NFTs Are Crashing and Who Could Have Seen This Coming Other Than Basically Anyone?

NFTs Are Crashing and Who Could Have Seen This Coming Other Than Basically Anyone?
A truck parked outside of Christie's in New York on May 11 displaying a CryptoPunk NFT. (Photo: Dia Dipasupil, Getty Images)

The crypto world saw a dizzying surge this year of NFTs being used to sell ownership of everything from works of online art to random tweets, though it was never clear just why NFTs were commanding such staggering prices. Bragging rights? Status symbols? Or just pure speculation driven by skyrocketing cryptocurrency prices and its attendant mythos of get-rich-quick fantasies?

The current answer to the question “What is the value of an NFT” appears to be “not much and dwindling fast.” Crypto news site Protos reported on Wednesday that NFTs peaked on May 3, when it tracked $US102 ($131) million in NFT transactions in a single day. The seven-day period surrounding the peak brought in $US170 ($218) million in transactions. But in the past week, that number collapsed to $US19.4 ($25) million in NFT sales, a 90% drop from the peak.

NFTs, or non-fungible tokens, are digital collectibles encoded onto a blockchain, the same technology that powers cryptocurrencies, creating a unique digital watermark signifying ownership of the digital rights to an asset.

While eye-popping NFT art sales drew the lion’s share of media attention, the market was and continues to be dominated by crypto-collectibles — i.e., small pixel art faces called CryptoPunks, portraits called Hashmasks, and Twerky Pepes (based on the popular frog character that has become synonymous with both imageboards like 4chan and the online far right). According to Protos, $US9.2 ($12) million in crypto-collectibles sold in the last week. “Metaverse” NFTs, such as an app that allows people to buy digital real estate, sold $US3 ($4).3 ($4) million in the last week. Sports memorabilia, such as basketball trading card-like NBA Top Shot, have also bypassed art, with $US3 ($4).16 ($4) million in sales over the same time period. Art came in behind them all at $US3 ($4) million.

Just as worryingly for the NFT market, participants appear to be reconsidering whether internet collectibles are a good use of their money:

The number of active NFT wallets has also dropped from over 12,000 at each NFT category’s daily peak to just 3,900 yesterday (nearly 70% less).

NFTs were always about speculation, and interest in both the big-ticket art items and the cheaper collectibles is fading rapidly. Sales are plummeting. The NFT bubble has popped. Whether another NFT bubble rebounds in its place may depend in part on whether the above applications sound more to you like gem mint comic books or Pokémon cards (which retain value thanks to rarity and their association with legendary brands and nostalgia) or… Beanie Babies and Franklin Mint medallions.

The ongoing Bitcoin crash certainly isn’t helping. There’s also rising attention to the disproportionate environmental costs of cryptocurrencies and NFTs, which suck up huge amounts of electricity to fuel the cryptographic algorithms that run blockchains, and crackdowns on crypto in countries like China. The downward trend in Bitcoin prices could reverse itself as it’s done innumerable times before, although the frenetic boom-and-bust cycle of cryptocurrency makes it all but impossible to guess whether NFTs will do the same or remain a flash in the pan.

In any case, you can’t say no one warned you this was rubbish.