What’s Happening with the NFT Crash

If you have been keeping your eye on the NFT (non-fungible token) market as of late, you’ve seen it take quite the tumble. Since a peak in sales in January—over $12 billion USD—NFT sales have fallen considerably. They reached a 12-month low in June—just over $1 billion USD—and continued to fall another 26% in July.

NFTs aren’t the only thing going down in the market, though. Rather, they’re a little late to the party. It seems that the bear market has caught up with the world of virtual art. Take the ex-CEO of Twitter, Jack Dorsey’s first tweet, for example; what once was worth $2.9 million USD was worth only $280 USD just one year later.

This is a scary example of the subjective value of NFTs and, thus, the inherent risk of investing in them. But the risk is only one reason for the NFT crash…

Why is the NFT market crashing?

According to many experts, the crash is closely tied with the crash in the crypto market, which fell from a market cap of nearly $3 trillion USD to around $1 trillion USD in less than a year. Like cryptocurrencies Bitcoin and Ethereum, NFTs are tracked on the blockchain. And in order to purchase an NFT, you need Ethereum or another coin. Thus, when the value of Ethereum and other cryptocurrencies fell, the volume of NFT sales did as well.

A lack of interest, however, is also at play. NFTs were all anyone could talk about in 2021, but they’ve lost some popularity this year.

There are likely many reasons for this. For one, people have been moving toward “safer” investments amidst fears over high rates of inflation and a potential recession and away from riskier assets, including crypto and NFTs. There are different types of investor criteria. The SEC accreditation requirements outline the accredited investor definition. Some NFTs funds are offered via private placements to accredited investors only, as generally speaking, the market assumes them to be more sophisticated and can bear higher levels of financial risks.

Another reason interest in NFTs is declining is a loss of confidence. In the past year, more than $100 million USD worth of NFTs have been stolen. Not only is there a fear over security, but also over legitimacy, as counterfeit NFTs are rampant.

As a result of the crash, NFT prices have been slashed. There was a 77% drop in average sale value from January to July. However, until recently, many blue chip NFTs, which come from the most well-known and successful collections, have held much of their value.

But recently, even blue chip collections, such as the Bored Apes Yacht Club, have been dropping in price. As many blue chip NFT owners have borrowed against the value of their NFTs, any further drop in price could spark an even deeper crash and, some speculate, take down the entire NFT market.