From Cultural Phenomenon to Poverty - How NFTs Failed

In 1996, Lawrence Lessig wrote an article on cyberspace regulation, where he said something extremely intriguing. 

“Cyberspace is a place. People live there. They experience all sorts of things that they experience in real space, there.”

Fast forward to 2021, and this observation became more relevant than ever, with the NFT market boom. People spent millions of dollars on virtual real estate, and a single digital artwork fetched tens of millions. Virtual spaces turned into million-dollar metaverses.

However, in the past 3 years, NFTs have faced a dramatic fall, leading many to question the long-term viability of this digital asset class.

Today’s newsletter explores the rise and fall of NFTs, highlighting the key factors behind their boom and the eventual collapse that left the market in disarray.

The Meteoric Rise of NFTs

NFTs are unique digital tokens stored on a blockchain, which serve as proof of ownership for a specific digital item, whether it be a piece of art, a song, a video, or even virtual real estate. Their appeal is largely driven by their perceived scarcity and uniqueness. Unlike traditional digital files, which can be easily copied and shared, NFTs promise verifiable ownership of a digital asset through blockchain technology. 

The NFT boom reached its height in early 2021, with headlines reporting multi-million-dollar sales of digital artworks. For example, Beeple sold his piece Everydays: The First 5000 Days sold for a staggering $69.3 million at Christie’s.

On the other hand, NFT collections like Bored Ape Yacht Club (BAYC), became a status symbol for celebrities like Justin Bieber and Neymar.

Eminem and Snoop Dogg even released a new song using their BAYC apes.

What Went Wrong? The NFT Bubble Burst

Despite this meteoric rise, the NFT market’s collapse came swiftly and decisively. Here are some numbers to note:

• In 2023, NFT trading volume fell to less than half its 2022 level, declining from $26.3 billion to $11.8 billion. 

• The average price of an NFT fell from $1,500 in early 2021 to just $600 by mid-2022.

• High-profile collections like the Bored Ape Yacht Club saw their floor prices drop by more than 90%, with some NFTs that once sold for millions now worth only a fraction of their original price.

• Platforms like OpenSea, once at the center of the NFT frenzy, saw daily trading volumes drop to just $5 million in 2023. 

The downturn was triggered by several factors

Market Saturation 

The NFT market was flooded with countless projects, many of which lacked clear value propositions. Creators, brands, and investors jumped on the NFT bandwagon, saturating the market with low-quality projects and copycats. The market became overrun with assets that held little intrinsic value. The old economic adage of supply and demand came into play, and the oversupply of NFTs caused prices to plummet.

Speculation and Hype

Much of the early success of NFTs was fueled by speculative hype, as investors looked for quick returns on their purchases. This was quite similar to the infamous Tulip Mania in 17th century Holland. However, like all speculative bubbles, the initial frenzy wore off and prices dropped, many investors were left holding NFTs that had lost much of their value.

Wider Cryptocurrency Market Decline

The crash in the cryptocurrency market in 2022 had a direct impact on NFT trading. The collapse of major crypto projects, including the Terra Luna ecosystem and the high-profile bankruptcy of FTX, eroded investor confidence and wiped out billions in value across both crypto and NFT markets. The steep decline in the value of cryptocurrencies meant that many investors had less capital to spend on NFTs, further driving down demand.

Scams, Scams, & More Scams

Celebrity NFT projects have been notorious for taking advantage of hype, with many failing to deliver on their promises or turning out to be quick cash grabs. Tai Lopez, for example, launched the "OG (Original Garage) Social Club," with NFTs priced as high as $50,000, offering perks like one-on-one dinners or basketball games. However, these NFTs were quickly dropped.

Boxing legend Floyd Mayweather's "Mayweverse" promised holders cash prizes and exclusive metaverse experiences, yet the project’s Twitter account went silent after launch, leaving users without updates or the benefits initially promised.

Logan Paul’s CryptoZoo, pitched as a “fun game that makes you money,” left investors staring at useless digital eggs instead of the Pokémon-inspired experience they were promised. Launched in September 2021, CryptoZoo’s “Play-2-Earn” game invited players to buy and hatch NFT eggs, breed animals, and earn $ZOO tokens. However, after months of delays, no functional game materialized, and players lost significant sums while Paul went silent. 

A three-part exposé by YouTuber Coffeezilla revealed financial mismanagement, unpaid developers, and token manipulation among CryptoZoo’s founders, including Paul’s manager, Jeff Levin, and adviser Jake "CryptoKing" Greenbaum. 

Ultimately, NFTs became associated with “scams” as a result of these grifts and started repelling people.

The Shine Just Wore Off

The uncomfortable truth that a lot of people are not admitting is that maybe, NFTs weren’t that great to begin with. What if it was just a dumb fad that caught fire during Covid when people didn’t have much to be excited about? Maybe, people collectively got to know how lame Jpeg PFPs and rejected it en masse?

Do NFTs Have a Future?

Check out this chart:

The chart visualizes the number of daily NFT trades. The decline is very clear to see. However, the concept of an NFT is still very solid and gets more relevant as our digital presence increases. This is especially relevant in areas like gaming and digital identity. What NFTs need now is a reinvention. The initial hype cycle with lackluster use cases is now over. It is now important for this sector to grow and expand into other areas.

Conclusion: A Lesson in Hype and Reality

While NFTs offered a glimpse into the future of digital ownership, their rapid decline exposed the dangers of overhype and unsustainable growth. The NFT market, once worth billions, has been drastically reduced, but the concept of blockchain-based ownership still holds promise. The key to the future of NFTs lies in their practical applications and the technology’s potential to create new forms of value exchange in the digital world.

We believe that we will see a more mature and sustainable NFT ecosystem emerge in the near future. This ecosystem will prioritize utility, innovation, and real-world applications over speculation. 

While the era of multi-million-dollar digital art sales may be over, the story of NFTs is far from finished.

In the meantime, you as a trader must develop the smarts to invest in projects with real utility instead of another hyped up BAYC clone project. You need to understand what has value and what doesn’t.

This is the reason why we created The Coiners in the first place.

Avoid wasting money on low-value assets and focus on projects that offer true potential. Know exactly when to enter and exit to maximize returns.

Rely on expert insights and curated trade picks to make smart decisions.

Join ASAP. We host weekly livestreams discussing the current Bitcoin and Altcoin markets. Don’t delay.