Crypto verse: The fire of the NFT
By Elizabeth Howcroft
(Reuters) – The NFT dream is not dead, but it has taken a major non-fungal beating.
The market shone brightly last year when crypto-rich speculators spent billions of dollars on risky assets, pumping up prices and profits. Now, six months into 2022, it looks ugly.
Monthly sales volume in the largest NFT marketplace, OpenSea, plunged to $ 700 million in June, down from $ 2.6 billion in May and far from the January peak of almost $ 5 billion.
At the end of June, average NFT sales fell to $ 412, from $ 1,754 at the end of April, according to NonFungible.com, which tracks sales on the Ethereum and Ronin blockchains.
“The crypto bear market has definitely had an impact on the NFT site,” said Gauthier Zuppinger, co-founder of NonFungible.com.
“We’ve seen so much speculation, so much hype around this type of asset,” he added. “Now we see a kind of decline just because people realize they do not want to become millionaires in two days.”
The NFT market has collapsed along with cryptocurrencies, which are commonly used to pay for assets, at a time when central banks have raised interest rates to combat inflation, and risk appetite has waned.
Bitcoin lost around 57% during the six months of the year, while ether has fallen 71%.
DIP OR DEAD SPIRAL?
For critics, the crash confirms the madness of buying such assets, tradable blockchain-based records linked to digital files such as photos or videos, often works of art.
The Malaysian businessman who bought an NFT of Jack Dorsey’s first tweet for $ 2.5 million last year struggled to get a bid of more than a few thousand dollars when he tried to sell it again in April.
But Benoit Bosc, global product manager at the crypto-trading company GSR, sees the downturn as the perfect time to build an NFT collection for businesses – the crypto equivalent of the fine art that traditional banks display to impress customers.
Last month, GSR spent $ 500,000 on NFTs from what Bosc calls “blue-chip” collections – those with large online fan bases.
His purchases include an NFT from the Bored Ape Yacht Club, a set of 10,000 cartoon monkeys created by the American company Yuga Labs and promoted by the likes of Paris Hilton and Jimmy Fallon.
This is the hype surrounding Bored Apes that Yuga Labs raised $ 285 million in April by selling tokens that it says can be exchanged for land in a virtual world with a Bored Apes theme that it has not yet launched.
Still, the average selling price of a Bored Ape fell to around $ 110,000 in June, after halving since the peak in January of $ 238,000, according to market tracker CryptoSlam.
In his New York office, Bosc set up three screens to display his NFTs, which include various pixelated characters and a Bored Monkey purchased for $ 125,000.
“For us, it’s also a branding exercise,” Bosc said. Owning a valuable NFT and using it as a profile picture on social media is a way to establish “respectability, authority and influence” in the cryptosphere, he said.
THE GAME IS OVER? PLAYED ON?
Nevertheless, the future of NFTs is markedly uncertain, as the era of low interest rates that encouraged investors to take risky bets is coming to an end.
Some market monitors say that the influence of NFTs in the art market will shrink. Meanwhile, although the much-hyped vision of a blockchain-based metaverse has not yet materialized, enthusiasts expect NFTs to shake up the gaming industry, for example by letting players own assets in the game as avatar skins.
“Everyone thinks gaming is going to be the next big thing in blockchain,” said Modesta Masoit, chief financial officer at blockchain tracker DappRadar.
However, this risky combination of gambling and financial speculation may present difficulties. Most players prefer games that do not include NFTs or “play-to-earn” components, according to John Egan, CEO of technology research firm L’Atelier.
Although the groundbreaking new crypto-regulations agreed by the EU last week largely excluded NFTs, Spain separately seeks to limit the way video games sell virtual assets for real money.
Meanwhile, the largest NFT-based game, Axie Infinity, has seen its token in the game collapse to less than half a cent, down from a peak of 36 cents last year.
For L’Ateliers Egan, it is unlikely that the NFT market will recover in its current form.
“Ultimately, there is a situation where extraordinary amounts of money are paid for extraordinarily limited assets that do not really produce any cash flow,” he said.
But the underlying concept of creating unique digital assets remains “fundamentally important” and will have “massive applications” for the financial sector in the future, he said.
(Reporting by Elizabeth Howcroft; Editing by Pravin Char)
