What a wild year it’s been for NFTs. Just a short while ago, it seemed everyone was going bananas for these so-called “digital treasures.” If only those early investors had access to a crystal ball. In the past twelve months, the NFT market has taken a nosedive. What happened? How did we go from skyrocketing sales to a catastrophic slump – one which the market is unlikely to ever recover from? Let’s dig into the details of the failure of NFTs and explore the reasons behind their fall from grace.
The Hype Train Hits a Wall
When the NFT hype train ran, it ran at full throttle. Celebrities were slapping their names on digital art, virtual cats were fetching astronomical prices, and it seemed like every tweet was turning into a digital collectable. Even Jack, the former owner of Twitter, managed to sell his first tweet as an NFT for just under three million dollars. (Note: it lost 99% of its value almost immediately after the sale and has never regained any of that value). The frenzy reached a peak, and as any good trader knows, what goes up must come down. The problem with the NFT market is that there weren’t many – if any – good traders involved in it. The overblown hype created an unsustainable bubble, and when it burst, the market felt the impact.
When NFTs first burst onto the scene, they were a novelty—a shiny new toy that caught everyone’s attention, even if the people whose attention they caught didn’t truly understand the concept. As more and more artists, creators, and even random internet users jumped on the NFT bandwagon, the market became oversaturated. With countless new NFTs flooding the market daily, collectors grew overwhelmed, and the demand couldn’t keep up with the supply. When even the disgraced former US President Donald Trump is selling NFTs, it’s probably time to accept that too many cooks are involved in this particular broth, and it’s been well and truly spoiled.
In the world of NFTs, originality is the name of the game. But unfortunately, some opportunistic individuals decided to play copycat and churned out knockoff NFTs. From rehashing existing digital art to plagiarising popular creations, these copycats diluted the value and trust in the market. Collectors became wary, questioning the authenticity and uniqueness of the NFTs they purchased, leading to a loss of confidence.
Lack of knowledge didn’t help much in this respect, as many buyers believed they were buying the digital art/piece of music/another asset itself rather than an entry on the blockchain that pointed at said piece of digital art. In the end, a lot of NFT owners unsuccessfully attempted to sue people who copied their NFTs because they thought they owned the image when in fact, they did not.
Environmental Concerns Emerge
As the world became more conscious of environmental issues, the NFT market faced mounting criticism for its carbon footprint. The blockchain technology underpinning NFTs, especially Ethereum, requires substantial energy consumption. Critics argued that the environmental impact of minting and trading NFTs outweighed their value, causing ethical concerns among collectors and artists alike. Musicians who once published new tracks as NFTs were persuaded to desist from doing so by their own fans. Artists who once spoke about NFTs as the future of art suddenly fell silent. If we can insert a single sentence in defence of NFTs here, it’s that the environmental issue isn’t exclusive to NFTs – it’s also a major concern with cryptocurrency and blockchain technology in general.
The Curse of Speculation
In any investment craze, speculation can take the wheel and steer things off course. The rapid rise in NFT prices attracted speculative investors looking to make a quick buck. When the market peaked, and the prices plummeted, these investors jumped ship, exacerbating the downward spiral. Speculation massively inflated the intrinsic value of NFTs, turning them into mere assets for financial gain rather than appreciation of the art they were supposed to represent.
That takes us back to the reason that people invest in intangible assets in the first place – to make money. Investors appreciate that all investments come with risk, but most of them are fine with that so long as the risk is manageable and there’s a possibility of making a return. Think of PlayOJO. It’s one of the most popular online casinos in the world, and people play at it every day in the full knowledge they could lose their money. However, if players felt like they were guaranteed to lose at PlayOJO, they’d never play there or at any of the PlayOJO sister sites; they’d look for somewhere else to gamble instead. That’s exactly how investors feel about NFTs at the moment – there’s no prospect of a reward big enough to justify the risk.
Lack of Tangible Utility
So – you decided to spend thousands of pounds on a JPEG of an ape. What’s your next move? While NFTs promised unique ownership of digital assets, their real-world use was always questionable. Beyond boasting digital bragging rights, NFTs struggled to provide tangible benefits or meaningful experiences for their owners. Some analysts argue that the novelty of NFT ownership has worn off, leaving collectors with digital tokens that lack practical applications, leading to decreased interest and value. It’s never been clear how, after being minted, an NFT might gain value – investors and the people who made NFTs just insisted that they somehow would. As it turns out, they were wrong. Some of them might even have known that from the start.
Market Maturity and Learning Curves
Whether the past twelve months had gone well or gone badly, it wouldn’t change the fact that the NFT market is still in its infancy. Many collectors and artists were swept up in the hype without fully understanding the dynamics or long-term implications. The market lacked (and still lacks) proper regulations, and scams and fraudulent activities are still commonplace. As the dust settles, participants might eventually realise the importance of due diligence, proper valuation, and responsible participation. Sadly, a lot of buyers only come to that realisation after they’ve been “rug pulled.”
Recently, we’ve seen a new range of digital art products enter the marketplace that look like NFTs, sound like NFTs and have NFT-like properties but aren’t called NFTs. We might already have reached the stage where there’s such a stink around the three letters “NFT” that it’s impossible to redeem their reputation, hence the rebranding exercise. Has the blockchain and digital investment market learned anything from the madness of the past twelve months? We’ll only know for sure when the “next big thing” comes along and the hype train picks up steam yet again.