NFTs don’t look too healthy right now.
On Sunday just $52 million worth of nonfungible tokens were sold on OpenSea, the biggest marketplace for such wares. That’s the lowest single-day volume the platform has seen since December, and a signficant downswing from April where trading dipped below $100 million on only a handful of occassions.
Less buying means precipitous falls in NFT prices. After enjoying a starting price of $400,000 in April, Bored Ape Yacht Club NFTs are now going for half that. Similar drops have been seen in other big ticket collections. The entry price of pixelated Moon Birds has cratered from an April high of $110,000 to $45,000, while Reece Witherspoon-backed World of Women’s entry price is $10,000, down from $34,000 in the middle of April.
Compounding the chaos, NFTs are dumping right alongside bitcoin and ether. Bitcoin on Wednesday fell below $28,000 for the first time since 2020, and ether came close to $2,000, far below its high of $4,600 in November. Web3 is not going great.
Citing a huge fall in the number of NFTs bought, the Wall Street Journal reported last week that NFT sales were “flatlining,” while Yahoo questioned whether a $140,000 sale of a CryptoPunk bought for $1 million six months prior signaled “the death of the NFT.” This has sparked another type of euphoria: Punters calling the imminent demise of NFTs.
“The NFT market is collapsing,” one tweet with over a thousand likes reads. “Turns out digital rocks and digital monkeys was not a good store of value.”
There’s something to these proclamations. NFTs are a 4-year-old technology, one that people have only paid attention to for the past year or so. Propped up almost entirely by crypto investors, their long-term durability is worth questioning. “Volatility is particularly pronounced in NFTs because the market is less mature and therefore more susceptible to shifts in user sentiment,” notes Ethan McMahon, an economist at blockchain data analysis firm Chainalysis.
Yet, there’s an element of overzealous confirmation bias here. People cite a fall in the number of NFTs bought as evidence of collapse, unaware that money has been moving to a small set of expensive NFTs rather than dispersed among thousands of cheaper ones: In April, traders were, as an example, buying one Bored Ape for $400,000 rather than 100 different NFTs for $4,000 each.
Selective examples of NFTs being bought for a huge sum months ago and sold for a fraction of that now are equally unhelpful. NFTs are volatile, which means money moves quickly from one trend to another. True, Jack Dorsey’s first tweet sold for $2.9 million a year ago and in a mid-April auction recieved a top bid of just $280. Does that mean NFTs are going bust? In the same week traders spent $76 million buying pixelated owls in Moonbirds’ public sale, so probably not.
People dislike NFTs, because most are bad for the planet and at present exist largely as status symbols for celebrities and the crypto rich. But hating something can make you all too eager to believe rumors of its demise.
That’s not to say the NFT market is currenlty in a good way. NFTs are in strife. But so is everything else.
The bad state of the market is tied to two macroeconomic news items. First, on May 4 the Federal Reserve hiked interest rates by 0.5%, the biggest raise in two decades. Second, on Wednesday the Labor Department released its monthly consumer price index, which measures inflation. Inflation is down a small amount, but not enough to assure markets that more interest rate hikes aren’t coming.
If NFTs were up, they’d be practically the only thing that is. The Nasdaq stock index is down 20% in the past month. Compared with this day last month, Apple and Amazon are down 12.5% and 30%, respectively. It’s not just tech companies, as most consumer-facing firms are feeling the squeeze. Disney has dropped 19.5% over the last 30 days; the WWE announced record quarterly profits but is still red month-on-month. Nike and Adidas are slumping 13.5% and 10%, while Gucci owner Kering has slid 13%.
The Bored Ape Yacht Club’s aforementioned price drop of 50% puts it in company with Neflix. Woes compounded by losing subscribers for the first time ever, the streaming giant’s share price has halved over the past 30 days.
What goes up must come down. The NFT market grew by around 2,500% in 2021, according to DappRadar, with $25 billion spent compared with about $94 million in 2020. Almost no one would deny that speculation has created an NFT bubble, even if many disagree about how inflated that bubble is.
But much the same can be same about many companies, whose valuations skyrocketed in the pandemic era. Amazon’s stock last July touched $3,777, twice its pre-COVID price. Apple, Netflix and Meta all had their stock price double in the past two years, and Tesla’s high was 14 times its pandemic low.
Numbers go up. Numbers go down.
NFTs aren’t dead — yet
The fortunes of NFTs are in many ways encapsulated by Otherside, an upcoming metaverse developed by Bored Ape Yacht Club creators Yuga Labs. Yuga Labs on April 30 dropped NFT land deeds for Otherside, with just under $1 billion being spent on the virtual land in the 10 days since.
It’s hard to say NFTs are dead when the biggest ever trading day occured within the past two weeks.
But the launch highlighted some of crypto’s weaknesses — weaknesses that are contributing to the market’s downturn. Thanks to Ethereum’s efficiency issues, traders spent around $200 million in transaction fees, including thousands of dollars on failed purchase attempts. Ether’s deflationary protocol has these “gas” fees burned, which means that several days worth of current market activity was destroyed.
Still, the upcoming metaverse highlights the evolution of NFTs. NFTs are mostly used as digital status symbols, but Yuga Labs is hoping to turn its Bored Ape brand into a mainstream AAA game. It’s not the only one, as dozens of NFT creators are hoping to sail from OpenSea into your living room. Whether a few can succeed or not will say more about the long-term viability of NFTs than a slump brought on by an interest-rate spike that’s impacted most other indexes.
The digital monkeys are down, but don’t count them out just yet.