Recently, data provider Statista published information regarding developments in the NFT market in recent months. They are unequivocal. Users’ enthusiasm for these digital assets has declined drastically. The platform explains this drop by two essential reasons. The first consists of a decline in the attractiveness of NFTs linked to a certain skepticism among users regarding their long-term value. This situation had the downside, secondly, of hindering the widespread adoption of these assets, which are not cryptos in the first sense of the term. In this context of declining hype around NFTs, it is legitimate and relevant to wonder whether these assets could regain their momentum in the future. Or, if on the contrary, they are, like a fashion effect, condemned to disappear. The aim of this analysis is to clarify this.
Update on the current situation of the NFT market
Considering the possibility of NFTs remaining viable in the future starts with understanding their current market situation. As mentioned in the introduction, the latter is deleterious to say the least. Indeed, the NFT market has seen significant fluctuations in recent times. And the figures are quite eloquent on this subject.
Initially launched via the creation of Ethereum ERC-721, the NFT market quickly exploded with staggering sales. The most remarkable examples, among many others, concern in particular the collection “The Currency” by Damien Hirst which reached $89 million in sales. The same goes for Beeple, which totaled $61 million in sales.
At its peak in spring 2022, the NFT market had a notable trading volume of $1.5 billion. Well beyond the $750 million made a few months earlier in August 2021. But while it is at its peak, the NFT market has since embarked on a dizzying fall.
According to data Provided by Chainalysis, the NFT industry saw a substantial 92% drop in the average price of token sales. Since April 2022, this has fallen from $3,894 to $293. There are still doubts about the reasons that led to the meltdown of the NFT market.
How to explain the collapse of the NFT market?
As explained above, some analysts explain the fall of the NFT market by the decline in user hype for these assets. However, on closer inspection, the situation is much deeper than it appears. So much so that the subject gave rise to much speculation. For some, there would be a correlation between the surge and valuation of bitcoin (BTC) in recent months, and the opposite phenomenon concerning the NFT market. But it’s not simple.
For example, Alun Evans, head of the Freeverse platform, does not see a connection between the BTC market and that of NFTs. According to the expert, this is because the strength of the crypto market reflects the “perceived weakness of ordinary financial markets”. Under this prism, he believes that cryptos are considered more as commodities than as currencies. This, by being seen as alternatives to traditional fiat currencies. It is at least on this basis that bitcoin is notably regulated in most jurisdictions.
This opinion of Alun Evans, Toby Rush, CEO and co-founder of Redeem, does not share it at all. According to him, bitcoin and NFTs evolved in parallel. Proof, according to him, of the continued innovation and interest that they mobilize, despite a general decline in the market. In these circumstances, what future lies ahead for these assets?
NFTs, what prospects?
There are reasons to be optimistic when looking at the bigger picture. Data from Statista projects that the value of the NFT market will reach $3.2 billion. A performance which should be achieved by 2027. By the end of this year, it should be around 1.6 billion dollars. If the figures are confirmed, the NFT market should then follow a compound annual growth rate (CAGR) of 18.55%.
Furthermore, Statista foresees an increase in the number of NFT users by the same deadline. This is expected to reach 19.31 million by 2027, with a penetration rate of 0.2% in the same year. Given these projections, the future of NFTs appears less bleak, although the NFT market is currently experiencing a slowdown. This could only be a temporary setback if the market redefines NFTs beyond simple investments or tradable assets. This highlights the importance of a change in the future role these assets will take on.
Alun Evans believes that NFTs should ultimately serve a broader purpose than just investments. Their value should be determined by their usefulness. This is by focusing on where and how they can be applied rather than how rare they are.
For this, the expert considers practical and useful applications for NFT technology beyond the initial hype era and speculation. For Alun Evans, the next generation of NFTs, called “dynamic”, is very promising. Particularly because it allows active engagement with the underlying brands or offers.
“Unlike NFTs which create value based on scarcity or speculation, dynamic NFTs allow people to actively engage with the underlying brand or offering. This encourages owners of dynamic NFTs to interact, share, and even trade them, resulting in increased long-term user loyalty and significant opportunities for the gaming industry and brands in general,” said Alun Evans. This is a hint of hope for investors in this sector who have watched helplessly as their investments melted like snow in the sun.
The future of NFTs is both dynamic and full of challenges and opportunities. The fall in their price in recent times has raised concerns about their sustainability as investments. However, recent data from Statista projects a promising growth trajectory of their market. This, with significant potential to expand the number of users and increase their market value. However, the real challenge for this sector remains to expand beyond simple means of investment and exchange. Their role in terms of utility and ownership must also evolve to support the evolution of this industry and its relevance.
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