The global non-fungible token (NFT) industry recorded a 25 per cent drop in terms of buyers, volume of sales and volume of US dollars traded in the second quarter of this year amid bearish trends in the wider stock and cryptocurrency markets, according to a new report.
The industry recorded about $8 billion in the purchase and resale of NFTs globally from April to the end of June compared with $10.7bn at the end of the first quarter, according to NonFungible.com, an NFT market analysis platform that tracks the Ethereum blockchain.
“The market is experiencing a historical bearish period,” the company said in a statement on Tuesday.
“Liquidity is down and prices are very largely affected by the fall in value of cryptocurrencies. For the first time in the history of NFTs, trading-related activities are no longer profitable.”
NFTs are digital avatars of artworks and collectibles. They can take the form of digital work, virtual lands, a domain name or even weapons in a video game.
Ownership of these digital assets is recorded on a blockchain, or digital ledger. But, unlike currencies, in which every token is of equal value and can be swapped for any other, NFTs have unique qualities that stop them from being interchangeable or fungible.
In 2021, an NFT of Twitter co-founder and former chief executive Jack Dorsey’s first tweet sold for about $3 million, while Mike Winkelmann, the digital artist who goes by the name Beeple, made headlines in March last year when he sold an NFT for $69m.
NFT sales volume totalled $24.9bn in 2021, up from $94.9m the year before, according to DappRadar, which collects data from 10 blockchains.
Collectible NFTs were the most profitable category, followed by metaverse and utilities, NonFungible.com said.
The volume of internet searches around NFTs has dropped “very significantly” since its peak in January 2022 because of the cryptocurrency bear market, the NonFungible.com report said.
However, interest has dropped back to the level of September 2021, “which was considered the golden age of NFTs at the time”, it said.
Countries in South-East Asia showed the highest search volume of NFT-related queries, according to the report.
“Geopolitical concerns around the conflict in Ukraine have taken precedence over interest in NFTs in Europe. The countries of South-East Asia, being less directly affected by the conflict, are still of major interest for the subject,” it said.
The average price of NFTs dropped 6 per cent in the second quarter to $798 from $849 in the first quarter, the report found.
The decline in the value of cryptocurrencies, more specifically Ether, had a direct effect on the average price of NFTs, NonFungible.com said.
Between the end of April and the end of June, Ether fell about 66 per cent, which was reflected in a drop of almost 75 per cent in the value of NFTs, it said.
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Meanwhile, profit at resale for NFTs decreased by 46 per cent in the second quarter, according to the report.
“This trend is mainly explained by the resale of collectibles at a loss [this nearly represents a $100m loss per week at its lowest]. The other segments are experiencing better results with a loss in resale volume of around only $10m per week at the end of the quarter,” NonFungible.com said.
The industry was polarised around one NFT project publisher, Yuga Labs, in the second quarter, the report said.
More than 30 per cent of the global sales volume was distributed among projects that were launched or acquired by Yuga Labs, such as OtherSide, Bored Ape Yacht Club, Meebits and CryptoPunks, it added. The four projects accounted for more than $2.5bn in the second quarter.
The NFT market recorded only 4 per cent growth in global supply amid decreasing liquidity, NonFungible.com said.
“Very few new NFTs have been released this quarter. The liquidity has also considerably diminished over all segments. Only utility NFTs and metaverses are showing growing liquidity despite a bear market.”
The secondary market for NFTs remained predominant in the second quarter, accounting for about 80 per cent of the volume of dollars traded, while the primary market decreased over the period, the report said.
“It seems pretty clear that given the context, buyers of NFTs are no longer willing to take great risks when buying their assets in the primary market,” it said.