The more astute of you will know that there has been a substantial, if slightly perplexing rise, in the Non-Fungible Token or NFT market in the last 18 months.
Perplexing to most because if someone tried to sell you a standard car for 20x its actual price you would simple walk away. However, if you digitise it and cover it in graffiti, well, its worth a few million.
Internet collectibles ranging from cartoon apes to artsy doodles have plunged in value as real-world conflict and a broader cryptocurrency slump begins to unwind one of the past year’s biggest speculative frenzies.
Digital items – NFTs – burst into mainstream culture last year, as several animal collections including Bored Ape Yacht Club, Cool Cats and Pudgy Penguins spiked in price, aided by celebrity endorsements and social media hype.
By the end of 2021, nearly $41 billion, (yes, correct) had been spent on NFTs — making the market almost as valuable as the global art market!
But almost as rapidly, large portions of the market have begun to deteriorate, leaving novice investors with big losses and raising questions about the long term outlook for NFTs.
The average selling price of an NFT has dropped more than 48% since a November peak to around $2,500 over the past two weeks, according to data from the website NonFungible.
Daily trading volumes on OpenSea, the biggest marketplace for NFTs, have plummeted 80% to roughly $50 million in March, just a month after they reached a record peak of $248 million in February.
Meanwhile, the number of accounts buying and selling NFTs on a weekly basis has fallen to about 194,000, according to NonFungible.
The number of accounts hit a peak of 380,000 last November. By the end of last year “there was a general sense that there was saturation in certain parts of the market, particularly in primate-themed profile pictures”, said Nadya Ivanova, chief operating officer at L’Atelier, a trend-forecasting unit of French bank BNP Paribas.
“I think that many will be scarred and burnt by this market and may never touch NFTs again,” said a 19-year-old investor in a Telegram messaging group where more than 1,000 people discuss NFTs. Other members joked they would be living off rice, porridge and grass this month.
NFTs represent unique ownership rights in a wide universe of online valuables including works of art, digital trading cards and gaming items hosted on the blockchain, digital ledgers that underpin cryptocurrencies such as ethereum.
The rising popularity of NFTs showing so-called PFPs, or profile pictures, sent the market into overdrive last year. The market’s pullback has mirrored a broader sell-off in Ether, the dominant cryptocurrency used to purchase NFTs, which has fallen more than 40% from an all-time high in November.
Many projects in decentralised finance and other areas tied to ethereum have also plummeted in value.
Despite the recent sell-off, some analysts believe it is too early to call a top in the market, which has attracted a flood of venture capital and given rise to several billion-dollar companies, including OpenSea and the NFT developers Dapper Labs and Sorare.
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