Why the powerful forces driving failing NFT markets won’t let prices crash just yet

Is the honeymoon over for NFTs?

The market for these digital assets, which has wreaked havoc throughout 2021, is now showing signs of slowing down. But it may not be collapsing as dramatically as some reports claim.

The buying and selling of NFTs began to decline in the first quarter of this year, falling from $3.9 billion in transactions the week of February 13 to $964 million in the week of March 13, the highest weekly level. low since last summer, according to blockchain analysis company Chainalysis.

Other clues: Since Coinbase launched its highly publicized NFT market on May 4, NFT trading on the site was slow. The platform, which is still in beta, saw just 1,013 sales worth a total of 148 ETH ($340,000) over the past week from a small pool of 1,200 users, Dune reports. Analytics. This is after millions of people signed up for the project’s waitlist when it was announced in the fall.

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

Although it is not difficult to find statistics associated with the NFT market, it is difficult to interpret the numbers or know who to trust. Particularly because wash trading – the practice of users buying and selling the same item to themselves in order to artificially inflate numbers – is prevalent among crypto exchanges and NFT platforms.

And it’s easy to do. “Many NFT trading platforms allow users to trade by simply connecting their wallet to the platform, without needing to log in,” Chainalysis said in a February report which made national headlines.

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

In late April, the NFT market got a much-needed boost when the Bored Ape Yacht Club launched its Otherside project, a multiplayer online game where users can turn their NFTs into playable characters.

Within hours, 55,000 NFTs tied to virtual plots of land called “Otherdeeds” sold in a buying frenzy that drove up transaction costs – known as “gas” fees – on Ethereum to levels never seen since September 2020. Some people reportedly paid a fee of $14,000, which is double the cost of the land itself.

While the sale sent the price of Bored Ape Yacht Club-related NFTs soaring, the exuberance was short-lived. The price of the newly minted Apecoin token – which is used to buy Otherdeeds – has since fallen below $8, falling 70% from its April high of nearly $27.

And the floor price – the lowest amount you can spend to buy a particular brand of NFT – for several high-profile projects has dropped in the past week.

After hitting 152 ETH ($330,000) on April 30, the cheapest Bored Ape fell to 93 ETH ($214,000), according to NFT floor price. The floor price of Bored Apes has fallen 22% in the past seven days, CryptoPunks has fallen 14% and Moonbirds has fallen 30%.

Lack of insight

It is difficult to get an accurate pulse in the NFT markets. Reports tend to be inconsistent. Some say the market is stagnating; others claim it stabilizes.

The problem is that most data on NFTs comes from the platforms themselves, and there’s no way of knowing how fake it is. “We can’t say how much of the NFT market is real and not just a promotional push – or if it is real,” David Gerard, crypto journalist and book author 50ft Blockchain Attacktold Artnet News.

For example, the majority of transactions on AppearanceRarean NFT marketplace launched in January that quickly gained popularity to challenge Opensea, turned out to be laundry business. This data skewed much of the NFT reporting earlier this year.

Molly White, a software developer who runs Web3 is doing greata website that documents shenanigans in the crypto space, told Arnet News that “when platforms describe things like their user counts, it’s not something that can be verified on-chain in the same way than an NFT sale can generally be”.

This explains why the NFT market sometimes seems decoupled from the cryptocurrency markets. However, if you take a step back and look at what is happening in the crypto space as a whole, it makes sense that NFT activity is decreasing.

A chart of Bitcoin's value over the past month.  Screenshot via Google.

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

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

High inflation, along with steadily rising interest rates and the end of stimulus funds, means more people are shunning risky investments like cryptocurrency and NFTs and putting money in safe havens like Series I savings bonds, which the Treasury Department has announced will pay 9.62% through the end of October.

But the NFT market may not go away so easily. Venture capitalists such as Andreessen Horowitz have made significant investments in 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. Venture capitalists will likely seek to keep the market supported for as long as possible, even if that means throwing money after the worst.

So, have the markets really collapsed? “I’m not convinced they were ever run over,” Gerard said. “Maybe the VCs are tired of pumping these things.”

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