Where NFTs Go to Die: the Digital Token Market is as Good as Dead

The world of digital art and collectibles has been transformed by the advent of Non-Fungible Tokens (NFTs).

The appeal of owning a piece of the internet captivated global audiences in the early 2020s, drawing in tech enthusiasts, celebrities, and everyday individuals willing to invest real money.

These unique digital assets have garnered significant interest from artists, collectors, and investors.

However, with growing concerns about market saturation, longevity, sustainability, and copyright issues, many are beginning to wonder if the NFT phenomenon has reached its zenith.

The Start of the End of NFTs

The story of NFTs is a classic tale of a meteoric rise followed by a swift decline.

Initially, the NFT market boomed during the pandemic, driven by novelty and speculative hype.

Digital artworks and collectibles sold for millions, attracting early adopters and investors hoping for quick returns.

In May 2022, NFTs experienced their third-best week on record, with trading volumes exceeding $1.8 billion from 1 to 8 May, according to data from The Block.

However, this surge was short-lived.

As the market became saturated with NFTs, the basic economic principle of supply and demand took hold, and not all NFTs retained their value.

Sol Nasisi, founder of digital publishing platform Booksie and co-founder of Chainletter Labs, said:

“You remember when NFTs were the hottest thing around because they were so rare and exclusive? Nowadays, it feels like everyone’s hopped on the train, and it's watered down the whole vibe. People are churning out NFTs left and right, pricing them however they please, and it's taken the shine off the market. And those NFTs with celebs attached? They're not always the jackpot folks hoped for."

By October, weekly trading volumes had plummeted by roughly 90%.

Even high-profile collections were not immune to this bearish trend.

For instance, NFT Price Floor data shows that Doodles' price dropped from nearly $60,000 in May to less than $11,000 in June, and Meebits' price fell from over $16,000 in April to below $4,000 in June.

Similarly, Cool Cats' floor price declined by more than 90% from January to June.

The broader economic environment also played a significant role in the downturn.

The NFT boom coincided with economic uncertainty, marked by higher inflation, rising interest rates, and tighter monetary policies due to the COVID-19 pandemic.

As the global economy stabilised, the appetite for high-risk investments like NFTs waned.

This decline was further exacerbated by the overall downturn in the cryptocurrency market, which is closely tied to the NFT ecosystem.

As major cryptocurrencies lost value, especially Ethereum, the purchasing power and enthusiasm of NFT investors diminished, leading to a significant market downturn.

The overall ecosystem is estimated to have lost around $60 billion, triggering a prolonged bearish phase.

The fallout was severe, with major players disappearing from the market.

Additionally, discussions about NFT scams and rug pulls became more prevalent, further hindering hopes for a market revival.

Glimpse of Revival in 2023 But It Was Not Enough

Despite efforts at recovery in early 2023, the NFT sector remained largely dormant.

An analysis by dappGambl revealed that over 90% of all NFTs were deemed worthless.

Among the top NFTs, 1,600 were classified as dead, while the majority was valued between $100 and $200.

Analysts suggested that sellers were holding out for another surge akin to the 2021 boom, but such a resurgence seemed increasingly unlikely.

The analysis said:

“It becomes clear that a significant portion of the NFT market is characterised by speculative and hopeful pricing strategies that are far removed from the actual trading history of these assets."

The analysis revealed that the hype around NFTs reached its zenith during the 2021/22 bull run, with monthly trading volumes peaking at nearly $2.8 billion in August 2021.

During this period, NFTs captured global attention, with news reports highlighting million-dollar sales and sparking a digital gold rush.

However, the landscape has drastically changed since then.

As of July 2023, data from The Block indicates a weekly traded value of approximately $80 million, a mere 3% of the market's peak in August 2021.

Using data from NFT Scan, the team conducted a comprehensive analysis of 73,257 NFT collections to identify key trends, assess market health, and determine factors contributing to successful projects.

The findings were startling.

Of the collections analysed, a staggering 69,795 have a market cap of 0 Ether (ETH), indicating that 95% of these NFTs are effectively worthless.

This means that over 23 million people are currently holding valueless investments.

Source: dappGambl

Perhaps examining the top NFT collections offers a clearer picture of the NFT market's landscape, filtering out noise to reveal trends and patterns.

Analysing the top 8,850 NFT collections listed on CoinMarketCap, it was found that over 1,600 of these top NFTs are inactive.

A surprising 18% of these leading collections have a floor price of zero, indicating significant struggles in maintaining demand.

Moreover, 41% of the top NFTs are priced between $5 and $100, suggesting a perceived lack of value in these digital assets.

Remarkably, less than 1% of these NFTs are priced above $6,000, highlighting the scarcity of high-value assets even among the top-tier collections.

Source: dappGambl

This starkly contrasts with the million-dollar deals that once dominated headlines during the NFT boom.

Excessive Supply over Waning Demand

In the analysis, only 21% of the collections were found to have full ownership, indicating that nearly 4 out of every 5 NFT collections remain unsold.

This imbalance highlights a significant gap between the creation of new NFTs and their demand in the current market.

With an oversupply of NFTs, potential investors are now more discerning, carefully assessing factors like style, uniqueness, and potential value before making purchases.

