Will The NFT Bubble Burst? Where Are We In The NFT Lifecycle?

May 25, 2022

NFTs or non-fungible tokens have become popular and experienced highs and even more highs recently. NFT giants like Beeple, CryptoPunks and Bored Ape Yacht Club started selling for millions per NFT. The market also saw its most expensive trade in December 2021 when digital artist Pak sold The Merge to 28,000 collectors for a total of $91.8 million. Many people speculate that this is an indication of a hyperinflated bubble which will explode in a matter of time and be reduced to a mere fad.

But are they right? In spite of the success, articles have come up suspecting that an NFT bubble will burst. Fortune cited that NFT prices and trades were slumping from December to March. The drop in NFT takeup is said to be caused by a number of uncertainties such as the surge in inflation, the Russian and Ukrainian war, and the regulatory scrutiny of NFTs by the Securities and Exchange Commission.

NFT sales on OpenSea, the largest NFT marketplace, reached $5 billion in January, a high jump from $8 million a year before, but dropped to around $2.5 billion in March. According to market tracker CryptoSlam, around 635,000 people bought NFTs in March, for $427 on average, which is down from $659 in January. On the surface, hearing these claims would inflict fear in the NFT market. But if you look closely at the data, analysts’ forecasts and the potential of this technology, it would tell you otherwise.

Not a Bubble Burst, Only a Market Consolidation

People were swift in panicking over NFT’s decline. In fact, the NFT market is only “consolidating” after a meteoric growth, as investors are cautious due to the effects of Russia’s invasion of Ukraine in February. Hasty claims of a bubble bursting are similar to the time when the public thought the World wide web technology was over after its crash in 2000. Even the article was guilty of its hasty pronouncements, changing its headline from “Are NFTs Collapsing? Yes, but So Is Everything Else” to “Are NFTs Dead? Don’t Count on It”.

NFT consolidation means prices will drop, stabilize and trade steadily after an initial surge, especially in a highly volatile market like NFTs where the value of an asset depends on its social status and market trends can go positive or negative in a week. The current cooling of NFT trades can be attributed to the market having too many sellers (supply) and not enough buyers (demand). While there is no real NFT bubble, the time of art and collectible NFTs making millions simply by existing is over.

NFT sales and prices slowing down to modest rates show that the NFT community has come down from the high of the hype and has begun accepting and realizing the technology for what it really is and its potential to be used in our daily lives in the future.

Next Stage: Social Tokens and Utility NFTs

NFTs will still be subject to speculation from investors who are interested in the space, but the industry as a whole is moving towards projects with greater staying power. Quality NFT projects that offer real value and utility are rising to the top. We are now heading into the next stage of growth for the NFT market where companies are focusing on bringing more value to NFTs, whether status, benefit, utility, or other value.

NFTs with most value are social tokens and utility NFTs. In a market where perceived social status matters, social tokens triumph. There is a higher demand and price tag for social tokens that are created, bought, held and displayed by top artists, celebrities, and the wealthy.

Example of social tokens are NFTs made by digital artists such as Beeple, CryptoPunks and Bored Ape Yacht Club that are priced from tens to hundreds of thousand dollars to million dollars. More celebrities are also working with designers and artists and have launched their own NFT collections such as Snoop Dog, Paris Hilton, Shawn Mendes, Eminem, and Madonna. Even widely followed former Goldman Sachs executive Raoul Pal said in his blog that he was encouraged to invest about $400,000 on a Bored Ape NFT, after learning Bored Ape’s growth expectations in the market.

Another valuable NFT is utility NFT, which are NFTs that can be used or have equivalent real-world value. It can be used for games, as digital assets (wearable outfits, shoes, and virtual land parcels etc.) inside virtual worlds or metaverse, for real estate fractional buying or investing, for borrowing money using NFTs as a collateral, offering benefits and many others. Benefits of utility NFTs may include the duplicate physical product of the NFT, exclusive or VIP experiences, early access to other products, or invites or tickets to concerts or events of artists and celebrities.

NFTs of Coachella and band Kings of Leon are examples of utility NFTs. They launched NFTs that guarantee free tickets for life for its holders. NFT tickets are also revolutionizing the way we buy tickets. Instagram also launched its new Digital Collectibles feature in the United States at first, where select NFT creators can share their digital NFT collectibles to their followers. These cases show how NFT technology can be used and integrated in our daily lives, as well as its potential to impact us in the future.

The NFT market is going strong, and will continue to show signs of strength especially through the entry of a new breed of NFTs with more value from companies interested in the space. Instead of a bubble burst, the NFT market is still starting to make real-world impact globally. Moving forward, the NFT market will commonly find value in social tokens and utility NFTs. Newcomer NFT makers may also have to put extra value aside from the inherent scarcity value – whether meaningful content, exclusive benefits, or added utility to advance the real world. There are creative ideas and NFT execution at present that encourage the mass adoption of NFTs in everyday life

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