The NFT market volumes have dropped 97 percent from the peak earlier this year. While many are sounding the death knell for the asset class, others swear by their Metaverse promise and revival of the market if cryptocurrencies bounce back.
Just a year back, non-fungible tokens, or NFTs, were among the hottest asset classes in the crypto space, riding high on investor and consumer interest.
Now, NFT trading volumes have dropped to a trickle as the slump in global financial markets and rising inflation have led to a contagion effect for cryptos and other digital assets.
A recent Bloomberg report highlighted the extent of the drop in NFT trading activity, casting doubts over their representation in a Web3-connected world.
From $17 billion at the start of 2022, NFT trading volumes have plunged to $466 million, faring worse than currencies in the ongoing crypto winter.
However, investors are at sea as, unlike cryptocurrencies, there is not enough historical data on NFTs to gauge how the relatively new asset avenue has reacted in the previous bear cycles.
Though the 97 percent drop, as per blockchain analytics firm Dune Analytics, has spooked investors, they are still keeping faith in the asset.
September 2022 saw the participation of 42,000 traders as compared to the peak of 45,000 recorded in March this year.
So it is fair to surmise that the majority of the drop in trading volumes is due to an almost complete wipeout in the value of these minted NFTs, some of which exchanged hands for astonishing sums at the height of NFT mania.
Making matters worse, popular NFT marketplace OpenSea has been embroiled in major controversies over the sale of fake or stolen NFTs on its platform, further hurting investor sentiment.
The correction in prices of major cryptocurrencies like Bitcoin and Ethereum is not helping matters either.
Marquee investors and companies keep faith
Despite the depressed trading activity, NFTs are still considered to be one of the basic building blocks of the Metaverse, attracting top-tier companies like Samsung, LG, Canon and Meta to launch bespoke NFTs or invest in creating platforms that utilise them.
Meta’s founder Mark Zuckerberg is one of the most ardent supporters of these digital assets and has been feverishly working towards integrating system support for NFTs on the company’s various social media platforms.
On the other hand, crypto critics have consistently argued that NFTs are just a fad and have abhorred the apparent lack of regulation, the scope for price manipulation and insufficient checks to verify the authenticity of NFTs.
This, however, has not stopped celebrities, eminent sportspersons and companies from joining the NFT bandwagon by marketing NFTs representing popular movie characters, epic sporting events or even household products on the various digital marketplaces.
Signs of consolidation or the end of a fad?
While the jury is still out on if and when the bearish phase will end, NFT creators have been hit by the massive drop in demand for their wares and firms or marketplaces dealing in this asset class have been forced to implement cost measures to tide over this tumultuous period.
Still, most industry veterans believe that the NFT market will bounce back eventually and remain confident of the long-term potential of quality NFTs that have been verified for authenticity.
Also, any revival in cryptocurrency prices may prop up NFTs, which makes the current phase an opportune time for those willing to stake some capital and diversify their portfolio to include popular NFTs.
But if demand plummets further it may also sound the death knell for what is arguably the most polarising asset class within the burgeoning crypto space today.