What happened to NFTs?

Brian McGleenon

The allure of non-fungible tokens (NFTs) that once captivated the cryptocurrency sector has rapidly faded. But why?

NFTs burst onto the cryptocurrency scene in 2021, with Bored Ape Yacht Club (BAYC) and the CryptoPunks series prominent successful examples.

At one time, iterations of these digital artworks were fetching prices in the millions of pounds, but now these NFT series change hands for tens of thousands instead.

2021 saw a multitude of high-profile NFT transactions, peaking in March when an artist named Beeple sold an NFT for a record-breaking $69m (£53m) at a Christie’s auction. Then, in December 2021, a web3 artist named Pak dethroned Beeple with his NFT, Merge, which sold for $91.8m.

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NFTs are unique assets that represent ownership of a specific digital item or piece of content, usually a JPEG of a piece of digital artwork. They reside on blockchains, which are decentralised digital ledgers powering major cryptocurrencies, such as bitcoin (BTC-USD) and ethereum (ETH-USD).

By 2022, however, the NFT bubble was beginning to burst, with NFT trading volumes falling over 97% from January to September of that year, decreasing from $17bn in trading volume in January 2022 to $470m by September 2022, according to Dune Analytics.

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To illustrate the scale of the collapse in the NFT market, monthly artwork NFT sales peaked at over 117,000 in August 2021, but have since fallen by over 98% to 1,764 for the month of June 2024, according to Statista data.

NFTs owned by social media influencers and celebrities that began life as valuable digital collectables have since plunged in price.

In June 2021, for example, rapper Eminem bought the Bored Ape 9055 NFT, which features a hat that the rapper often wears, a large chain and a gold jacket. Eminem paid 123.45 in ether for the NFT in the same month. At the time, the purchase cost around $300,000.

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However, the Bored Ape Yacht Club NFT collection currently has a floor price of around 12 ether, which is around $37,000. Although the unique traits of Eminem's Bored Ape mean that it could be worth more than the average BAYC NFT.

The NFT market's crash can be attributed to several key factors, with market saturation playing a significant role.

During the 2021 NFT boom, the number of web3 projects skyrocketed, with more than 1.5 million NFTs traded in a single month.

This surge led to an overwhelming supply of NFTs, far exceeding the demand from collectors. The proliferation of various types of NFTs, from music to gaming assets and visual artworks across multiple blockchains, further contributed to the saturation, ultimately cooling the market.

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Additionally, the market suffered from rampant scams and fraud. An influx of unregulated investment, hackers and scammers quickly exploited the space, leading to significant losses for many investors.

Moreover, the collapse of major crypto platforms, like FTX and the Terra blockchain, shook investor confidence. These systemic failures, coupled with the broader economic impact of the COVID-19 pandemic and rising inflation, shifted investor priorities and spending habits, contributing to the overall decline of the NFT market.

Currently, the NFT market remains active but operates at a much smaller scale compared to its peak in 2021. According to Statista data, the former premier NFT marketplace, OpenSea, had a trading volume in March 2024 that was lower than that of new competitor, Blur.

But trading volume on this marketplace is also falling lower, daily transaction activity on 10 July for the marketplace was only $1.15m, significantly lower than the average daily trading volume on the marketplace in the previous month of around $15m, according to DappRadar data.

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