Buckle up for a long, wild ride in the NFT market

Twelve months and a massive NFT boom later, here we are again.

As Fortune, the Financial Times, and several other media outlets have detailed this month, NFT sales are taking a nosedive after a blockbuster second half of 2021, raising new worries about the potential for a bubble. NFTs are unique digital assets, such as artwork and pieces of media, that can be bought and sold in an online marketplace, with ownership tracked on the publicly available blockchain.

The FinancialTimes noted that the average NFT sale price fell from roughly $5,000 at a peak last November to $2,500 in early March. Meanwhile, trading volumes on the largest NFT marketplace, OpenSea, tumbled from about $250 million in February to $50 million in March.

The NFT recession coincides with several economic and geopolitical developments stunting markets across the globe: the war in Ukraine, global inflation, looming interest rate hikes in the U.S., among others. 

Nevertheless, a rash of rough NFT news, including the proliferation of fraudulently minted tokens and a concurrent decline in cryptocurrency values, is putting the buzzy technology back under the microscope. While some earlier investors turned huge profits off NFTs—the New York Timesprofiled several of them over the weekend—others continue to warn that they reek of a marketing scheme.

The NFT decline will naturally prompt predictions about the short- and long-term prospects of the product, which exploded from a niche curiosity to a $40 billion–plus market in 2021. 

At this point, however, it feels far too early to declare NFTs dead or forecast a late 2021-style comeback. Rather, the latest NFT collapse offers a chance to reflect on the relative youthfulness and long-warned volatility of the market.

As the folks at NonFungible.com, a market research firm, wrote last week in their annual report on NFTs, the industry is “both more mature and more immature than ever.” While the NFT marketplace continues to evolve and move into the mainstream, it’s also struggling to manage the hype and corral scammers.

“At the end of 2021, we are up against a market that was more than ever subjected to excessive speculation, with new, inexperienced buyers and risk-taking increasingly less restrained,” the report’s authors wrote. “Throw into the mix an almost infinite proliferation of projects with relatively low added value, contributing to market saturation and raising suspicion about the real added value and potential of NFTs.”

As a result, the NFT market was bound to experience wild swings, including a significant post-2021 correction, three blockchain portfolio managers and entrepreneurs told Blockworks earlier this month. 

“[NFT] prices are a bit crazy, so we are in [a] kind of bubble and frothy stage of the market,” said Stephen Young, founder and CEO of marketplace NFTfi. 

By now, there’s too much public interest and equity invested in the future of NFTs for the market to completely collapse. Corporations and venture capitalists are pouring hundreds of millions of dollars into their development. Just last week, the creators of the trendy Bored Ape Yacht Club tokens acquired the CryptoPunks and Meebits collections for an undisclosed sum that, based on recent sales figures, likely exceeds $100 million.

But while last spring’s Bloomberg piece questioning whether NFTs were fading proved off base, an assessment made at the time by Chris Wilmer, an associate professor of chemical engineering at the University of Pittsburgh and cofounder of the crypto-centered academic journal Ledger, still holds up.

“It’s not meaningful to characterize a concept as a financial bubble,” Wilmer told Bloomberg in April 2021. “NFTs aren’t in a bubble any more than cryptocurrency is a bubble. There will be manias and irrational exuberance, but cryptocurrency is clearly here to stay with us for the long term, and NFTs probably are, too.”

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Jacob Carpenter

NEWSWORTHY

Lockdown headaches return. Chinese officials ordered the citywide, weeklong lockdown of a major tech hub Sunday owing to rising COVID-19 cases, putting more strain on global supply chains. The shutdown in the city of Shenzhen includes a pause on work at two factories operated by Foxconn, Apple’s most prolific iPhone manufacturer. The city, home to Chinese tech giants Huawei and Tencent, also serves as a major port and trade center for the tech industry.

Time to pay up?Tencent faces a potentially record-setting fine from Chinese regulators after Beijing investigators discovered violations of anti–money-laundering rules and financial compliance issues, the Wall Street Journal reported Monday, citing sources familiar with the matter. The violations and lapses on Tencent’s WeChat Pay mobile application allowed users to transfer money gained through illegal means in China, such as gambling, sources told the Journal. Chinese officials, who are in the second year of a broad crackdown on the technology sector’s power, have not yet decided how much to fine Tencent.

Gone in an instant. Fresh off their decision to ban Facebook and Twitter, Russian officials made good Monday on their threat to cut off access to Instagram within their country. The decision followed a move Friday by Russian officials to label Facebook and Instagram parent Meta as an extremist organization, a response to the company’s allowance of calls for violence against the Russian military on its social media platforms. Instagram head Adam Mosseri said about 80 million Russians use Instagram, making it one of the country’s most popular apps.

On the retreat. Meta largely backtracked Sunday on a set of temporary rules that allowed residents of 12 Eastern European and Western Asian countries to post some calls for violence related to Russia’s invasion of Ukraine on Facebook and Instagram, Bloomberg reported. Meta’s president of global affairs, Nick Clegg, told employees in an internal memo that Facebook and Instagram users cannot post generic calls for the death of Russian President Vladimir Putin, a reversal of guidance issued late last week. Clegg also said the relaxed rules, which still allow for broad incitements of violence against Russia’s military, now only apply to users in Ukraine.

FOOD FOR THOUGHT

Hope it doesn’t go to spam. Necessity truly is the mother of invention. As Russian President Vladimir Putin continues his assault on internet access to his citizens, a group of Polish programmers created a website that lets anyone send anti-Kremlin texts and emails to Russian residents. The developers hope the messages will counter pro-Putin propaganda and give Russian citizens more information about the unjustified invasion of Ukraine. The programmers said they have access to about 20 million cell phone numbers and 140 million email addresses.

From the article: 

Since it was launched on March 6, thousands of people across the globe, including many in the U.S., have used the site to send millions of messages in Russian, footage from the war, or images of Western media coverage documenting Russia’s assault on civilians, according to Squad303, as the group that wrote the tool calls itself.

The initiative is one among a number of efforts, mainly by Western media organizations and governments, that are trying to puncture the tight controls Mr. Putin’s government has imposed within Russia on reporting about the conflict, which Russian media are banned from describing as a war.

IN CASE YOU MISSED IT

War censorship exposes Putin’s leaky internet controls, by Frank Bajak, Barbara Ortutay, and the Associated Press

Open or closed? A key battle over the metaverse is underway that will decide the buzzy technology’s future, by Karyn Gorman

Meet the real estate mogul of the metaverse, who has already spent millions and plans to profit from rent and billboards, Marco Quiroz-Gutierrez

Bored Ape Yacht Club creators buy up rival token collections to become an even bigger NFT powerhouse, by Olga Kharif and Bloomberg

Uber adds fuel surcharge to help drivers with high gas prices, by Jackie Davalos and Bloomberg

Anonymous hacks into Russia’s top censorship agency to reveal the truth and undermine Putin, by Carmela Chirinos

BEFORE YOU GO

How the other 99.9% live. Time to break out the Tide, Meta employees. The company, one of several Silicon Valley giants known for offering lavishly convenient perks to staffers, is cutting back on free laundry services and gratis dinner offerings as employees return to offices in the coming weeks, the New York Times reports. Meta officials said the moves represent a reallocation of resources in anticipation of staffers splitting more work hours between corporate offices and their homes. Not all is lost for Metamates, however. The company boosted its wellness stipend from $700 to $3,000.