The NFT Market: Rise and Fall
The outgoing 2022 was an extremely busy year for the non-fungible token market. From the unprecedented hype in the media and record deals on the stock exchanges to disappointment and incomprehension of what to do next.
Nothing is clear, but very interesting — this phrase from popular memes is very suitable for describing the topic of NFT.
NFT technology itself is young. The scope of its application can be different. But since everything is just beginning, events “relatively understandable” for the general public turn out to be in the field of general attention — the sale of digital art.
Today, for the majority of those interested, NFTs (non-fungible tokens) are digital assets, creative products, primarily works of art, game characters.
Indeed, it is much more difficult to understand the intricacies of technology than to be perplexed, watching how strange digital pictures go for millions.
Already at the beginning of the year, experts warned that such assets were turning into bubbles. By the end of the year, the bubbles began to burst.
Rapid takeoff
NFT technology appeared in 2017. The peak of popularity came in 2020-2021. With its help, not only digital art and game characters and artifacts were sold.
The technology has attracted millions of investments, turned to the study of blockchain technologies by representatives of various industries.
In March 2021 the work «The First 5,000 Days» by American designer Mike Winkelmann was sold as an NFT at Christie's for $69.3 million. The painting never existed in physical form, only a JPEG digital image.
The record sale triggered a further boom in tokens. Representatives of the gaming industry are actively involved. Dapper Labs developed the CryptoKitties NFT game, where the NFT certifies ownership of an animated character. One of the characters, Founder Cat#40, was sold in September 2021 for 225 ETH (about $895,000 at the time).
Yuga Labs company is famous for its collection of 10,000 monkey images (up to $2.8 million per image).
Larva Labs and Yuga Labs have become notable players in the NFT market. They presented the projects CryptoPunks and Bored Ape Yacht Club. Tokens are pixel images of humans and monkeys with all sorts of modifications. In 2021, NFT sales reached $17.7 billion. more than 200 times higher than in 2020 ($82.5 million).
NFT's total profit, whether resold or bought, has also skyrocketed from $12 million in 2020 to $5.4 billion in 2021.
The average NFT price also rose sharply in 2021 to $807.52, up from $49.18 in 2020.
While the number of buyers and sellers has also increased dramatically, it did not rise as sharply as total sales.
In addition, while the number of buyers grew by 2,962% compared to last year, the number of sellers grew by 3,669%, creating a market of real buyers.
The vast majority of NFT transactions (from 78% to 86% according to various estimates) used the Ethereum blockchain. And this is a very important point for understanding the subsequent history — the inextricable link between NFT and the cryptocurrency market.
The fall
At the beginning of 2022, the outlook for cryptocurrencies and NFTs looked optimistic. But then something that can be called a crash happened.
In November, bitcoin fell three times, and ether fell twice. And since NFT as an investment asset is a derivative instrument of the crypto market, with the collapse of cryptocurrencies, the popularity of NFT began to wane. Market participants were not ready to invest in NFTs.
The fall in the value of cryptocurrencies, especially Ethereum, directly affects the value of NFTs, expressed in money.
In addition, if in the early years the NFT segment was “hype”, now it simply has ceased to attract too much attention, demand has decreased.
What is next?
Now NFT is less and less perceived as an investment asset and more as a technology. The loss of attractiveness as an investment tool does not mean the complete collapse of NFT as a technology.
Non-fungible tokens have great prospects for use in various areas. Yes, in the early years the market grew due to the segment of digital works, but only one of the areas where NFT principles can be used.