Has the NFT craze finally reached its peak?

The world of Crypto and NFTs is having an incredibly rocky 2022 despite reaching record sales in the billions last year. This is according to the blockchain tracker app DappRadar, which reports a devastating third quarter and very few signs that things will likely improve for the foreseeable future.

A brief intro into NFTs

NFTs, or Non-Fungible Tokens, are a type of digital asset that exists on the blockchain. An NFT can be any file, from an image to a document or video clip digitally marked and "minted" as an original work.

While NFTs have existed for some time, they surged in popularity during 2021 as crypto speculators rushed to purchase their own "minted" asset as NFT prices started to sore. The concept worked similarly to the stock market where potential investors dropped millions to buy digital artwork in the hopes of making a profit. Read more about a R1 billion NFT sale.

Why are NFTs falling off?

The initial phases of the NFT market saw massive gains as it benefited from cryptocurrency and the insatiable appetite among art and digital token investors. However, 2022 saw the inverse occur as these favourable conditions began to sour.

The real culprit was the rise in both interest and central bank rates which traditionally force investors to steer away from risky assets. And as the NFT market has demonstrated, it is nothing but risky. Pointing out Bitcoin for example - the hallmark cryptocurrency was trading at almost R950 000 per coin in 2021 before dipping and plateauing at an average of R365 000.

NFT sales were recorded at almost $12.5 billion at the start of the year, then dipped to $8.4 billion in Q2 and then continued to a pitiful $3.4 billion in Q3 - DappRadar.

What is happening in the NFT market?

According to Devin Finzer, CEO of OpenSea, the largest online NFT marketplace, the NFT environment is a unique and incredibly volatile area sparked by the advent of newer technology and the demand for decentralisation. Cryptocurrencies have gone through a multitude of digital "winters" as they are called, but not necessarily occurring as much within the public eye as they have today.

He believes that while interests have slumped, he is confident in the future of NFTs as time goes by. "The previous crypto winters were a little more isolated to just crypto prices so for that reason, I think it's wise to be conservative about how long this could last," he said in an interview with Tech Central.

But regardless of the optimism shown by those who are still fully invested in the concept, weekly NFT buyers have more than halved from their January 2022 peak. This makes it difficult to discern the shelf life of NFTs in the public sphere as volatility in such a niche market continues to fuel scepticism and doubt erodes investor confidence.

Why is it better to invest in property?

There have been numerous cases where investors have lost millions purchasing NFTs such as the first tweet ever posted or various iterations of a simple depiction of a Bored Ape. In fact, the value of an NFT seems to be fueled by spurious cultural phenomena which have very short shelf lives with no tangible value.

On the flip side, traditional assets such as property remain as resilient as time itself. Property offers investors a secure income stream and almost guaranteed capital growth over time. To buy an NFT, you need upfront capital, whereas, with property, you have the option to take out a bond and pay it back over time. Ensuring your assets and leaving you with a tangible investment.

Read our previous article on NFTs here: NFTs - The pros, the cons, and the environmental impact.

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