Nfts
What happened to NFTs?
The allure of non-fungible tokens (NFTs) that once captivated the cryptocurrency industry has quickly faded. But why?
NFTs burst onto the cryptocurrency scene in 2021, with Bored Ape Yacht Club (BAYC) and the CryptoPunks series as prominent examples of success.
At one time, iterations of these digital artworks fetched prices in the millions of pounds, but today these NFT series are trading hands for tens of thousands of pounds.
The beginning of the NFT bubble
2021 has seen a flurry of high-profile NFT transactions, peaking in March when an artist named Beeple sold an NFT for a record $69 million (£53 million) at a Christie’s auction. Then, in December 2021, a web3 artist named Pak dethroned Beeple with his NFT, Merge, which sold for $91.8 million.
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NFTs are unique assets that represent ownership of a specific digital item or piece of content, typically a JPEG of a piece of digital art. They reside on blockchains, which are decentralized digital ledgers that power major cryptocurrencies, such as bitcoin (BTC-USD) and Ethereum (ETH-USD).
However, by 2022, the NFT bubble was beginning to burst, with NFT trading volumes dropping by more than 97% from January to September of that year, from $17 billion in trading volume in January 2022 to $470 million in September 2022, according to Dune Analytics.
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To illustrate the scale of the NFT market collapse, monthly sales of NFT artworks peaked at over 117,000 in August 2021, but have since fallen by over 98% to 1,764 through June 2024, according to Statista. data.
Celebrity-owned NFTs are losing value
NFTs owned by social media influencers and celebrities, which were originally valuable digital collectibles, have since seen their prices plummet.
In June 2021, for example, rapper Eminem purchased the NFT Bored Ape 9055, which features a hat the rapper often wears, a large chain, and a gold jacket. Eminem paid $123.45 in ether for the NFT that same month. At the time, the purchase cost about $300,000.
The story continues
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However, the Bored Ape Yacht Club NFT collection currently has a floor price of around 12 ether, or around $37,000. Although the unique features of Eminem’s Bored Ape mean it could be worth more than the average BAYC NFT.
Why did the NFT market collapse?
The collapse of the NFT market can be attributed to several key factors, with market saturation playing a significant role.
During the NFT boom in 2021, the number of web3 projects exploded, with over 1.5 million NFTs traded in a single month.
This surge led to an overwhelming supply of NFTs, far outpacing collector demand. The proliferation of various types of NFTs, from music to video games to visual artworks across multiple blockchains, further contributed to the saturation, eventually cooling the market.
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Additionally, the market has suffered from widespread scams and fraud. An influx of unregulated investments, hackers, and scammers have quickly exploited the space, leading to significant losses for many investors.
Additionally, the collapse of major cryptocurrency platforms, such as FTX and the Terra blockchain, has shaken investor confidence. These systemic failures, combined with the broader economic impact of the COVID-19 pandemic and rising inflation, have changed investors’ priorities and spending habits, contributing to the overall decline of the NFT market.
Currently, the NFT market remains active but operates on a much smaller scale compared to its 2021 peak. According to Statista dataFormer top NFT marketplace OpenSea had lower trading volume in March 2024 than new competitor Blur.
But trading volume on the exchange is also down, with daily transaction activity on July 10 for the exchange sitting at just $1.15 million, significantly lower than the average daily trading volume on the exchange over the previous month, which was around $15 million, according to DappRadar. data.
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