Even those who don’t know or have much interest in cryptocurrency may have heard about NFTs and digital assets at the peak of this field’s popularity. When NFTs were at the top, a lot of people, even experienced crypto investors, thought that this was a revolutionary technology. People managed to make huge profits on the creation or resale of NFTs. Popular collections were bought up literally in minutes. If you want to learn even more about NFTs – check out this ultimate guide to them by our CEO, Mykhailo Sitalo!
So how did the NFT bubble phenomenon appear? Everything was fine and no one even thought about what they were buying and what all these NFTs were secured with. Everyone thought they were so cool and diving into the crypto sphere, investing in digital assets for the future. But, as we know, if an asset is not secured by anything and grows rapidly, the longer and more it grows, the lower it falls.
Today we will talk to you in more detail about why the NFT bubble has burst and why it happened. Both beginners and experienced crypto-enthusiasts will find useful information that will help avoid mistakes in the future.
Starting with the basics: what is an NFT bubble?
Non-fungible tokens have become popular among investors in crypto, and artists. Each token is unique, which creates its value. Before NFTs, we had no real, simple, and affordable way to distinguish an original computer file (such as a picture, photo, or sound recording) from its copy. These tokens apply as reliable and trustworthy proof of ownership of any digitized object. They are all stored in a blockchain, eliminating the possibility of counterfeiting.
In other words, an NFT is a virtual digital unit on a blockchain network that cannot be exchanged for another because of its uniqueness. This token can encrypt a digital picture, virtual objects, and even the rights to iconic memes. It started very coolly for the NFT market, but where did it lead? Here it is time to move on to the bubble phenomenon.
So, what is an NFT bubble? It is the state of an asset when its price rises sharply as a result of increased speculation among investors, and then also falls sharply after the initial rush. Here we need to explain a bit more:
- As in any market, a bubble can form when the prices of a particular commodity become so inflated that buyers can no longer justify their purchases.
- When this happens, prices can fall substantially in a short period as a result of an insufficient number of buyers and an excess of sellers.
- NFT bubbles usually occur when new investors enter the market. Typically, people raise prices solely on hype because they don’t have a full understanding of what they are investing in.
The interest in the NFTs gradually began to wane, and it was no longer possible to just create more and more collections because fewer and fewer buyers were interested in them. Everyone was only interested in making a profit with cryptocurrencies, and not everyone could make money. If one gets, then the other loses. Also in the NFT marketplaces, there are a lot of unqualified buyers whose opinions can be easily manipulated. That’s why we see how quickly some tokens inflate and deflate.
What still works with NFTs?
Although right now the main scope of NFT is cute little animals in crypto gaming, it is actually not the only place where they can be appropriate. Due to their properties, NFTs can be used in services that need to be completely sure that the user is real. Such a user does not need to be identified, they can remain anonymous, and simply having NFT will give them access to the service or products.
There are also many real-life examples of business use, from licensing and certification to real estate, supply chain management, and logistics (some are still in the early stages). Some of them are worth a closer look:
- Personal identification and authentication of documents, thanks to the unique set of information in the NFT.
- Domain control using special private keys. It is easy to trade with NFT here, as well as customize domain names.
- There are also recorded cases of NFT in real estate, both in the virtual and in the reality.
- Such tokens exclude counterfeiting, help track the movement of goods through the supply chain and guarantee their uniqueness, which is very useful in logistics.
- NFT and blockchain have practical use in financial services, which major banks are now exploring.
NFT began to be used to digitize unique virtual creations. Thus, NFT allowed fixing the unique right to own an object of digital art just like in real life. The interest in such tokens has been fueled by prominent personalities – global stars, politicians, entrepreneurs, and bloggers. They see it as a great way to support really talented artists. In addition, NFT is an alternative for investing in the future, because everyone has not yet forgotten the bright breakthrough of cryptocurrency.
What just didn’t work with NFTs?
The main sphere of the largest NFT projects is still art. In some ways, this situation resembles what we see in the world of real art: most can see the installation of a modern artist as just a ridiculous smear and a complete lack of taste. And some people, without blinking an eye, will pay a huge amount of money for strange work.
It is not always appropriate to talk about any criteria that allow you to determine in advance a potentially promising NFT, capable of significantly soaring in value in the future. The value of a collectible token, by and large, is determined only by how much a likely buyer is willing to give for it.
Right now, collectible tokens are the most stable and in demand. That is why the holders of such tokens still do not believe that the NFT bubble has burst, although analytics hold the opposite opinion. So, the essence of collecting is an increase in value due to exclusivity.
NFT bubble is bursting?
Several signs indicate a bubble burst. The main ones to watch out for include everything from a sharp drop in volume reduction prices to a total decrease in media coverage of such token sales and the NFT market in general. It is impossible not to accept the fact that NFT sales have greatly decreased now.
When prices begin to fall significantly, it is the first sign that the bubble is about to burst. One of the most important indicators of the health of the NFT market is its daily trading volume. When trading volume drops over a long period, the bubble may be about to burst.
If users start putting their NFT collections on the market to sell, this may indicate a scenario in which there are too many sellers and not enough buyers. In this case, it is also likely that the NFT bubble is about to burst since there is nothing to stop their prices from going down.
Another sign that the NFT bubble is about to burst is the decline in NFT coverage on social media. When there is a lot of news about NFT’s most popular collections and sales, token prices tend to rise. If media coverage starts to wane, it’s probably a sign of bad news for the NFT sector. NFTs are also losing some of the inflated value they had in 2021 and early 2022. Similar processes have been recorded in the cryptocurrency market.
Concluding thoughts
If we agree with the skeptics and assume that the NFT technology that is booming in the collecting world today will not stand the test of time (the NFT bubble will burst), we should not speak of its demise. Why not? At the very least, due to the broadest possible use of NFT. For example, in areas such as the gaming industry, the tokenization of real assets, and the storage of private information.