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| By Jurica Dujmovic |
In the ever-evolving digital landscape, few phenomena have captured the imagination and wallets of the public like non-fungible tokens.
These unique digital assets, verifiable via blockchain, have transformed the way we perceive ownership, art and value in the digital realm.
The NFT sector saw a huge surge in the last bull market, but intrigue dropped as the crypto winter set in. Now, though, it’s time to look ahead and prepare for the next bull run. And as we navigate the latter half of this year, a pertinent question remains at the forefront …
Are NFTs still holding their ground in relevance in 2023?
To answer that question, we need to go back in time to 2017 and the meteoric rise of NFTs to mainstream prominence with the launch of platforms like CryptoKitties. These virtual cats, each distinct and stored on the Ethereum blockchain, became a sensation, signaling the vast potential of NFTs.
Fast-forward to 2022, and the NFT market had exploded in value, diversity and complexity. From digital art pieces selling for millions to virtual real estate transactions, the world had started to grasp the profound implications of NFTs. Brands, celebrities and even traditional institutions began to dip their toes into this burgeoning market.
Yet, with rapid growth often comes volatility. Despite that, however, by the end of 2022, the global NFT market recorded 24.7 billion in trading volume.
This year kicked off with a surge in NFT trading volumes, a wave largely propelled by Blur's enticing incentives and airdrop campaigns. But as with any market, what goes up often comes down. By mid-year, the fervor had cooled and trading volumes receded, mirroring a similar decline in the number of NFT holders.
This downturn was further accentuated by reports suggesting a 38% drop in trading volume from Q1 to Q2 and a 9.2% decrease in NFT sales. The once bustling market saw its number of traders plummet, with data indicating a sharp drop in unique buyers and sellers since the beginning of the year.
Yet, even as some segments of the market ebbed, others demonstrated remarkable resilience.
Projects like BAYC and Azuki continued to shine. Their enduring appeal underscored the nuanced nature of the NFT market: While the broader market faced challenges, these projects managed to navigate the turbulence due to their strong community backing, unique value propositions and strategic partnerships.
The trading behavior of whales or influential investors also played a pivotal role, as their significant capital movements can sway market dynamics. Furthermore, the data suggested that while there was a general contraction in the number of traders, the commitment and engagement levels of existing participants remained high.
This dedication, combined with the innovative spirit of the NFT space, ensured that certain projects not only survived, but thrived amidst market fluctuations.
Case in point: Bitcoin Ordinals.
Ethereum (ETH, “B”) is known as the leading platform for NFTs and the resilience of NFT assets on this network through the crypto winter only further solidified its foundational role in the ecosystem. Its dominance wasn't merely a result of its early mover advantage but rather a testament to its robust infrastructure and the trust it has garnered over the years.
That said, the success of Bitcoin Ordinals proves the appetite is for NFTs, not just ETH-based NFTs.
These unique NFTs on the Bitcoin (BTC, “A-”) network have been making steady, if somewhat slow, strides. Their emergence has been one of the most significant innovations on the Bitcoin network in recent years, especially after the Taproot upgrade in late 2021. And trading volumes are on the rise, with a staggering 2,834% increase in Q2 alone.
Yet they still play second fiddle to the Ethereum NFTs. This lag is attributed to slower transaction speeds and fewer dApps on the Bitcoin network.
However, the buzz and excitement surrounding "Bitcoin NFTs" has been palpable. By the end of May 2023, the number of ordinal inscriptions had surpassed 10 million, indicating a growing interest and adoption rate.
The community's enthusiasm suggests that while they might currently be overshadowed by Ethereum-based NFTs, Bitcoin Ordinals hold significant potential and could reshape the NFT landscape in the coming years.
Another participant in the NFT space still standing despite treacherous waters is NFTfi, the leading liquidity protocol for NFTs. NFTfi allows NFT holders to borrow cryptocurrency from lenders by using their NFTs as collateral.
