CHENNAI: Non-fungible tokens (NFTs) as speculative assets captured the attention of many investors in 2021 and 2022, but much has changed now. A recent report analysing thousands of NFTs suggests that the value of 18% of world’s top non-fungible tokens is zero and top 41% NFTs are valued between $5 and $100. Less than 1% of these NFTs have a price tag of over $6000, according to a report by DappGamble, a crypto platform.
This is based on an analysis of the top 8850 NFT collections listed by CoinMarketCap. This shows that even the most prominent collections are struggling to maintain demand. An NFT or Non-fungible token is a digital asset and can represent ownership of unique digital files. Floor price is the lowest price an NFT is listed for sale within an NFT collection.
NFT collections were sold for millions and had a huge bull run in 2021 and 2022. Collections such as Bored Ape Yacht Club and Crypto Punks created a hype around the NFT market. As the value of these assets shot up, few people saw the value of their collection going through the roof, creating huge interest in the market. However, this has turned upside down.
Weekly traded value of NFTs in July 2023 was around $80 million, which is just 3% of its peak back in August 2021. During 2021 August monthly trading, the volume stood at around $2.8 billion.
Monthly trading volume for NFTs nosedived 81% and NFT sales fell 61% between January 2022 and July 2023, according to DappRadar.
Almost four out of every five have remained unsold, according to DappGamble, showing demand supply mismatch and pessimistic outlook in the NFT market. The disconnect between listed prices and actual sales could suggest that many sellers are waiting for another massive surge in value of the NFT assets similar to that of 2021, which according to experts may not happen again.
This is a cautionary tale for investors. High volatility, lack of artistic values, clear use cases are some of the reasons for the fall and remind investors to approach with caution, strategy, and a thorough understanding of the risks involved. There is also the risk of wash-trading, the NFT version of market manipulation by buying their own NFTs to show an increased demand.
These highlight the high-risk nature of the NFT market and underscore the need for careful due diligence before making any purchases, especially ones of high-value, the DappGamble report stated. This daunting reality should serve as a sobering check on the euphoria that has often surrounded the
NFT space.
Amid stories of digital art pieces selling for millions and overnight success stories, it is easy to overlook the fact that the market is fraught with pitfalls and potential losses. Noted NFT investor Daniel Maegaard called a critical part of the market ‘completely tanked’, according to a Bloomberg report. The NFT market is characterised by speculative hopeful pricing strategies that are far removed from the actual trading history of these assets.
The commodification of NFTs, shifted from a collector-driven market based on rarity and other properties of each collected item to a trader-driven market, where incentivised bids, lending and inventory also changed the landscape, according to a report. A possible regulatory crackdown also makes the market less attractive, forcing the trader to the crypto market- which despite its own problem has seen resilience of late.
Brands that were trying to increase their visibility announced various NFT projects. Notable names such as Nike, Adidas, McLaren, Budweiser ventured into the market in the US with limited success. But, in India it didn’t take off much. Analysts say the future of NFTs lies in loyalty programmes by brands and the gaming industry as tradable in-game assets are some of the areas where it might take off.
But, few analysts and NFT insiders believe that NFT may not be dead as presumed and mature sometime in the future. They highlight cryptocurrencies, which have seen tremendous fluctuations and been written off multiple times.