Throughout 2021, non-fungible tokens, or NFTs, were one of the largest storylines in the world of investing and finance. NFT owners saw a sizable increase in valuation as many people continued to see potential in them due to the practical uses and value in proprietary ownership. While there was a lot of hype and excitement over NFTs in 2021, the value increases have cooled and the investments have seen large declines in value. While there is still a lot of potential for NFTs in the future, 2022 has been rough on this alternative asset class.
Open Sea Sees Dramatic Decline
While NFTs were still a new asset class in 2021 for most people, Open Sea did develop a reputation as the best place to go and purchase these tokens. This website allowed users to create, share, sell, and purchase NFTs. The overall peak for volume at OpenSea came in January 2022 when they sold more than $4.9 billion in volume. Since then, monthly volume has dropped by around 90%.
High Profile NFTs See Substantial Value Drop
Another example of the slowing NFT market is the value drop of some of the most notable NFTs sold. Quite possibly the most notable NFT of all time was an image of Jack Dorsey’s first tweet from Twitter. At the peak of the market, the NFT sold for just under $3 million. Less than a year later, the same item was placed on auction and received a top bid of just $280. There are various other notable NFTs that have had similar storylines.
Reasons for NFT Decline
There are various reasons for the decline in NFT values. One of the main reasons for the drop in NFTs was due to over-speculation. There was a considerable amount of hype around NFTs during 2021 and into early 2022. Many speculative investors got in at the wrong time and likely have seen a large decline in value. Another cause for the decline is because the NFTs were often purchased and sold using crypto, which has also seen a dramatic decline in value.
Reason for Optimism
While NFTs have declined considerably in value in 2022, there is still reason for optimism for their future. NFTs provide a lot of practical applications that can improve security and authenticity. NFTs will likely be used to authenticate personal items, verify identity, and can even be used to complete major real estate transactions. There are many industries that are already incorporating this new technology into their daily use. The more NFT technology is used, the more potential it will provide for investors as well.
2022 has continued to be a challenging year for NFT investors. While it has been difficult and led to sizable value declines for speculative investors, the technology behind NFTs does provide a lot of opportunity. It remains to be seen how widespread the potential uses will become and how this will impact the value of NFTs for investors in coming years.
Sources: https://www.hongkiat.com/blog/nft-use-cases/
https://www.forbes.com/sites/jeffkauflin/2022/04/14/why-jack-dorseys-first-tweet-nft-plummeted-99-in-value-in-a-year/?sh=483715565cba
