Have NFT markets collapsed? The Wall Street Journal recently reported that the average daily sales of NFTs fell to about 19,000 in the first week of May, a 92 percent decline from the peak of about 225,000 in September last year.
The Journal was quoting data from NonFungible, and as we live in a world of 280 character financial analysis, most of the subsequent media coverage started and ended there.
The WSJ led with “The NFT market is collapsing” even though its headline said something quite different, which only added to the confusion.
So what’s going on?
Basically, the number of transactions is decreasing but the value of those transactions is increasing. Or to be blunt, quality is starting to replace quantity.
Certainly, the insanity in the market has retreated and that is reflected in trading volumes and wallet downloads. The same can be said across much of the tech sector, as anyone who bought shares in the Buy Now Pay Later companies can attest.
But we need to think of all the emerging Web3 technologies including NFTs as a 'stronger for longer idea’ – a 10 to 20-year play that is likely to prove just as transformative as the rise of the web in the 1990s and the emergence of smart mobility with the launch of the iPhone in 2007.
Nonfungible, the group where WSJ sourced its data released its Q1 2022 NFT Market Report and that tells the story with a degree of nuance that seems to have bypassed the subeditors of the WSJ.
Overall, trading volumes in NFTs were down only about 4 percent this quarter vs the last. That's hardly a collapse, especially compared to the Nasdaq index which is down 23 percent since November.
Indeed the authors of the Nonfungible report note, “Although the number of active wallets is also decreasing, the number of buyers is still higher than the number of sellers which means that the interest in buying NFT is still present.
"With nearly $8 billion traded in the first quarter of 2022, the market cannot really be considered to have collapsed. We are observing a stabilisation of the NFT market, in line with the last quarter of 2021."
They also highlight two important data points;
- The number of smart contracts increased by 10.46 percent, from 1,271 in Q4 2021 to $1,404 in Q1 2022
- The average price of non-fungible tokens increased by 80 percent, from $587 in Q4 2021 to $1,057 in Q1 2022
According to Nonfungible, there is an increase in the number of news and active projects leading them to conclude, “The builders of web3 are still present, and their number is increasing.”
Their ultimate conclusion is that the market is stabilising, not disintegrating.
“Yes, the asset, USD and active wallet volume decreased compared to the Q4 2021. But compared to Q1 2021, volume is still very encouraging. Remember that this market was built after the initial coin offering (ICO) period of 2017 and therefore, is resilient to the crypto-market volatility."