Just a month into the new year, the crypto market is confronting a riddle: Why are NFTs soaring while digital assets plunge into bear territory?
NFTs and tokens have definitely decoupled. Monthly volume on OpenSea, the leading NFT marketplace, hit an all-time high of nearly $5B this week and the floor price of leading collection Bored Ape Yacht Club (BAYC) jumped 50% in January, according to CoinGecko. NFT sales continue to make gaudy headlines — on Jan. 31, a BAYC NFT sold for $2.7M.
Meanwhile, Terra’s LUNA token, a one-time DeFi darling, has shed half its value in the last 30 days. The crypto market as a whole lost a quarter of its capitalization in January.
So what’s going on? Are NFTs, as skeptics argue, a bubble that’s just lagging the crypto market’s swoon? Or, as enthusiasts contend, are NFTs a new pop culture staple supported by sustainable demand?
The latter idea has taken root as NFTs have rapidly gone mainstream. Artists, collectors, and a young generation of crypto newbies have embraced them. So, too, have professional sports leagues, entertainment conglomerates, and a galaxy of celebrities. The family of John Lennon recently announced an NFT drop.
“Investors and collectors of NFTs seem to be a different breed than regular crypto investors,” Yohann Calpu, the chief marketing officer of NFT data aggregator CryptoSlam, told The Defiant.
“They are in it not just for profits alone, but for identity, community, belonging, and an emotional connection with the art — this is why we are seeing a pullback in general crypto but an increase in sales on the NFT side.”
There is a rising chorus of voices who agree with Calpu’s argument. CoinGecko co-founder Bobby Ong told The Defiant that the recent strength of NFTs suggests there are many “NFT holders who may not overlap with the core crypto community, which sold off assets during the recent downturn.”
“NFT holders may have a longer time horizon, have a stronger belief in the strength of NFTs, and may hold it for other non-financial reasons,” he added.
Pedro Herrera, a senior blockchain analyst at DappRadar, added that “the boost provided by the involvement of celebrities and big brands in the space is important, the social reach and influence power of these individuals cannot be taken lightly.”
Even the Fortune 500 crowd believe something fundamental is shifting in the digital assets space. Bob Iger, the recently retired CEO of Disney, recently told The New York Times the current NFT “explosion” will continue to gather momentum.
“We forget, in our generation, that things don’t have to be physical,” he told columnist Kara Swisher. They can be digital, and they have meaning to people. As long as that meaning can be essentially substantiated in a blockchain, I think you’re going to see an explosion of things being created, traded, and collected in NFTs,” he added.
NFT avatars are driving much of the action. “Avatar collections have performed well over the past few months as people seek a digital identity in the metaverse/internet,” Calpu said. He added that strong demand for freshly launched avatar collections including CloneX, Azuki, and Doodles “show that the avatar market is still hot and will continue to be hot as more collectors enter the scene.”
Azuki has rocketed to rank as the second-most traded NFT collection just 20 days after minting, having pushed $258.4M worth of trade in total. Azuki’s floor price is also gaining quickly, having doubled over roughly the past week. CloneX, which launched in November, ranks fourth with $163.4M, further evidencing that new projects are capturing significant market share in the current bullish conditions.
By contrast, activity for veteran projects CryptoPunks and Axie Infinity is at approximately $118M each — a monthly decline of 26% and 54.5% respectively. CryptoPunks and Axie Infinity currently rank fifth and sixth by monthly volume. However, both Bored Apes and Mutant Apes have seen a significant uptick in volume and price in recent weeks, with the projects ranking first and third by total activity.
The Ethereum network represents the lion’s share of NFT trade, hosting $3.7B worth of activity over the past 30 days, despite the recent buzz surrounding NFTs launching on low-cost Layer 1 networks.
CryptoSlam estimates that Chiliz-based fan tokens drove $1.1B in the past 30 days, followed by Solana with $180M, Axie Infinity’s Ronin chain with $118M, and Dapper Labs’ Flow with $61.8M.
Calpu also emphasized the speed at which NFT activity is growing on rival networks, noting that sales on fifth-ranked Avalanche more than quadrupled during January. Looking ahead to the rest of the year, Calpu predicts that the maturing GameFi segment and proliferating NFT marketplaces will drive continued growth for the sector.
“GameFi (or NFT sports) is also a trend that is picking up steam and we should see some huge developments this year in that category,” he said. “Another huge trend will be the proliferation of marketplaces.”
If all that wasn’t enough, Coinbase’s forthcoming NFT marketplace could introduce them to millions more users.
Even so, DappRadar’s Herrera warns that the NFT market is a bit frothy and like all markets will face a reckoning. “It is probable that we see a correction phase where the floor of most collections might go down a bit,” he said.
That, of course, will be the big test on whether NFTs truly do constitute an asset class that stands apart from the rest of blockchain technology and not just a pop culture fad that fizzles out.