In its ascendency, the NFT market represented a flourishing industry that carved an exciting niche in the decentralized landscape. NFT collections like BAYC, CryptoPunks, Cool Cats, VeeFriends, and Azuki contributed positively its growth and success. However, the NFT market has since experienced something of a crash, with plummeting floor prices leading to declining market participation from collectors and investors. NFTs elegantly became the talk of the town in 2021, but its market took a steady southern turn in the years that followed. We take a look at this NFT market crash, and the steps it can take to get back on its feet.
The NFT Market Crash
The NFT market crash began with cracks that emerged in Q2, 2022; it became notable when significant collectors started losing their NFT investments. Top NFT celebrities like Justin Bieber, Madonna, Michael Jordan, and Stephen Curry, saw their assets contract by millions of dollars during the crash. For instance, Stephen Curry purchased his Bored Ape #7990 at 55 ETH (approximately $178k at the time) on August 8, 2021; now, the best offer currently sits at 25 ETH, (around $41k) on OpenSea. Likewise, the most expensive Bored Ape #8817 sold at $3.4M on July 29, 2022, now has a highest bid of 180 ETH ($295k) on OpenSea.
Generally, the NFT market crash affected all NFT floor prices across marketplaces in the decentralized space. Blue-chip NFT floor prices plummeted significantly, and trading volumes started declining. Meanwhile, an unfavorable ETH price has also impacted the dollar value of NFTs. For instance, the most expensive CryptoPunk sold at 8,000 ETH (approximately $23.7M) on February 12, 2022, would now be worth $13.2M at the current ETH price ($1,650). Due to several factors, all NFTs were affected by the downturn of the NFT market, making the previously flourishing landscape a shadow of its past glory.
Factors Responsible for the NFT Market Crash
A crypto winter reflects declining or plummeting crypto prices in the global blockchain market. Since NFTs are directly influenced and fueled by cryptocurrencies, the prolonged and unprecedented crypto bear period also affects the NFT market. In essence, it relies on the crypto market for sustainability since most NFTs are traded (bought and sold) with crypto tokens. The NFT market crash partly became inevitable during the prolonged and unprecedented crypto bearish trend.
Based on market sentiments, crypto volatility measures how crypto assets rise and fall. Since crypto tokens are directly associated with the NFT market, their prices intrinsically affect it. Imagine an NFT item worth 8,000 ETH at $3,000 per ETH; when the price of ETH declines to $1,800, such an NFT is worth much less. At $3,000/ETH, the item is worth $24M, but at $1,800/ETH, it will be worth $14.4M if its market value is not negatively affected by other economic factors.
NFT Market Saturation
Before the notable NFT year (2021), collectors/investors, and enthusiasts traded a handful of NFTs in the pervading marketplace. The astonishing surge in NFT adoption and transactions drew massive participation in the NFT space, with everyone seeking their share and profits. According to Demand Sage, the magnitude of Web 3 wallets trading NFTs increased from over 500k in 2020 to over 28 million in 2021. This surge resulted in a significant creator-collector margin with more creators than collectors. The expansion of the NFT scope meritoriously grew and extended to several niches like gaming, animations, collectibles, music, arts, photographs, etc.; however, this exploded the NFT landscape with comparatively few collectors or investors.
Another factor responsible for the downturn of the NFT market is cyber-attacks, which threaten NFT collectors and enthusiasts. Doubts surrounding security has had a negative impact, discouraging participation in the NFT space. According to a report credited to Elliptic in August 2022, over $100M worth of NFTs have been reportedly stolen. For instance, since the advent of BAYC from Yuga Labs in 2021, about 143 NFTs (over $13M) have been reportedly stolen via two major separate phishing attacks in April and June 2022.
In another NFT-related attack, Axie Infinity blockchain, Ronin, reportedly lost over $600M worth of crypto to the infamous North Korean hackers in March 2022. All these events devastated the NFT market, creating panic among collectors, investors/enthusiasts.
The Implosion of Affiliated Decentralized Projects
The sudden crash of some crypto projects negatively affected several crypto/blockchain-related projects, including the NFT market. For instance, the FTX crash affected several crypto tokens, causing their prices to decline, directly affecting some NFT projects like the “6 Rings” NFT collection. The “6 Rings” NFT is the brainchild of the former NBA star, Michael Jordan. The NFT was launched on Solana-based platforms, and its floor price declined when the price of SOL dropped by 25%, causing Jordan to record over 90% loss. Other crypto crashes like LUNA and TerraUSD were also instrumental to the crash of the NFT market since crypto tokens are intertwined with the NFT landscape.
Feasible Real World Use Cases
Another factor that could be partly responsible for the crash of the NFT market is the paucity of NFTs with real-world use cases. The advent of Phygitals (NFTs with real-world or physical use cases) has redefined the NFT landscape. Unfortunately, most reputable brands in the NFT space are yet to hop on this train. Eschewing the initiative of associating physical use cases to NFTs can crash the NFT market since reputable brands are not adopting it. However, adopting the novel initiative will be a jumpstart to rejuvenate the once-flourishing ecosystem.
Global Economic Events
Aside from crypto/NFT-related factors, some global economic factors like inflation, increasing interest rates, and socio-political factors also contributed to the crash of the NFT market. Crypto and NFT are still nascent compared to other pre-existing investment tools; they wouldn’t be appealing to every investor as an asset during inflation due to the underlying volatility of crypto assets. Furthermore, the Russia-Ukraine imbroglio also affected the NFT market, making investors/collectors take sides and dump NFTs related to their perceived enemy.
So, can the NFT Market Recover from this Unprecedented Crash?
NFTs spontaneously came to the limelight without manipulations; their market can also be rejuvenated and promoted beyond its previous glory. This requires the synergy of creators, investors, and collectors/enthusiasts. The bearish crypto market has been a significant factor in the crash of the NFT market and other crypto-related projects; however, there is a prospective positive turnaround as the crypto community anticipates the next bullish trend and crypto recovery.
How will crypto recovery positively affect the NFT market?
Crypto tokens are directly associated with NFTs; a bullish crypto market will outrightly give more value to NFTs. Furthermore, it will consequently increase the adoption of NFTs and the volume of trades on marketplaces. Aside from that, there are indications that the future of the NFT market is brighter than its past and present crash; the NFT market is reportedly projected to grow by 33.7% CAGR (compound annual growth rate) by 2030.
Furthermore, several NFT projects and collections launched during the market crash managed to gain traction among collectors and investors. For instance, when Yuga Labs launched its Dookey Dash game on January 18, 2023, it was warmly embraced by the NFT community because the brand is reputable for its exciting NFT-related projects. Similarly, NFT projects associated with P2E games will also be the future of the NFT landscape.
The unexpected downturn of the NFT market shouldn’t be viewed as the end of the NFT era; instead, it should be taken as a temporary setback for creators to re-strategize and reel out fascinating content to rejuvenate the ecosystem. Investors and enthusiasts anticipate a positive turnaround by releasing fascinating and aesthetic NFTs with exciting use cases to fuel their existence.
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Technical writer, an enthusiast for everything blockchain and decentralized world.
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