The NFT space is not what it used to be. This has become painfully obvious to those within Web3 in recent months. From controversial memecoin escapades to sweeping regulatory initiatives, the magic of the metaverse is palpably waning in 2023.
As it stands, the current state of the non-fungible ecosystem is a far cry from the market highs that helped start the year. Still, this round of “NFTs crashing” feels different than before. With this fight, the root cause behind slowing NFTs feels more nuanced. Instead of fear, uncertainty and doubt (FUD) driving the market down, there may be something more at play.
NFTs in numbers
While community sentiment is difficult to measure quantitatively, the health of the market can usually be measured by the charts. These looked good at the start of the year, with NFT sales up 43 percent. This was a welcome change from the bear market that enveloped most of 2022.
However, in recent months it has become clear that the success we saw in Q1 has not continued. So far in 2023, most of the NFT sales volume has been generated on Blur (more on that later). And while volume soared during the winter, both volume and trading declined and contracted in the spring after peaking in February.
It didn’t seem that bad at first though, as at the start of the sunny season (June), the NFT market saw a slight uptick in activity. But upon closer inspection, it became clear that this uptick may not necessarily be indicative of a positive trend, but rather a variety of issues currently emerging in a range of prominent blue-check projects.
Bored Monkeys and Azuki
In particular, the Bored Ape Yacht Club and Azuki – each of which will be the center of attention at some point in 2023 – have felt the heat. While most of the NFT sales volume in recent months has come from these two projects, this latest round of trading seems oddly disconnected from the rest of the NFT ecosystem.
That’s because instead of ask fueling trade and resulting in rock bottom prices, as we’ve seen time and time again with the launch of secondary collections, current trade appears to be a result of rock bottom prices drop and traders who then want to cash in on a good deal.
While this is not uncommon in Web3, especially as Blur continues to dominate the market, it is strange that such an event should befall BAYC. As a silo within the NFT space, BAYC (and CryptoPunks for that matter) has anecdotally existed in a world of its own, steadfast in the face of speculation and regulation. But recently this has changed.
In the case of BAYC, bottom prices have been steadily falling. At the time of writing, the collection floor was sitting around 30 ETH (about $57,000). Notably, this is the lowest we’ve seen Apes fall since 2021. A similar story is playing out with Azuki, with the brand’s core collection bottoming out at just under 7 ETH ($13,000).
While there are a number of reasons why this price action is happening, many holders and enthusiasts have pointed to dilution and fragmentation as the root cause. More specifically, BAYC holders felt disenfranchised by Otherside and HV-MTL, effectively splitting the Yuga NFT ecosystem. Similarly, Azuki enthusiasts were baffled in light of the brand’s recent controversial expansion, Azuki Elementals.
Of course, there are still considerations to be made regarding the effect BAYC and Azuki will have on the market. First, holders of blue chip collections like this one have actually remained rather steadfast. But while HODLers are HODLing, price is (and historically) determined by incremental buyers and sellers. Long story short, when there are no new buyers there is often a slow decline.
In addition, while the decline of Bored Apes and Azuki NFTs undoubtedly affects the NFT ecosystem as a whole, they are not the only catalysts for the disappearance of NFTs. Azuki Elementals served to remove about $38 million from the ecosystem, meaning that even whales are probably conservative with their purchases right now.
The Blur Effect
Another likely candidate partly responsible for this latest crash is not the collectors, but rather the platforms and marketplaces they operate on. Once OpenSea was the dominant force in the larger NFT market, Blur has unequivocally taken over as the main breadwinner of the non-fungible ecosystem. Of course, Blur’s road to fame wasn’t free of controversy, and even now the larger NFT community is speculating on how the platform’s infrastructure could lower NFT collection prices.
The main bone of contention regarding Blur comes from its own token, $BLUR. Through several airdrops, the token attempted to reward platform loyalty and user engagement – a system we’ve used many times with governance and community tokens ($RARI, $LOOKS).
However, the $BLUR token rewards (combined with a royalty-free marketplace) are a major draw for high-profile collectors. While Blur’s aforementioned monopoly on NFT sales volume is undoubtedly impressive, it has recently come to light that a handful prominent traders could use the platform’s incentive system to influence NFT prices.
Now Web3 observers wonder if the marketplace’s successes haven’t come without potentially greater costs to the wider NFT ecosystem. In response, some have even taken the position that Blur’s popularity as a token farming opportunity could have the power to completely fill the NFT market.
A holistic view of the blockchain
However, apart from specific cases such as BAYC, Azuki and Blur, there is more to be said about the NFT macro climate as a contributing factor to the current downtrend we are seeing within the NFT market itself. And for most within the blockchain industry, surely the most important thing is that ETH is pumping and the government is watching.
At this current stage of maturing in Web3, crypto’s unpredictable price action coupled with increasing regulation of the crypto and NFT space have added a palpable layer of uncertainty to the future of the blockchain industry. These factors, above many others, certainly influence buyer behavior and contribute to market fluctuations.
Particularly in the case of ETH, significant price action often threatens the price of NFTs. As ETH rises, many traders are choosing to take profits or at least reconfigure their portfolios to use ETH as a safe haven from market volatility. In other cases, collectors may try to sell some NFTs at rock bottom prices or look for large sales opportunities (such as a sub-30 ETH Ape), further impacting the market.
However, if we were to look at an even more macro view of Web3, it seems likely that new developments such as Soulbound Tokens, NFT Ticketing and ‘phygital’ goods struggling to really cross over into the mainstream could also have an effect . Overall, there has been a decline in the number of major brands entering the NFT space, and the acronym itself has seen less use in pop culture compared to where it was at the height of the initial boom.
Of course, it’s anyone’s guess where the NFT space will be a year from now. But with market factors in mind, creators, collectors, and builders would do well to take note of the changing NFT landscape and remember why the makers of culture began flocking to the blockchain in the first place.
