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What is going on in the NFT market

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Amid the Crypto Winter of 2022, the non-fungible token (NFT) market experienced significant turbulence. In January 2022, Justin Bieber bought NFTs from the Bored Ape Yacht Club collection for $1.3 million, only to witness their price plummet to $59,000 by July 2023. Let's delve into the current state of the NFT market, exploring the reasons behind the sharp decline and examining whether it presents an opportunity for potential investors. 
 

Market analysis

To comprehend the scale of the NFT market’s drawdown, let’s look at some key statistics.At the beginning of October 2021, approximately 500 thousand tokens were created daily on the Ethereum blockchain. However, as of now, that number has dwindled to just 2 thousand.

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Ethereum NFT minting chart.

Similarly, the trading volume has undergone a decline as well. The peak, observed in August 2022 at $3 billion, has now reduced to a mere $30 million.

 

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The chart shows how the NFT trading volume has changed on different blockchains and in the whole market in particular.

Moreover, royalty payments (a percentage of the token's price automatically transferred to its creator with each resale) have also dropped to a two-year low. In January 2022, royalties amounted to 28 thousand Ethereum ($51M), whereas, in the beginning of summer 2023, they barely reached $2 thousand Ethereum ($3.7M).

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Nevertheless, the number of NFT traders has continued to grow. In 2022, there were about 2 million of them, and in 2023, the number exceeded 3 million.

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The total number of traders with at least one NFT transaction on the Ethereum blockchain.

However, this growth may not necessarily indicate increased overall interest, as the system does not account for traders leaving the NFT market.
 

The "winter" factor

The digital asset market periodically dives into a so-called crypto winter — a period of prolonged price drops. Usually, these winter cycles follow a new all-time high (ATH) for the most capitalized cryptocurrency, Bitcoin.

We can compare these market cycles to the four seasons:

🌱 spring: preparation for growth;

🌸 summer: active growth;

🍁 fall: decreasing after growth; 

❄️ winter: price bottoming.

These cycles are often triggered by Bitcoin halvings. Learn more about halvings and their impact on the digital asset market in our explainer article.

The NFT market appears to be experiencing its own crypto winter with a time lag. This delay is evident from the token minting and trading volume charts mentioned earlier. While the cryptocurrency market entered autumn back in November 2021, following Bitcoin’s ATH ($68,789 on November 10, 2021), the NFT industry began losing ground only in the first half of 2022.

Currently, the NFT market is "warmed up" from time to time due to some local trends. For example, in the spring of 2023, the Ordinals protocol, which allows the creation of non-fungible tokens on the Bitcoin blockchain, came on top. Its hype overloaded the Bitcoin network, resulting in an increase in transaction fees. The overwhelming demand for blockchain resources led to a sharp increase in the cost of processing transactions.  

By the way, Ordinals received recognition and approval from Vitalik Buterin, the creator of Euthereum.
 

Survival and future growth of NFTs

Non-fungible tokens emerged as a novel technology, gaining significant hype in 2021. The subsequent Crypto Winter of 2022 marked the very first downturn for the NFT market, leaving limited data to analyze the possible recovery process. Despite all that, we can still give it a shot and try to predict the future of the NFT market based on certain factors that indicate its potential to endure crypto winter and reach new all-time highs (ATHs). 

Here are 3 key factors:

😎 NFTs are universal, and they go far beyond pictures. They are a versatile tech that cab protect copyrights, handle property rights, and even offer digital property insurance. If you want to dig deeper, check out our guide here.

💵 NFT industry provides market participants with many earning opportunities. It means that money lovers, traders, and investors are unlikely to leave such a promising market.

👟 Many non-crypto companies are already into this NFT thing.  Adidas, Nike, Tiffany, and Gucci have non-fungible token collections. Luxury brands continue to invest in NFTs despite the crypto winter, believing in the industry's possible growth. These companies view NFT tech as an opportunity to expand their business, and NFTs have become an integral part of their long-term strategy.

The NFT industry has the potential to recover and even achieve new ATHs. As an essential part of the digital market,  its growth is likely to come after the entire industry turns positive amid Bitcoin's halving in 2024.

It is even quite possible that Justin Bieber could end up with more money in his pockets thanks to Bored Ape Yacht Club NFT despite its earlier drip.
 

Should I buy NFTs? 

Considering Bitcoin's halving in 2024, the NFT market stands a chance to experience growth. Unfortunately, not every NFT project is worthy of investment. 

👍 Tokens from legendary collections like Bored Ape Yacht Club or Crypto Punks are likely to remain in demand for a long time. Gaming tokens like Axie Infinity or DeFi Kingdoms also show good potential. Additionally, NFTs created by popular artists such as BEEPLE or SNOWFRO are worth paying attention to. 

👎 On the other hand, it is essential to avoid potentially worthless NFTs. For instance, refrain from purchasing tokens tied to games that have already turned second-rate. Similarly, do not buy replicas of popular non-fungible collections' tokens, like Bored Ape Yacht Club parodies. Another potentially risky area involves pirated NFTs, which wrap copyrighted images in tokens. These tokens could face devaluation due to potential legal actions from the original artists, leading to litigation. 

If you want to be a smart investor in the wild world of crypto, check out this article

🤔 Is buying NFTs on sale worth it? Share your opinion on socials!

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​​This article is not an investment recommendation. The financial transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.

Maria Kachura
Maria Kachura

Visit her on Facebook or hit her up via Email.

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