Non-fungible tokens (NFTs) are facing a dire situation as the market experiences a severe downturn, leading to the inevitable bursting of the NFT bubble. The exorbitant amounts of money that NFTs were traded for in the past are now a thing of the past. The question arises as to what led to this turn of fate and whether there is any hope for the future of NFTs.
To understand the current state of NFTs, it’s crucial to first grasp what they are. Non-fungible tokens are blockchain-based assets that establish unique ownership of digital assets. The term “non-fungible” signifies that these items are unique, unlike fungible items such as currency notes or cryptocurrencies, which are interchangeable. However, just because an item is unique, it doesn’t automatically make it valuable. Since digital assets are easily copied, an NFT essentially serves as proof of purchase for something that others can obtain for free. This raises doubts about the inherent value of NFTs.
The two most traded sets of NFTs are the Bored Apes collection and the CryptoPunks collection. Both collections consist of a series of 10,000 similar-looking but unique figures. The Bored Apes appear to be inspired by the works of artist Jamie Hewlett, while the CryptoPunks are basic computer-generated faces. These collections gained popularity and attracted buyers due to their uniqueness, but their artistic value is questionable.
The reason people bought NFTs was primarily driven by greed. NFTs, like Bitcoin and other speculative tokens, offered the opportunity to make significant profits. However, similar to other speculative assets, the value of NFTs depended on finding someone willing to pay a higher price. Prominent individuals, such as rapper Eminem or KSI, actively promoted their NFT investments, adding to the hype and fear of missing out. For a while, NFT prices skyrocketed, but like any speculative bubble, it was destined to end in disappointment.
The NFT market is now experiencing a significant downturn. Google searches for “NFT” have dropped, and trading volumes have collapsed. Prices of popular NFT collections like Bored Apes and CryptoPunks have seen substantial declines, with Bored Ape NFTs losing about 90% of their peak value. A recent report estimated that around 70,000 NFTs are now valued at zero, leaving many holding worthless assets.
Several factors contributed to the collapse of the NFT market. Apart from losing their novelty, the market was affected by the decline in the price of Bitcoin and other cryptocurrencies, the collapse of the FTX exchange, and exposure to scams. With the lifting of COVID lockdowns, people had alternative ways to spend their time, and higher interest rates made speculative assets less attractive. Influential individuals who previously supported NFTs began distancing themselves, and even the British Royal Mint abandoned its plan to produce an NFT.
While NFTs may not completely disappear, they are expected to fade further from public discussion unless a practical use is found for them. Without a meaningful purpose, their prices will continue to trend downward, similar to past speculative bubbles like Dutch tulips and dotcom stocks. NFTs will likely be remembered as another example of speculative follies in history.
Overall, the current state of NFTs highlights the risks associated with investing in speculative assets driven by greed and hype. Like any investment, it’s crucial to conduct thorough research and consider the intrinsic value before participating in such trends.