Consequently, projects lacking clear use cases, compelling narratives, or genuine artistic value struggle to attract attention and sales.

This underscores the speculative and volatile nature of the NFT market, despite its revolutionary ownership and asset monetisation model.

NFTs' Fall Was All but Guaranteed

Based on NFT Plaza’s February 2024 NFT Report in collaboration with Footprint Analytics, it was found that amidst significant growth in the broader cryptocurrency sector, the trading volume in the NFT market reached $1.2 billion, marking a 3.7% decrease from January 2024.

A closer look at platforms like Ethereum, Polygon, BNB Chain, Cronos, Optimism, and Sui, featuring collections such as Azuki, MAYC, and BAYC, revealed a downturn in trading volume to $838.9 million, indicating a 16.1% decline from January.

This decline was accompanied by a 25.8% decrease in transactions and a 14.6% fall in unique user numbers.

Notably, the performance of Gas Hero NFTs impacted Polygon and Mooar.

In February, the top 10 NFT collections across these six blockchains experienced a 32.1% decrease in total trading volume, dropping from January's $570.18 million to $387.16 million. '

These collections accounted for 46.2% of February's total market volume, down from 56.2% in January.

Source: Top 10 Collection Volume – Footprint Analytics

Ilya Stadnik, CEO at Zent, expressed:

“I could say 99.9% of those are not worth considering. As I previously noted, the comeback is not happening…”

The trading volumes of NFTs have plummeted by a staggering 97% in September 2022 from their record high of $17 billion in January 2022, as reported by Bloomberg.

Since then, NFT sales have been consistently lagging.

Robert R. Johnson, professor of finance at the Heider College of Business, Creighton University, noted:

“Distinguishing between speculation and investing is extremely important. Many speculators in NFTs, GameStop (or the other meme stocks) were and are engaging in speculation and not investing. Speculators can certainly make a great deal of money. But, they also assume a great deal of risk."

According to NFTGo's 2024 report, there has been a noticeable downturn in both market capitalisation and trading volume compared to the previous year.

Market capitalisation experienced a significant decline of 41.79%, dropping to its lowest at 3.3 million ETH.

The peak of trading activity occurred on 20 February, with the daily trading volume reaching its yearly high of 240,000 ETH.

However, this momentum was not sustained throughout the year.

Disappointing updates and releases, including the much-anticipated game Legends of the Mara, the new collection Azuki Elementals, and the Degods update, failed to meet community expectations, leading to a decline in market enthusiasm.

Source: NFTGo

Rise & Fall of the Apes

During the 2021 bull market, the Bored Apes Yacht Club (BAYC) NFT collection surged in popularity, with numerous prominent celebrities reportedly purchasing the NFTs for over $300,000 each.

Notably, popular rappers showcased their Bored Apes in virtual worlds, and singer Justin Bieber notably acquired a "rare" Bored Ape for over $1.2 million.

However, in June 2023, reports surfaced alleging that crypto services company MoonPay may have gifted Bored Apes to certain celebrities, potentially shaking investor confidence.

MoonPay refuted these claims at the time.

Since then, BAYC has experienced a substantial price decline of over 90%, plummeting from a peak of 120 ETH to slightly over 12 ETH at the time of writing.

Source : Nft Price Floor

Despite initial hype and celebrity endorsements, the Bored Apes collection has witnessed a significant decrease in value, mirroring a broader waning interest in Ethereum-based NFT collections.

Giant Whale Holder Made a Big Dump

Machi Big Brother emerged as a prominent figure in the early NFT landscape, boasting substantial trade volumes and wielding considerable influence as a major player in the BAYC market.

The actions of this whale, including trading frequency, NFT holdings, and selling prices, exerted significant sway over the NFT market, particularly impacting the floor price of blue-chip NFTs like BAYC.

However, on 15 April, Machi Big Brother announced its departure from the NFT market without specifying the reasons behind this decision.

This sudden exit injected a heightened sense of uncertainty into the NFT market, particularly during periods of subdued activity.

On-chain data revealed that within a mere 4-hour window, Huang Licheng, associated with Machi Big Brother, offloaded various NFTs including Azuki, BAYC, and MAYC on Blur.

Notably, 1 Azuki fetched 16.78 ETH, 5 BAYC were sold for 183.8 ETH, 12 MAYC were exchanged for 85.48 ETH, 39 BAYC were traded for 1428.71 ETH, and 3 BAYC were sold for 20.57 ETH MAYC.

NFT Lost its Luster, Market is Dead

Enthusiastic supporters are pinning their hopes on 2024 as a pivotal year for the NFT market, currently teetering on the edge of uncertainty.

The stakes are high—if there is no resurgence this year, prospects for a comeback seem bleak.

Following the explosive growth of 2021 and subsequent slowdown, stakeholders are eagerly anticipating signs of recovery in 2024.

Despite the recent downturn, they remain optimistic about the resilience and adaptability of the NFT market.

However, a closer examination of its trajectory reveals a sobering reality that tempers the prevailing euphoria.

While headlines tout million-dollar digital art sales and rapid success stories, it is important to acknowledge the inherent risks and potential setbacks within the market.

The NFT frenzy may never reach its previous heights and it looks like the digital token market is as good as dead.