Is the honeymoon over for NFTs? 

The market for these digital assets, which went gangbusters throughout 2021, is now showing signs of a cool-down. But it may not be crashing as dramatically as some reports claim. 

Buying and selling of NFTs began to slip in the first quarter of this year, dropping from $3.9 billion in transactions the week of February 13 to $964 million the week of March 13—the lowest weekly level since last summer, according to blockchain analytics firm Chainalysis.

Other clues: Since Coinbase launched its much-hyped NFT marketplace on May 4, NFT trading on the site has been sluggish. The platform, which is still in beta, has only recorded 1,013 sales worth a total of 148 ETH ($340,000) over the past week across a tiny pool of 1,200 users, Dune Analytics reports. This is after millions of people signed up for the project’s waiting list when it was announced in the fall. 

Trading on OpenSea, the largest NFT marketplace, also appears to be slowing down. According to Dune, the volume of active monthly traders on the platform in March was the lowest it has been since June 2021, with less than 245,000 users. Compare that to January, when the platform saw 546,000 users. 

Although it is not hard to find statistics associated with the NFT market, it is hard to interpret the numbers or know which ones to trust. Particularly because wash trading—the practice of users buying and selling the same item to themselves as a way to artificially inflate numbers—is widespread among crypto exchanges and NFT platforms. 

And it’s easily done. “Many NFT trading platforms allow users to trade by simply connecting their wallet to the platform, with no need to identify themselves,” Chainalysis said in a February report that made national headlines.

Yuga Labs LLC, 101 Bored Ape Yacht Club (est. 2021). Courtesy of Sotheby’s.

At the end of April, the NFT market got a much-needed boost when the Bored Ape Yacht Club kicked off its Otherside project, a multiplayer online game in which users can turn their NFTs into playable characters. 

Within hours, 55,000 NFTs related to virtual land parcels called “Otherdeeds” sold out in a buying frenzy that drove up transaction costs—known as “gas” fees—on Ethereum to levels not seen since September 2020. Some people were reported to have paid fees of $14,000, double the cost of the land itself.  

While the sale lifted the price of Bored Ape Yacht Club-related NFTs, the exuberance was short-lived. The price of the newly created Apecoin token—which is used to buy Otherdeeds—has since fallen below $8, dropping 70 percent from its April high of nearly $27.  

And the floor price—the lowest amount of money you can spend to buy a particular brand of NFT—for several top projects has fallen in the past week. 

After reaching 152 ETH ($330,000) on April 30, the cheapest Bored Ape is down to 93 ETH ($214,000), according to NFT Floor Price. The floor price of Bored Apes dropped 22 percent over the past seven days, CryptoPunks has fallen 14 percent, and Moonbirds is down 30 percent. 

Lack of Insight

It’s difficult to get an accurate pulse on NFT markets. Reports tend to be inconsistent. Some say the market is flatlining; others claim it is stabilizing. 

The problem is that most of the data on NFTs comes from the platforms themselves, and there is no way of knowing how much of it is fake. “We can’t tell how much of the NFT market is real and not just a promotional push—or if any is real,” David Gerard, a crypto reporter and author of the book Attack of the 50-Foot Blockchain, told Artnet News. 

As an example, the majority of the trades on LooksRare, an NFT marketplace launched in January that quickly rose in popularity to challenge Opensea, turned out to be wash trading. That data skewed a lot of the reporting on NFTs in the early part of the year.

Molly White, a software developer who runs Web3 is going just great, a website that documents shenanigans in the crypto space, told Arnet News that “when platforms describe things like their number of users, that’s not something that can be verified on-chain in the same way that an NFT sale typically can be.”  

This explains why the NFT market at times appears to be uncoupled from cryptocurrency markets. However, if you step back and look at what’s happening in the crypto space overall, it makes sense NFT activity would be falling off.  

A chart of Bitcoin’s value over the past month as of May 12. Screenshot via Google.

The price of Bitcoin crashed below $27,000 on Thursday—its lowest point since December 2020 and down 60 percent from its November high of nearly $69,000. Meanwhile, Ethereum, the main cryptocurrency used in the NFT space, has fallen 47 percent since January.  

High inflation, along with a steady rise in interest rates and an end to stimulus money, means that more people are fleeing risky investments like cryptocurrency and NFTs and putting money into safe havens like Series I savings bonds, which the Treasury Department announced will be paying 9.62 percent until the end of October.

But the NFT market may not vanish so easily. Venture capitalists such as Andreessen Horowitz have made significant investments in the space and have a vested interest in keeping it going. Yuga Labs, the company behind the Bored Ape Yacht Club project, is valued at $4 billion; OpenSea at $13.3 billion. VCs will likely be looking to keep the market buoyed for as long as possible, even if it means throwing good money after bad. 

So, have the markets actually crashed? “I’m not convinced they were ever not crashed,” Gerard said. “Maybe the VCs are just getting tired of pumping these things.”