Non-fungible tokens (NFTs) have surged in popularity significantly over the past two years, growing from a small niche market to a $1 billion sector. NFT enthusiasm and sales, meanwhile, have decreased recently, and monthly NFT sales indicators reflect a continuous reduction over the recent months.
The sales of non-fungible tokens hit a twelve-month bottom in June, and they seem to have been impacted by the Bitcoin collapse. As per the cryptocurrency research firm Chainalysis, NFT sales in June were only above $1bn (£830m), which was their poorest record after the same month of the last year. During June 2021, NFT sales amounted to only $648m. In January, sales peaked at $12.6 billion.
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We will analyse this downfall in NFT sales and figure out the reasons behind the same. We will also discuss why this drop may only be temporary as the fundamentals of the NFT industry are still strong.
The Downfall of NFT Sales
So, at its height, the NFT sector attracted staggering amounts, including $2.9 million for a token of Jack Dorsey, the co-founder of Twitter’s maiden tweet. Some of the best NFTs even got a huge amount of money from the investors. A digital composition created by the digital artist Beeple went for $69 million. Coca-Cola also made over $575,000 from the sale of digitized items like a personalized jacket for the metaverse.
According to data from nonfungible.com, on September 24, 2021, the NFT community experienced 224,768 NFTs totalling $78.3 million in everyday transactions, which was a record high. On May 1, 2022, 118,577 NFTs were purchased for a total of $780.4 million, making that day the largest transaction in terms of monetary amount.
But the NFT industry had its weakest month of the year in June 2022, when there were only about 19,000 daily sales, valued at an expected value of $13.8 million.
As per Chainalysis, NFT sales surpassed $40 billion in the year 2021, and the overall figure for the year 2022 has already overtaken that amount, at much more than $42 billion. But, sales in January and February have made it for more than half of the value of NFT sales in 2022 thus far.
Reasons Behind the Decline in the Value of NFT Sales
There is no doubting, in the opinion of some market experts, that this decrease is clearly related to the more general downturn in the crypto markets. The inability of Bitcoin (BTC) to maintain its record-high pricing had a negative effect on the entire crypto industry. When compared to last November, the industry for cryptocurrencies was valued at approximately $3 trillion.
The instability in the larger financial markets, along with worries about increasing inflation and changes in the interest rates, has placed stress on the cryptocurrency industry and reduced demand for assets like tech stocks and digital assets.
The failure of Terra, a so-called stablecoin, and issues at financial firms connected to the cryptocurrency industry, like the Celsius Network, a creditor that has halted withdrawals, have cast doubt on the viability of cryptocurrency transactions.
The seeming sharp fall in enthusiasm for NFTs may have something to do with the month’s lower sales of NFTs. Google Trends reports that through May 2022, the number of searches for the topic has decreased by over 80% from its peak in January.
This trend continues, as evidenced by the fact that the quantity of active wallets in the NFT industry has also decreased dramatically, according to the data: from a peak of 119,000 in November 2021 to roughly 14,000 in May 2022, a decrease of 88 percent.
Decreasing value of Ether (ETH), a paucity of tertiary market demand, and inflated gas expenses are a few more significant variables that have a damaging effect on the euphoria surrounding NFTs. According to data from NFTGo, as a consequence, during the past three months, the NFT market value decreased by almost 40% while dropping more than 66 percent of its trading volume.
What’s Next for the NFT Industry?
Crypto innovators, such as Changpeng “CZ” Zhao, are assisting authorities in developing NFT use cases for identifying citizens despite the downfall in the transactions of NFTs in the market. In the same way, Facebook, a social media platform, revealed its plans to support NFTs for NFT artists.
With the introduction of these measures, it is expected that the NFT market will bounce back, and NFT enthusiasts will start showing their interest in purchasing NFTs again. On top of it, many traders are buying the dip at this moment, and expecting the NFT prices to bounce back.
For instance, a trader named DonAlt bought BAYC at roughly a 75 ETH floor; on May 1st 2022, BAYC reached its maximum floor value of over 150 ETH. Well-known crypto trader CBS has also revealed that he has been purchasing CryptoPunks and Otherdeed for Otherside NFTs on the decline in order to benefit from NFT floor prices.
Considering NFT NYC happening in New York, reports that Mastercard supports NFT transactions with their cards, Magic Eden garnering $130 million in a fundraising phase, and eBay purchasing NFT marketplace KnownOrigin, NFTs seem to be on the rebound.
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Also, given the potential of the metaverse, it would be far-fetched to write off NFTs due to their current sales.
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