Non-fungible tokens (NFTs) are currently facing dire circumstances as the market experiences a severe downturn. It is safe to say that the NFT bubble has well and truly burst. The value of these digital collectibles, which traded for large amounts of money in the past, has significantly decreased. It is important to understand what led to the downfall of NFTs and whether there is any hope for their future.
NFTs are blockchain-based tokens that provide a way to claim unique ownership of digital assets. The term “non-fungible” means that these tokens are unique, unlike fungible items such as currency. However, the fact that digital assets can be easily copied diminishes the value of NFTs. Essentially, an NFT is merely a receipt indicating that the owner has paid for something that can be obtained by others for free. This questionable basis for value has contributed to the downfall of the NFT market.
The two most traded sets of NFTs, the Bored Apes collection and the CryptoPunks collection, have recently suffered from decreasing demand. These collections consist of unique figures with various characteristics. However, the Bored Apes collection appears derivative of Jamie Hewlett’s artwork, while the CryptoPunks NFTs are basic computer-drawn faces. These unremarkable designs have likely contributed to the decline in demand for NFTs.
The popularity of NFTs surged in 2021, with even renowned auction house Sotheby’s participating in NFT sales. However, the primary motivation behind buying NFTs was greed, as people sought to profit from the initial price rises. NFTs are essentially a sophisticated form of gambling, lacking any fundamental value. Profit could only be attained by finding someone willing to pay a higher price for the NFT, creating a constant search for the “greater fool.”
As with previous speculative assets, such as Bitcoin and Beanie Babies, the NFT bubble was bound to burst eventually. The recent decline in Google searches for “NFT” and the collapse of trading volumes indicate waning interest in NFTs. Prices of NFTs have also plummeted, with the Bored Ape NFTs losing about 90% of their peak value and the CryptoPunks NFTs dropping by 80%. Many NFTs, estimated to be around 70,000, are now valued at zero, leaving owners with worthless assets.
Several factors have contributed to the collapse of the NFT market. These include the falling prices of Bitcoin and other cryptocurrencies, the collapse of the FTX exchange, increased publicity around scams, the lifting of COVID-19 lockdowns leading to alternative pastimes, and higher interest rates making speculative assets less attractive. Prominent individuals who previously supported NFTs have also distanced themselves from the trend, acknowledging the losses they have incurred.
While NFTs are unlikely to completely disappear, their future seems bleak. Unless they find a practical use, NFTs will continue to fade from public discussion, with prices trending downward. They may become a footnote in the history of speculative follies, joining other failed ventures such as Dutch tulips and dotcom companies.