Yes, despite the recent media uproar over whether or not Non-Fungible Tokens (NFTs) are still an active investment, even as the icy bear crypto market tries to thaw itself back into life, wealthy investors continue to buy their way into the digital art world, however, it remains more about the money than the art itself.
Against the backdrop of the FTX collapse in November 2022, leading to cryptocurrency prices to tumble even further and investors biting off more than they could handle, the tug-and-pull dragged the NFT market along with it, as “blue chip” NFT collections’ floor prices sank to their lowest point.
Once heralded as the future of digital assets, even some of the world’s most favored NFT collections couldn’t secure themselves from seeing their value being slashed.
In October 2021, CryptoPunks, an NFT collection on the Ethereum (ETH) blockchain, held a floor price of 125 ETH. By the same time last year, prices fell to less than 67 ETH. In dollar terms, we’re looking at prices going from $430,000 at its peak to roughly $114,600.
Other known NFT collections, such as the Bored Ape Yacht Club (BAYC), witnessed its floor price fall from $408,000 to $111,000 during the same recorded period.
Meanwhile, investors continue to pour hundreds of thousands if not millions of dollars into digital art collections. In November 2022, a BAYC NFT sold for 800 ETH or about $927,000 on the secondary market, indicating that although demand has slid over the last several years, the price and value of NFTs remain a sought-after investment.
However, that same BAYC NFT is now worth just under $250,000 according to more recent estimates.
As the market sees slight improvement, some speculate that investors could return in the coming months, as a looming global recession, a banking crisis, geopolitical tension, and now the U.S. debt ceiling crisis threatens to put already beaten-down markets in a chokehold.
Not Dead. Just Weakened.
Somewhat beaten down, and kicked from its once rosy pedestal, some argue that NFTs are still alive, the market has just significantly weakened over the course of several months.
According to data by DappRadar and Dune, roughly $700 million in secondary market NFT sales were made in October 2022, a steep fall from the $5.36 billion recorded in January 2022.
“Blue chip” prices of collections have dramatically declined since their peak in 2021, and the NFT market swelled to more than $25 billion in trading volume by the end of the year. This pace was kept for much of the early months of last year, but as the crypto market started seeing steady declines in the price of Ripple (XRP), Bitcoin (BTC), Ethereum (ETH), and Dogecoin (DOGE) it soon resulted in a contagion spreading to all corners of the digital assets market.
Months of decline, and scared investors fleeing the scene, in hopes of parking their cash in other secure investment vehicles meant that prices continued to tumble, and the NFT market rapidly lost steam.
It’s About Money, Not Art
Even as EFTs have fallen out of popularity among institutional investors, the focus for many that continue to buy into the market remains on the monetary value of the digital assets, not the art itself.
A 2022 report revealed that eight out of ten NFT buyers invest in these digital assets for the money, not for the art. Of those, 95% spent around $25,000 on NFTs in the last 12 months, claiming that investment returns as their key reason for purchasing NFTs.
Non-Fungible Tokens have and will always remain an investment, much like traditional art that’s sold on the global art market, instead in-house auctions have been replaced with blockchain code and online platforms where investors can now flex their digital muscles.
When it comes to NFTs, art takes the backseat, and the artist’s reputation and network buckle up as the more important deciding factor. These digital images continue to captivate the attention of investors, and even at its current price rate, which is still well above $100,000 for some “blue chip” collections, NFTs remain an investment vehicle for the wealthy and more seasoned professionals.
It Will Grow, Give It Some Time. But How Much?
Just like with other market segments that have witnessed bulging growth, amid increasing demand and widespread commercial adoption, the NFT marketplace could experience similar growth in the coming years.
We’ve seen this with many things. Green technology investment opportunities such as renewable energy and electric vehicles (EVs) now have consumers, investors, and governments at the tip of their fingertips, as demand for more sustainable technology grows on the back of countries looking to reach climate change targets halfway through the century.
Agri and biotech startups have firmly rooted themselves in regions across the world, as communities continue building towards more sustainable farming practices to ensure the improvement of agricultural activities and increase food security in corners of the world that are ravaged by poverty and affected by climate change.
The examples of this are endless, however, it doesn’t take away the fact that while NFTs might still be a relatively new addition to the digital asset market, it remains an investment that’s largely reserved for wealthier, and more established investors.
The chances of you finding a college kid, in their dorm room somewhere in the midwest, buying thousands of dollars worth of NFTs remain a phenomenon, to say the least.
While NFTs remain fairly lower priced than what they were just a couple of years ago, there’s no ulterior motive for what these investments are – digital images created and distributed on a decentralized network.
Something which many of us seem to forget is that many of the most well-known collections were only established as late as 2021, almost a full year after the start of the COVID pandemic.
Others such as CyberPunk have been around for longer since 2017, but still, that only puts three more candles on its cake than other influential collections.
The market is also dominated by only a few key players, which leaves little room for entry for younger, and less established investors to have a foot in the door. The lack of competitors and widespread ambiguity of NFTs have priced-out would-be investors, and it’s going to take another several years, perhaps a decade or two before we’ll witness better potential for NFTs in the long run.
What’s The Verdict?
Whether we want to admit it or not, NFTs are here to stay, and they might not be all the rage at the moment, as investors are scrambling across the market to cushion their wealth against further economic decline.
There is however room for it to grow, especially with the revolutionary rise of Artificial Intelligence (AI) and capable Generative AI in the last few months. Bringing these two technologies together could mean a wider entry point for newer, and younger investors, but also help solidify NFTs as a legitimate digital asset.
Against the backdrop of current conditions, it would be wise, for even the wealthiest investors to rather look at other investment opportunities, especially if you’re willing to drop hundreds of thousands on long-term investments. The market might be beaten down, and conditions seem bleak, but we’ve agreed in the past that the market remains cyclical.
Yes, NFTs provide immutability on the decentralized marketplace, but there’s still no real-world application for it, and for investors looking for better returns, and something that’s not so easily impacted by the crypto market, it’s perhaps safer to play outside of the digital marketplace, for now at least until conditions have slightly improved.
