The bigger they are, the harder they fall.
It seems, this idiom is apt to illustrate the condition of the Non-Fungible Token (NFT) market.
NFT market reached its peak in 2021/2022. In August 2021, monthly trading volume for NFTs was almost US$2.8 million. Since then, millions of people have gained an interest in NFT, including those from Indonesia. In early 2022, Sultan Gustaf AL Ghozali became viral for getting IDR1.5 trillions by selling his selfies in OpenSea.
At the time, COO Tokocrypto, Teguh Kurniawan Harmanda told CNBC Indonesia that there are three things that can bolster the value of NFTs: rarity, stories behind the NFT, and limited numbers of NFTs. In Ghozali’s case, the reason why his selfies became valuable is because he has taken and sold his selfie for the past five years. Thus, it is believed that there is a story behind every selfie he took and sold.
Ghozali is not the only person who managed to get rich by dabbling in NFT. In Indonesia, Si Juki: Lost in Jukiverse has managed to be sold for 330 ETH or IDR8,3 billion while 6,969 assets in Mindblowon Universe was sold for ETH4,564 or IDR115,3 billion.
On a global level, The Merge has become the most expensive NFT project, with the value of US$91.8 million and more than 28,000 collectors. Meanwhile, Everydays: The First 5000 Days has become the most expensive NFT that was bought by a person, with the price of US$69.3 million.
And now, winter is coming for the NFT community.
Death of NFT
Recent study by dappGambl shows that as of now, the value of thousands of NFT collections has dropped to zero. Using data from NFT Scan and CoinMarketCap, dappGambl made a report titled “95% of NFTs are Dead”. To make that report, they analyzed 73,257 NFT collections. And they found out that around 95% — or 69,795 NFT collections — had a market cap of ETH0. At some point, over 23 million people bought those NFT collections as investments. And now, their assets value has dissolved into nothing.
“This highlights the incredibly high-risk nature of the NFT market and underscores the need for careful due diligence before making any purchases, especially ones of high-value,” wrote the researchers. “This daunting reality should serve as a sobering check on the euphoria that has often surrounded the NFT space. Amid stories of digital art pieces selling for millions and overnight success stories, it is easy to overlook the fact that the market is fraught with pitfalls and potential losses.”
Aside from the drop in value of the vast majority of NFT collections, this report also shows NFT market has an oversupply problem. Because, only 21% of NFT collections have 100% ownership, while the other 79% of NFT collections are still unsold. This situation is completely different from 2021/2022, where some of the most expensive NFTs got sold.
Because the supply of NFT far surpasses the demand, dappGamble believes, this is why potential buyers are becoming more careful in choosing which NFT they want to buy.
“It is a stark reminder that, while the NFT space has introduced a revolutionary new model for ownership and the monetization of digital assets, it remains a highly speculative and volatile market,” said the researchers. “As such, both creators and investors should approach with caution, a clear strategy, and a thorough understanding of the risks involved.”
How the Community Reacts
The report from dappGambl garners polarizing responses from the NFT community. Some agree that most NFTs have lost their values. Even so, there are also some who still believe that the NFT market will recover in the future.
The news about the NFT market crashing was on the mainstream media, such as Rolling Stone. In Indonesia, CNBC Indonesia and DetikInet were two big media that covered the news. But for some members of the NFT community, this is not a good enough reason to believe in the validity of the news.
If anything, a few people think that this shows the hypocrisy of mainstream media, with Rolling Stone as an example. Because, even though Rolling Stone now made an article about the death of NFT, in late 2021, the media actually promoted NFT made by Bored Ape Yacht Club (BAYC).
“More important than precise trading dynamics is what the post shows about how the mainstream media tends to work. Publications search for extremes, absolute highs and lows that make for arresting headlines,” wrote Ben Schiller, Managing Editor of CoinDesk in an Opinion article.
In his Opinion piece, Schiller also said that while 95% of NFT collections have become worthless, the other 5% is still worth something. Though, based on the report of dappGambl, out of 8,850 NFT collections they analyzed, 41% have the price range of US$5-US$100. And the percentage of NFT collections whose value is above US$6,000 is less than 1%.
He also compared NFT to Bitcoin. Before, Bitcoin was reported to be “dead”. Yet, Bitcoin is still here.
Meanwhile, as pointed out by CoinTelegraph, a member of the NFT community made a tweet, saying that the reverse of what the mainstream media is reporting tends to happen. While another believes that this is the time to buy NFT.
When a new technology emerges, there will always be people who become early adopters, and sometimes, they will win big. Let’s use Bitcoin as an example because it is similar to NFT in the way that it is a “high-risk, high-reward” investment. In May 2010, Laszlo Hanyecz paid Jeremy Sturdivant 10,000 Bitcoins to get pizzas delivered to his home. Now, 10,000 Bitcoins are equivalent to US$274.87 million. Forget about pizzas; you can buy supercars with that money. Imagine where you would be now if only you had bought Bitcoin before it became popular.
Being an early adopter of Bitcoin is no different from winning a lottery. That’s why, to some extent, I can understand why so many people flocked to NFTs. These past few years, NFTs were believed to be the Next Big Thing. And if there is a chance—no matter how small—that NFTs will become another Bitcoin, who would not be tempted to join the community?
Yet, I also cannot turn a blind eye to all the negativity surrounding NFTs: the scams, the minting of art without the creators’ permission, and the environmental impact. Take a look at CryptoZoo, an NFT project from Logan Paul. In August 2021, Paul announced his NFT project, promising that CryptoZoo would be a fun game where players could also earn money. In the end, that project turned out to be a scam, and what did the early investors of that project get? Nothing. The game was not even finished.
In the end, there will always be pros and cons to something new, and NFTs are no exception. But if you decide to dabble in an investment that is highly speculative, I implore you to do your due diligence. Even a venture capital firm as big as Sequoia can make a mistake. It invested a total of US$213.5 million in FTX and FTX US.
Fortunately, giant corporations can take a hit; they will not go under just because they lose some million dollars. Unfortunately, that is not the case for us, common people. If a person invests their whole pension fund in a high-risk, high-reward investment like cryptoassets, and that investment turns out to be a bust, then they will have no other choice but to start over again.
Source for header image: Pixabay