- Top-grossing NFT projects led to an explosive increase in transaction activity on OpenSea but has since declined.
- The decline in NFT trade volume validates the theory that the non-fungible token bubble has popped.
- The subsequent slowdown in the ecosystem is attributed to a lack of new and exciting projects like CryptoPunks and Loot.
NFTs emerged as an exciting opportunity for traders to flip investments for quick gains. The ecosystem is now plagued by a lack of liquidity, dropping floor price and trade volume.
NFT season likely to make a comeback with new projects like CryptoPunks
The Non-fungible token ecosystem exploded with the launch of several top-grossing projects like CryptoPunks, Degenerate Apes collection and Pudgy Penguins. However, the hype was short-lived, and the floor price of the oldest NFT collection, Cryptopunks, has dropped from its August peak of 132 ETH to 90 ETH.
The drop in NFT floor prices is accompanied by plunging daily trade volume on the most prominent peer-to-peer marketplace OpenSea.
According to data from Dune Analytics, daily trading volume has dropped from a peak of $323 million in August to nearly $50 million on OpenSea.
The slowdown in the trade and exchange of digital art and collectibles is alarming for traders. “The Securities Times,” a Chinese state-run newspaper published an article warning traders of a “huge bubble” in NFTs.
The article reads,
It is common sense that there is a huge bubble in NFT transactions. Many buyers only focus on NFT as a format instead of the artwork or asset itself. Once market enthusiasm wanes and the hype cools, the value of these many strange NFTs will greatly decrease.
The word of caution comes when big tech companies like Tencent Holdings and Alibaba Group expressed interest in the NFT market.
Cryptocurrency proponents like Mike Winkelmann, an American digital artist, agree with the outlook of the Chinese journalist. In March 2021, months ahead of the current situation, Winkelmann said,
I absolutely think [NFT art is] a bubble, to be quite honest. I go back to the analogy of the beginning of the internet. There was a bubble. And the bubble burst. But it didn’t wipe out the internet. And so the technology itself is strong enough where I think it’s going to outlive that.
OpenSea marketplace is brimming with copycat projects that mimic Loot, CryptoPunks, Degenerate Ape Academy, Bored Ape Yacht Club and Pudgy Penguins, which adds little value to NFT collections of holders.
Guy, a cryptocurrency analyst at CoinBureau and YouTuber, is looking for NFTs that have utility beyond their aesthetics. NFTs with utility is the latest trend as collectors shift focus to in-game items and the metaverse.
For me, the most exciting NFTs are those with great utility. Those that have a benefit beyond just their aesthetics / rarity
— Coin Bureau (guy.eth) (@coinbureau) September 9, 2021
Overall, NFTs are in their early stages of adoption, and the current plateau in demand will likely be followed by a massive spike when cross-chain NFT projects with utility arrive.