Has the digital collectibles obsession peaked with the massive NFT sell-off?

The value of digital tokens has dropped by nearly 50%, raising new concerns about the market's euphoria.

Internet collectibles ranging from cartoon apes to artsy drawings have plummeted in value as real-world violence and a larger cryptocurrency slump start to unwind one of the year's largest speculative frenzies.

Non-fungible tokens burst into mainstream culture last year, as the prices of several animal collections, including Bored Ape Yacht Club, Cool Cats, and Pudgy Penguins, skyrocketed due to celebrity endorsements and social media hype. Nearly $41 billion had been spent on NFTs by the end of 2021, making the sector almost as valuable as the global art market.

However, substantial areas of the market have begun to erode nearly as quickly, leaving beginner investors with large losses and increasing concerns about the long-term future for NFTs.

According to data from the website NonFungible, the average selling price of an NFT has declined more than 48% since a November peak to roughly $2,500 in the last two weeks.

Daily trading volumes on OpenSea, the largest NFT marketplace, fell by 80% to around $50 million in March, just a month after reaching a record high of $248 million in February.

Column chart of Daily volume ($mn) showing Trading on OpenSea in decline

Meanwhile, according to NonFungible, the number of accounts buying and trading NFTs on a weekly basis has dropped to around 194,000. Last November, the number of accounts reached a high of 380,000.

By the end of last year, "there was a general sense of saturation in certain parts of the market, particularly in primate-themed profile pictures," according to Nadya Ivanova, chief operating officer at L'Atelier, a trend-forecasting unit of French bank BNP Paribas.

"I believe that many will be wounded and burned by this market and may never touch NFTs again," stated a 19-year-old investor in a Telegram messaging group with over 1,000 members discussing NFTs. Other members joked that they would be subsisting on rice, oatmeal, and grass for the next month.

According to a Financial Times OpenSea research, the average price of a Bored Ape NFT, a collection owned by celebrities such as Gwyneth Paltrow and Snoop Dogg, has dropped 44% since the Ukraine war began, as investors retreat from trading colorful cartoons.

Billboards in New York’s Times Square advertise Cool Cats
Billboards in New York’s Times Square advertise Cool Cats, one of several animal collections that spiked in price, aided by celebrity endorsements and social media hype © Noam Galai/Getty

Bitwise's "blue-chip" NFT index has dropped 25% in the last month, bringing its year-to-date loss to 17.1%. As of this week, Bored Apes and CryptoPunks, two of the most popular and highly valued collections, accounted for more than 60% of the index.

NFTs represent one-of-a-kind ownership rights in a diverse universe of online goods such as works of art, digital trading cards, and gaming items hosted on the blockchain, which is a digital record that underpins cryptocurrencies such as ethereum. Last year, the market went into overdrive due to the increasing popularity of NFTs with so-called PFPs, or profile photographs.

The market's retreat has been mirrored by a larger sell-off in Ether, the major cryptocurrency used to purchase NFTs, which has plunged more than 40% from its all-time high in November. Many initiatives in decentralized finance and other fields linked to ethereum have also seen their value collapse.

Despite the recent sell-off, some analysts say it is too early to declare a market peak in a market that has attracted a torrent of venture money and given rise to many billion-dollar companies, like OpenSea and NFT creators Dapper Labs and Sorare.

CryptoPunk tokens on display in New York last year
CryptoPunks tokens on display in New York. Last month, the owner of more than 100 of the tokens with an estimated value of up to $30mn pulled them from an auction at Sotheby’s © Alexi Rosenfeld/Getty

"The number of purchasers continues to outnumber the number of sellers," said BNP Paribas' Ivanova. "We are not on the verge of a bubble bust."

Several prominent collectors stated that they had no intention of slowing down their acquisitions and saw NFTs as a crucial technology for a new vision of the web organized by cryptocurrency.

"With so much noise and scams in the NFT field, this crypto winter allows the sector time to build technology that works and educate," said Fanny Lakoubay, a cryptocurrency art and NFT adviser. "This industry is still in its early stages."

Some collectors believe the market is separating into relatively steady "blue-chip" NFTs and more common or speculative ventures with limited worth beyond trading.

One Discord user, Lurmley, stated that they purchased a Cool Cat last weekend when the average price on OpenSea had dropped from 17 ether at the end of January to less than 8 ether — worth more than $20,000 today — believing that the collection would be one of the few to survive the current shakeout.

According to Aleksander Larsen, chief operating officer of the game's producer Sky Mavis, the value of rare Origin and Mystic digital monsters in the popular computer game Axie Infinity has "remained stable" even though the entry price for common Axies has dropped from $300 to $25.

Flamingo DAO, a cryptocurrency enthusiast collective that owns over 4,000 NFTs, recently added significant investors as new members, including the Los Angeles-based private equity company The Chernin Group, valuing the two-year-old organization at approximately $1 billion.

While the market has been damaged by the sell-off, Flamingo's portfolio "hasn't moved that much in terms of value," according to Aaron Wright, a member who helped build the DAO. He claims that instead of slowing down purchases, the gang has accelerated them.

Cracks have begun to appear in the high-end NFT sector as well. Last month, the owner of more than 100 CryptoPunks with an estimated worth of $20 million to $30 million abruptly pulled the lot from a Sotheby's auction. The owner stated that he decided to "hodl," which is cryptocurrency slang for holding an investment for the long term.

"Is this a brief respite before a comeback in a month or two?" "I suspect so," said Mark Chrystal, the founder of the Bored Capital Club, a group that invests in bored apes. "I don't think we're at the end of the NFT market, but we might be at the end of the beginning."

** Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of USA GAG nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

Follow us on Google News

Filed under

Recent Search