The NFT market seems to be crashing, which is causing many people to predict the end of crypto art. According to analysis by Protos, the NFT market had its biggest day on May 3, 2021, when over $100M USD of goods were sold in a single day. Fast forward to last week, when it fell to under $20M — for the entire week. That amounts to a catastrophic ~90% collapse in under a month.
The biggest hits were taken by crypto art, while collectibles held more or less steady. At the same time, collectibles like CryptoPunks and CryptoKitties are showing signs of shorter lifecycles than before. It seems as though the “hot” properties burn bright, but not for long.
NFT market not yet stable
One of the key takeaways from the data is not just that the market collapsed over the last month, but that it also spiked to an incredible degree around the start of May. The effect is a sharp, short-lived burst of activity, which soon cooled down to “normal” behaviour.
It’s clear collectibles are driving the NFT market right now, to a potentially dangerous degree. That May spike was almost entirely thanks to collectibles and gaming tokens. Removing them from the data set shows slow, gradual growth of NFTs overall. The violent swings give the impression of severe volatility, despite the fact that NFTs are, overall, still growing steadily.
A collectibles crash?
The interesting thing about the collectibles spike is how quickly it came and went. Collectible drops tend to follow that pattern: a huge opening day where all tokens sell out, and then a bubbling secondary market. The recent release of Etherpoems is another example of the quick spike dynamic: they were all sold out in less than a day, but continue to circulate at a healthy clip.
The danger of looking at trends in a market as new and volatile as NFTs is that it can give a false sense of doom or boon, depending on when you take a snapshot. Bored Apes launched at the end of April, hit its stride around May 3 — and completely sold out within 12 hours. It was a huge burst of activity that had an unavoidable endpoint.
Collectibles are an important part of the NFT ecosystem, but their quick burst effect distorts the entire market. It’s like judging the health of the movie industry based on Marvel releases. Yes, there are some huge numbers at play, but they don’t tell you how the other studios are doing. And you certainly wouldn’t decide Disney was about to go under because the overall market was quiet in between Avengers movies.
The NFT art still going strong
The problem with collectibles having such an outsized influence on the market is that it can drag down other segments in its wake. The crypto art market is absolutely down from its highs at the start of 2021, but the fall has been gradual and predictable. The dramatic drop that hit collectibles is nowhere to be seen for art. They share the same technology base, but each of the NFT segments have their own unique characteristics.
As a market matures, the early enthusiasm — manifested in big price swings and steep losses — gives way to a slow and steady growth. The crypto art world is poised to follow that path, even as collectibles burst and fade all around it. This is not Tulipmania we’re seeing. It’s a sign that the the NFT world is still a dynamic place, with lots of room to grow.
All investment/financial opinions expressed by NFTevening.com are not recommendations.
This article is educational material.
As always, make your own research prior to making any kind of investment.
