September 28, 2022
If your 401k looks like something out of a Spaghetti Western, just be glad it’s not filled with NFTs.
Bloomberg, citing data from Dune Analytics, reported Wednesday that non-fungible token trading in September has returned to pre-bubble levels, with monthly volume falling 97% from a January peak. Barring a wholly unexpected last-minute rush of sales, NFT trading volume will land around $500 million in September, a 15-month low. (NFTs, as a reminder, are unique digital assets recorded on a blockchain.)
It’s not all horrendous news for NFT owners. Most NFT sellers in the past 30 days still turned a profit on their digital assets, according to NFTGo data. Many others are holding on for dear, dear life, hoping to ride out the crash.
But the barren demand for NFTs shows few signs of returning to its early 2022 heyday, when unrestrained hype and frothy global markets turned Bored Ape and CryptoPunks into a peculiar phenomenon.
So where does the NFT ecosystem go from here?
It’s a question that blockchain bulls are increasingly having to answer following the disintegration of NFT values. And unfortunately for owners of NFT collectibles, which drove much of the recent craze, the most common responses focus on commerce over art.
Take Vitalik Buterin, the cofounder of the Ethereum blockchain and a semi-skeptic of this year’s NFT madness. In an interview with WIRED published this week, the 28-year-old wunderkind predicted that the NFT ecosystem will gravitate more toward utilitarianism over market-driven enthusiasm. As an example, Buterin cited the popularity of Ethereum Name Service domains, which allow users to convert long blockchain addresses into simple names that can be bought, sold, and traded.
“I think the NFTs that are going to be sustainable are the NFTs that are going to be useful,” Buterin said. “In the beginning stages, there is tradable art and cat pictures, and a lot of that stuff really has cratered. For an NFT to have lasting value there needs to be some benefit of holding it other than just being able to say that you hold it.”
A quartet of partners at Bain & Company, which consults with companies on digital asset strategy, similarly sees practical applications for NFTs. In a commentary published earlier this month in Fortune, the four partners wrote that event tickets, rewards programs, and redeemable items could soon become digital assets on a blockchain.
“Set aside the wild spending on JPEGs of art, sports, and entertainment for a bit, as well as the recent crash in cryptocurrency prices,” the authors wrote. “More relevant and promising for consumer businesses are the underlying technologies. NFTs provide an ideal set of capabilities to reimagine how companies engage their customers, not only in rewards and loyalty programs but also in other creative ways.”
Big-dollar investors, meanwhile, remain bullish on the long-term prospects of NFTs mixing well with business.
Despite the collapse of NFT trading volume and cryptocurrency prices, venture capital funding for NFTs and NFT-driven gaming (in which players are rewarded with digital assets) hasn’t completely evaporated. In the three-month period ending in August, investors pumped an monthly average of roughly $625 million into NFT and gaming ventures, according to The Block Research. In the previous nine months, the average investment totaled just shy of $1 billion.
“For venture capital firms investing in digital-asset startups, NFTs are a gateway to broader mainstream usage of crypto,” Bloomberg reporter Hannah Miller wrote last week. “Games involving these tokens are often fun, low-stakes ways to introduce people to blockchain. The widespread success of one could ultimately legitimize and popularize NFTs to the point where they find a firmer real-world presence and represent things like airline tickets, house deeds or music singles.”
Could demand for the NFT collectibles market rebound? Sure. Such is the nature of highly cyclical markets driven by tastes and trends.
In the meantime, the best case for widespread acceptance of NFTs looks more practical and businesslike than ever. Making money, after all, never goes out of style.
Want to send thoughts or suggestions for Data Sheet? Drop me a line here.