The current state of the NFT markets

The non-fungible token (NFT) craze has taken the cryptocurrency industry by storm in 2021, which has spawned a staggering number of NFT projects in the process. The majority of these collections are now experiencing the first bear market; has the bubble burst and the hype is over?

As after the “ICO craze” during 2017/18, the vast majority of NFT projects have already retreated to their own bear market during the year. 2021 ended with low liquidity, low volumes and bottom prices approaching zero for many collections. However, the so-called blue-chip NFTs managed to maintain their strong communities, create more partnerships and encourage potential buyers to get involved in the project. An overview of the market situation.

Different behavior than fungible tokens

In financial markets and crypto markets, we usually talk about a bear market or a bull market. A bear market refers to sustained price declines, while prices generally rise in a bull market. Bitcoin and Ether peaked in November 2021 with constant declines in price and volume ever since; a bear market by definition. The NFT markets were hardly impressed. increasing Minimum prices and NFT trading volumes argued for a decoupling from the financial cycles in the overall market.

Aggregate trading volumes in the largest NFT marketplaces / Source: CryptoSlam

Many market participants explain the mysterious pricing behavior of the various end users that NFTs address. Since cryptocurrencies have economic consequences in themselves, the societies around fungible tokens like bitcoin and ether are usually very similar. Negotiable profile and collection images in the form of NFTs managed to reach a target group in addition to the economically savvy investors. Due to the deeper overlap of these societies, prices also proved to be relatively robust.

Blue chips remain strong

At the start of the bear market, some established NFT collections were able to hold their dollar value and even appreciate in ether. The currently most popular project, Bored Ape Yacht Club (BAYC), registered only a moderate price drop on the one hand, on the other hand, the number of owners is constantly increasing. With a series limited to 10,000 pieces, distribution to 6,462 owners is an indication of good diversification of the project.

Different charts for Bored Ape Yacht Club (BAYC) / Source: CryptoSlam

However, “Blue chips” in the area also had to accept some price losses. Prices measured in ether often hide higher declines, which must be seen in relation to the price movements on ether. Because the minimum price of a Bored Apes dropped from 150 to 95 Ether (-37%), but in US dollars the collection was about 67% off at the highest level ever. The previously coveted Crypto Punks (-80%), Meebits (-63%) and Azukis (-82%) performed similarly; well comparable to the fall of various altcoins.

NFTs: come to stay?

The state of the NFT markets shows strong similarities with the initial coin offerings (ICOs) from the 2017/18 era. The benefits of the underlying technology are undeniable. From tokenized works of art to digital identities to NFT pieces of music, the uses of non-fungible tokens are diverse. But over the past year, it has also become clear that the market, like other assets, has overheated and that sustainability has often been left out.

As in the ICO bubble, speculation took over. Dozens of new projects popped up daily, diluting the rest of the market while scammers raised millions. Fundamentals became irrelevant and the sole purpose of buying an NFT was to turn it around at a higher price. In a general crypto winter, these practices are likely to gradually disappear. Since some projects from the ICO craze delivered solid products years later (Aave, Filecoin and Chainlink to name a few), there will also be survivors from the first NFT bear market. It is still unknown if these are actually the most traded collections today.

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