Its growth is not just a blip on the radar, but a testament to the evolving financial models integrating NFTs.
Look no further than ParaSpace's ascendancy as confirmation. This avatar-based social platform focuses on user-generated content, allowing people to create their own avatars and worlds — i.e., NFTs — to interact with one another.
Its growth highlighted the market's appetite for innovative lending solutions that leverage the unique value proposition of NFTs.
Finally, what yearly review would be complete without one of the biggest “flippenings” in the space? That’s right — I’m talking about OpenSea losing to Blur.
Historically, OpenSea — the secondary marketplace for NFTs on the Ethereum network — has been the titan of the NFT royalty market, a beacon for traders and enthusiasts alike.
But 2023 brought with it winds of change. Blur, with its avant-garde approach of optional royalty and zero gas fees, began to resonate with the more price-conscious segment of the market. By the time Valentine's chocolates were on sale in February, Blur had not just caught up to but had overtaken OpenSea, signaling a shift in market leadership.
So, from the past year, we can see the NFT market is full of the notorious crypto volatility. But fundamentals for the sector are showing plenty of potential upside for the right platforms and projects.
What that means for the next bull market is that this is a more mature sector now. Meaning you’ll need to be choosy if you decide to invest.
As we approach the second half of 2023, one emerging trend cannot be ignored: Utility will reign supreme.
The transition from hype to utility is already evident, with NFTs increasingly being viewed as tools to foster a more transparent and equitable web3 space. NFTs function as one-of-a-kind blockchain tokens, granting clear markers of ownership. Due to their traceability, companies are now experimenting with NFTs as part of reward-based systems.
Starbucks (SBUX), for instance, recently launched a beta version of Starbucks Odyssey. Members will gain rewards by participating in interactive activities, earning an NFT collectible as a “Journey Stamp.” The more they earn, the more benefits are unlocked.
Other major brands, like Porsche and McDonald's (MCD), are following suit, utilizing NFTs to build brand awareness and engage consumers in a more meaningful way.
No longer are NFTs mere digital collectibles or speculative assets; they are evolving into powerful instruments of engagement, loyalty and brand enhancement. This shift from mere collectability to tangible utility underscores the maturation of the NFT market.
This transition also hints at a future where the line between the digital and physical realms becomes increasingly blurred, with NFTs serving as the bridge connecting these two worlds.
For investors and collectors, this evolution presents both opportunities and challenges. The opportunity lies in the ability to be part of a pioneering movement that is reshaping industries and consumer behaviors.
However, the challenge is to discern between projects that offer genuine utility and those that ride the wave of hype.
Navigating this complex landscape requires not only a deep understanding of the technology behind NFTs, but also a keen sense of the market dynamics. It's essential to have a reliable source of information and analysis to make informed decisions in this rapidly changing environment.
Of course, we’ll cover general NFT updates in our Weiss Crypto Daily issues, as well as any significant market upsets.
But if you’re looking for more in-depth analysis on promising projects, I have a solution. Enter NFT Wealth Builder. As the editor of this service, I've ensured that it provides a comprehensive overview of the NFT space. But more than just an overview, the Weiss NFT Wealth Builder specifically highlights individual NFTs that hold significant value for long-term holding, as well as those with the potential for substantial profit.
There is a waitlist to join, however. You can call our Member Care Team at 855.278.9191 (or +1.727.380.1617 from overseas), Monday through Friday, 8:30 a.m. to 5:30 p.m. Eastern for more information about how you can sign up.
And if you don’t want to wait? My colleague Juan Villaverde’s Weiss Crypto Investor is a monthly service that gives you the lowdown about the broad crypto market, alerting you to the best investments from various sectors — including NFTs — and crypto-leveraged stocks with specific “buy” and “sell” recommendations.
As we move forward into the final stretches of 2023 and beyond, I invite you to join us in exploring the exciting world of NFTs as well as the broader crypto market, armed with knowledge, insight and a vision for the future.
Best,
Jurica
