NFTs have gained mainstream popularity, so why are NFT markets crashing?
Without getting technical, an NFT (Non-Fungible Token) is essentially a proof of ownership for art, videos, tweets or any other sort of goods.
When you buy an NFT you don't own the art or it's copyright (this depends as a limited number of NFT sellers have opted grant copyright to a buyer), you just get to attach your name to a long receipt on the blockchain.
NFTs have been around since 2014 and broke mainstream in 2021. NFT prices have since skyrocketed with many NFTs being sold a huge speculative prices. To give you an idea of this, the most expensive NFT ever sold was "The Merge" an art piece that was bought at a hefty $91.8 MILLION US dollar price tag.
With prices higher than ever and its popularity in mainstream media rising, why did the NFT bubble burst?
1. Dwindling Interest in NFTs
The hype is over for NFTs, many investors who flocked in out of curiosity have left after it's huge inflation rates. Society's view of NFTs have been tainted by NFT bros and those actively shilling NFTs to make a quick buck.
While that is not indicative the entire NFT market, many have taken this as a sign to back out of the market in pursuit of more stable investments.
According to research done by the Wall Street Journal, NFT interest has diminished as the number of active NFT wallets have dwindled from an all time high of 119,000 users in November of 2021 to only 14,000 users in May of this year.
This shocking lost of users can be the end all of NFTs. Without consumers, there is no market.
2. Drop In Overall NFT Quality
While some talented artists have created beautiful NFTs, The NFT market space has become oversaturated with poor quality, low effort, computer generated art that seems to have no meaning or value.
These NFTs are being sold for thousands or even millions on Open Sea (the current largest NFT marketplace) to investors that may not even have the money to lose if everything goes wrong.
A great example of the substandard art saturating the NFT world is Ether Rock. Ether Rock like many computer generated NFTs are low quality clipart of literal rocks with slight changes in every reiteration. The crazy part is, Ether Rock #55 was sold for approximately 1.3 million US Dollars (400 ether).
With a poorly generated clipart of a rock selling at such a high price, one can see why many others have followed in it's and other successful computer generated NFTs' footsteps creating similar low-grade art further ruining the NFT market.
Gizmodo said it best when they said:
"If you don't have $300,000 to drop on this crypto collectible, you can also download the original clipart for $0"
3. Backlash From The Gaming Community
NFT gaming has been around since 2015. Etheria was a game where digital land could be sold as an NFT. Since then, many other gaming companies have taken interest in making NFT based games or integrating NFTs into their games.
However, there is huge controversy surrounding this issue. Many game developers see NFT games as a threat to gaming as it allows people who are well off to have an upper hand in games while also ruining the planet with it's heavy environmental impact.
There is also the issue of blockchain-based play to earn games which encourages players who don't have the money to pay for game items to spend hours doing repetitive tasks in order to sell those items to people in the game who have money.
This, not only creates a dangerous environment for gamers to be exploited but also creates an unchecked and unregulated economy within the game.
The backlash of the gaming community has grown as many worry what NFTs might do to the future of gaming. With backlash this strong, many large gaming companies have backed out of the NFT scene, at least for the foreseeable future.
4. Drop in NFT Sales
With growing problems in the NFT world, it is unsurprising to see that NFT sales have been on a rapid decline. NFT investors are leaving left and right creating great dips in sales and NFT prices.
The value of NFTs is taking a great hit. As an example, Snoop dog's NFT which was once worth $35 million US dollars is now only worth a measly $290 US dollars.
On the greater scale of things, the Wall Street Journal also found that NFT sales have dropped a staggering 92% from an average of 225,000 transactions a day in September of 2020 to only 19,000 transactions a day.
We can see that NFTs are slowly losing their popularity, only time will tell what will become of all of this.
Conclusion
The burst of the NFT bubble can be compared to the dot-com bubble that popped in 2002. Those who do not learn from history are doomed to repeat it.
When the internet first became popular, the dot-com boom happened, whereby there was so much speculation of the internet being the next big thing that investors flooded in to carelessly throw their money at any internet company.
We saw this same thing happen with many other industry advancements and we see it now with NFTs. Investors are so enamored by what NFTs can be, that they have started pumping money into any project even remotely related to NFTs, regardless of whether they have any actual plan of progress or use.
This over inflation of the market is the reason that leads to these "bubbles" bursting. When investors realize that they have invested millions into companies that have taken their venture capitol and spent it all without having a sound business plan, many who see their investments failing, quickly try to pull out of their investments to save whatever money may be left.
In essence, this same scenario is happening again today. Investors have finally taken off their rose colored glasses to see most NFTs for what they are, opportunistic grabs of a technology with no plan and no value.
We cannot make a blanket statement that NFTs have no use for society moving forward. Like its predecessors, the technology can and will unlock great advancements for society as long as industry leaders innovate with purpose and not by greed.
Only time will tell what will become of NFTs, but for now, the bubble has burst. So, be careful where you invest your money, lest you repeat the history of the dot-com boom.
Comments