Are NFTs dead? A quick peek into recent market data & insights

Are NFTs NGMI? Read on to find out!

Many colorful NFT tokens in the air on dark background, art generated by Midjourney

As the NFT industry has considerably decreased since its boom in 2021, many started wondering if NFTs are to survive at all. In this article, we will make a deep dive into the market data, take a look at the recent developments in the NFT space, and examine if there's a thing that can spark the next bull run.

The boom and bust cycle of the NFT market

Beyond any doubt, NFTs have already revolutionized the way we perceive and trade digital art by creating communities and collaborations between artists, fans, and customers. However, this new asset class also exhibits high volatility that rivals that of cryptocurrencies, which, in part, contributed to its reputation as another speculative bubble that is doomed to burst. As NFTs are now trading at a small fraction of their historical high, many collectors couldn't help but wonder: are NFTs dead now, or will they ever make a comeback?

In fact, the NFT market is bound to experience wild swings and corrections due to the combination of factors, but it doesn't mean that it will be stuck in a bear trend forever. Let's take a closer look at what drives the sector's volatility.

First, it's crucial to understand that the NFT market is relatively new and developing, which means that its value is often dictated by market sentiment and hype. What's more, due to the anonymous nature of a blockchain, NFTs are vulnerable to market manipulation and wash trading, which contributes to insane valuations for individual NFT projects. These characteristics of an immature market are precursors to high volatility, but as the market matures and stabilizes, we might expect less drastic price fluctuations.

Secondly, the perceived value of NFTs contributes to their volatility. NFTs, particularly in the field of digital art, have an extremely subjective value. What one individual might consider a valuable piece of art might not hold the same value to another, leading to unpredictable price swings.

Another critical factor is the role of speculation in the NFT market. As with many investment arenas, the NFT market has attracted a considerable number of day traders hoping to capitalize on price increases. This speculative activity can spur a boom-and-bust cycle, where prices surge quickly, only to crash afterward.

Furthermore, the overall sentiment and hype surrounding NFTs have a significant impact on their value. For instance, a sudden endorsement from a celebrity or an influential individual can cause a sharp increase in an NFT's value. In contrast, negative news or a decline in interest can trigger a rapid price drop.

Finally, it's important to recognize that the NFT market is closely tied to the broader crypto market. Volatility in major cryptocurrencies like Bitcoin and Ethereum can have a domino effect on the NFT market.

A deep dive into NFT stats

As of Q2 2023, Ethereum continues to lead the NFT space, whose dominance is largely attributed to its early development of standards for creating and managing NFTs. However, Ethereum also faces unexpected competition from Bitcoin, which saw an NFT boom with the introduction of Ordinals inscriptions that allow individual satoshis in a Bitcoin blockchain to be assigned a unique identifier and arbitrary data. Placing considerably lower in terms of NFT trading volume, Solana remains the third most popular chain for non-fungible tokens.

NFT trade volume by chain

Blur, a new NFT marketplace and aggregator that took the industry by storm in December, remains the largest general marketplace for NFTs by trading volume, featuring a diverse array of digital assets from art to virtual real estate. Nevertheless, recent data suggests that it is slowly losing its steam since the February-March peak, while its closest rival OpenSea boasts a higher number of trades.

Trading volume for NFTs has been on a steady decline since March. Over the last 30 days, the total trading volume across all platforms was estimated at $990 million, representing a 6.33% decrease from the previous month.

NFT marketplace Blur loses its steam

Launched in October 2022, Blur quickly emerged as the world's largest NFT marketplace and aggregator, attracting a great following due to its zero fees and generous airdrops of its native token, $BLUR. Since December, it has consistently outperformed its closest rival and industry heavyweight OpenSea, with NFT trading volume skyrocketing in February as whale traders rushed to flip NFTs to boost their airdrop allocations. The brief resurgence of NFT activity even prompted speculations that the next renaissance may be just around the corner, but so far these hopes failed to materialize.

NFT trade volume and trades by marketplace
NFT trade volume and trades by marketplaces, Blur (yellow), OpenSea (purple), Gem (red), LooksRare (orange), and Blur Aggregator (light blue). Source: DefiLlama

However, the recent data from DefiLlama suggests that Blur's frenzy is calming down. While its NFT sales still top OpenSea trades, the gap became noticeably smaller, which can be attributed to several factors. First, OpenSea implemented 0% trading fees at the end of February in a bid to win back its user base. Second, the marketplace also launched its own elite suite of trading tools in a major counteroffensive to Blur, which bills itself as a more advanced platform for pro traders.

Finally, many Blur users organically left the platform with the end of airdrop seasons that saw whales trade digital assets multiple times a day to farm rewards. With no upcoming airdrops in sight, these players have little incentive to artificially propel Blur's trading volume.

What could NFTs be used for in the future?

Contrary to what one may expect, NFTs are not just for kitsch monkey JPEGs. As the market matures, these unique digital assets could find real-life applications, opening new possibilities in music, gaming, event management, and more. Here are several examples of how NFTs can gain actual utility and boost their value:

Virtual Land & Real Estate: Digital world platforms like Decentraland and Sandbox already allow users to own, buy, sell, or lease virtual land in the form of NFTs. As VR technology progresses, NFTs could become a standard model of ownership and monetization for metaverse-based assets, contributing to the new virtual economy.

Supply Chain Management: NFTs can revolutionize product tracking and authentication. Linked to a certain product straight from the assembly line, an NFT can verify its authenticity and trace its journey from producer to consumer.

Luxurious goods & Fashion: In the virtual and real-world fashion industry, NFTs could represent ownership of unique design pieces, ensuring authenticity and allowing for the resale of digital or physical items.

Music: Artists could use NFTs to sell their music directly to fans, cutting off the middlemen, streaming platforms, and record labels. They could also create unique, limited-edition releases or experiences.

Event Ticketing: Tickets sold as NFTs could combat fraud and ticket scalping. Blockchain technology would verify the authenticity and ownership of each ticket.

Digital Identities: NFTs could be used as ownership certificates for decentralized identities and memberships. They can carry unique information about an individual, securing personal data and preventing identity theft.

Gaming: NFTs could be used to represent in-game assets, such as skins, weapons, avatars, and armor, providing new sources for monetization for game developers and rewarding the best players. With NFTs, gamers could truly own their digital assets and even carry them across different games.

As you can see, the potential for NFTs to reshape the virtual identity and asset ownership is virtually unlimited. The full potential of NFTs is yet to be unlocked, and it is an exciting space to watch in the coming years.

Are NFTs here to stay?

Despite the current market downturn, non-fungible tokens (NFTs) are poised to continue playing a significant role in the digital economy due to their uniqueness and immutability brought on by the underlying technology of blockchain and smart contracts. These technological foundations offer transparency, provenance, and decentralization, which are particularly valuable in a digital era marked by questions about authenticity and control. This means that even when the market experiences downturns, the value proposition of NFTs remains strong and relevant.

The NFT landscape is highly versatile and touches various sectors, including the gaming industry, which has enthusiastically embraced NFTs. In the gaming sector, NFTs have found a natural home, enabling players to truly own in-game assets and trade them freely. This introduction of real-world value to virtual gaming ecosystems adds an entirely new layer of engagement and economic incentive for players. Furthermore, as the technology and understanding of NFTs mature, we can expect more applications and use cases to emerge, ensuring their long-term relevance and resilience, regardless of temporary market fluctuations.