NFTs caused the hype and booming effect back in 2021. Now, the market has entered the bear market phase for the first two quarters of 2022. According to the “NFT Market Report Q2 2022” of Nonfungible.com, the total sales volume of NFTs in July 2022 decreased by almost US$4 billion compared to January 2022.  What happened? What are the reasons for this fiasco to happen?

What is NFT?

NFT (non-fungible token) is defined as a unique and irreplaceable identifier created by the Blockchain algorithm. It was born to first solve the problem of creating scarcity for digital artists to take control of their arts and collections’ value. Currently, the NFT market achieved its mature phase as its utilities have been explored in a variety of applications further than just arts and collections.

Current NFTs market situation

Ever since the NFTs market started to enter the bear market in May 2022, it experienced a linear decline, with the sales volume only around US$647.23 million in July, which is 26 per cent lower than June this year. The drop in sales volume led to a significant decline in the number of transactions and unique buyers.

Also, high-profile NFTs collectibles such as Bored Apes Yacht Club (BAYC) witnessed a 33 per cent drop in floor price showing the investors’ low confidence level.

Factors that caused the plummet in sales

As stated by CoinTelegraph, “Some of the key factors negatively impacting the hype around NFTs are falling Ether (ETH) prices, a lack of secondary market demand, and unrealistic gas fees.”

Also Read: Where is the future of NFTs and metaverse heading towards?

Since NFTs and Cryptocurrency have an undeniable close relationship, especially Ethereum which NFTs are minted on, the drop in price of those cryptocurrencies heavily affected the liquidity of NFTs as well as the overall stance of investors. 

In addition, the NFTs project’s community defined over 80 per cent of its success. Hence, once the community is no longer interested in the potential of the NFTs, they will immediately liquidate the NFT to reserve the cryptocurrency for safer places. 

Another reason for this is the lack of utilities and practical value that NFTs can offer. After the hype in 2021, investors noticed that most of the failing NFT projects had zero practical value and even creativity, which created a bubble in the NFT market. With the current correction of the market, NFT projects must expand their creativity and value offered to their community in order to revive its interest.

Will the NFT market recover?

In my opinion, NFT contains beneficial characteristics and its efficiency in the operating process. The current collapse of the NFT market might be a good thing when it showed a necessary innovation in NFT’s use cases must be taken to succeed. Some of the innovative applications of NFT are real-life assets ownership, GameFi, and royalty. 

For example, Binance’s CEO, Changpeng Zhao (CZ), is pushing his effort to utilise NFT in identification (ID) for the government as an effort from the industry leader. Also, Meta (formerly Facebook) recently confirmed its NFT integration across 100 countries after working with Coinbase. 

Hence, we can all agree with the undeniable benefits of NFT, and its market will recover in the long term with the practical and innovative value held. 

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