually burst or is about to burst. Most market experts also agreed with this view. “The bubble has burst, or must still burst,” said Pedro Herrera in an article with The Globe and Mail in August.

Herrera is head of research at DappRadar, and according to him, “90 to 95 percent of

Conclusion

Even if the NFT bubble bursts, these digital assets are here to stay. They are a big part of the metaverse and the web3 play-to-earn gaming platforms, and these two industries will be a significant part of our lives in the future.

In fact, a Gartner report suggests that around 25 percent of the world’s population will spend more than an hour each day in the metaverse by 2026.

The bursting of the NFT bubble may also see a transition from popularity to utility as the driving force behind a crypto project. Already, several projects are looking to add value to their NFT collection by offering some real utility for their work.

Whether it is social NFTs that reward content creators and their fans or POAP NFTs that grant exclusive privileges to their holders, the NFT industry will evolve to meet changing market dynamics.