NFT Crash: Beginning of the end? No, Just stabilization, say experts

Birender Singh

Birender Singh

NFTs, or non-fungible tokens, have started crashing, with many wondering whether it is the beginning of the end for these new digital assets. But, several experts feel that it is just a consolidation phase, and the market will rebound when valuations are realized.

Transactions in NFTs have come down by 92% as compared to the same period last year. The number of sales in May 2022 dipped to 24,000 a day from 2,25,000 in September the previous year. The sales value has also declined to $205 million in the third week of May, as against $1.9 billion last year. For example, Coinbase’s NFT market trades are under a million dollars a day with just around 2,000 active users.

NFTs are digital assets stored in a blockchain, and their rarity and uniqueness determine their value. The crash in NFTs is because of a significant dip in cryptocurrencies. But NFTs seem to have taken the hit harder than cryptos, with many of the smaller NFTs tumbling several times their original value.

Cryptocurrencies are the preferred payment method for NFTs, and Bitcoin being the leading cryptocurrency, has fallen by 58% from its November high of $69,000. Also, Ethereum, which is the most prominently used currency in NFT platforms, is down by 60 percent.

Reason Behind the Crash

The crash in cryptocurrencies is attributed to the US Federal Reserve planning to increase the interest rates, ending two years of concessions. Investors are now pulling out money from risky assets and investing in traditional avenues.

But some of the well-known NFTs and those attached to real-life assets have managed to thrive in the market. Nonfungible, a website dedicated to NFTs and related business, maintains that the dip in the market is not a crash. The value of NFTs traded in the first quarter of this year is $8billion, which is significant. The present market upheaval is more of stabilization, it said.

Reports of fraud, too, have not helped the segment, as it is said that copies of NFTs are being sold on multiple platforms, eroding the very belief that NFTs are unique. There is no redressal for such fraud as governments are yet to regulate the sector, which saw a boom in 2021, triggering a rush of companies and celebrities trying to cash in.

What does the future Hold?

NFTs are now finding their way into niche segments where ‘ownership’ is an important concept. NFT-based sports trading cards, music festival tickets, personal messages from celebrities, etc., are still quite popular in their respective markets.

Experts claim that the NFT market will only find stability if it moves away from the typical crypto-oriented speculation market. There is a global market for NFTs, and the key will be ensuring that people can store and transact without having to speculate safely.