The term “NFT” once swept the world during the virtual currency bull market in 2021, and defeated “Crypto” and “Metaverse” to become the representative word of the year in the “Collins Dictionary”. The world’s highest-priced NFT “The Merge” was sold for as much as $91 million. As the cryptocurrency market entered a bear market in 2023, a large number of NFTs were sold by virtual currency investors, and their value plummeted. What happened? What exactly is NFT? As a virtual asset, what value does NFT have after the big drop? What are the trends worth noting in the future? Preface will give you a new understanding of the basic concepts and market trends of NFT in one article.
Review the basic concepts: “Non-fungible token”
NFT (Non-fungible token), that is, “non-fungible” tokens. The main concept of non-fungibility is its “non-interchangeable” nature. Fungibility is an important concept in today’s financial world. Simply put, when Mr. A and Mr. B exchange a 10 Hong Kong dollar note, both parties will get a currency with the same value of 10 Hong Kong dollars after the transaction. Since all 10 Hong Kong dollar notes represent the same monetary value, currency has the property of “interchangeability”. In addition to currency, the concept of interchangeability can also be extended to stocks, commodities and virtual currencies such as Bitcoin. Relatively speaking, since all NFTs have unique properties, that is, each independent NFT is unique in the world, NFT has the property of “non-interchangeability”, that is, “non-homogeneity”. The concept of non-homogeneity can also be extended to artworks and real estate. For example, the housing unit owned by Mr. A and Mr. B are both unique. Even if their monetary values ​​may be the same, the value of each unit (such as address, degree of damage, floor, etc.) is not the same. Therefore, the housing unit cannot be traded like currency, where both parties can still get the same value. Therefore, real estate also has the concept of non-homogeneity.
What is the value of NFTs that can be copied and pasted at will?
It can be seen that even though many NFTs can be downloaded, copied and pasted at will from the Internet in the form of JPEG, each NFT generated by the blockchain network has its own unique ID and transaction authentication. The certificate on the blockchain network can prove the NFT owner’s ownership of the NFT for digital authentication. Its concept is similar to famous paintings from all over the world. Even if the image of Mona Lisa is copied and pasted by users in the form of JPEG, the value of the original artwork will not be affected. Even though AI technology is becoming more and more mature, it has become easier to create or imitate various art styles. Each NFT can confirm its ownership and distinguish the authenticity through the public digital authentication on the blockchain.
95% of NFT value is zero
Since the existence of NFT collections depends on the blockchain network and its virtual currency industry, the market value of NFT collections is closely related to the market cycle of virtual currency. The total value of the NFT collection market rose sharply in the virtual currency bull market in 2021/22, and the weekly transaction volume was as high as US$2.8 billion at its peak. As the virtual currency market gradually entered the bear market winter in 2023, the weekly transaction volume of NFTs was only US$80 million until July 2023, which was about 3% of the peak period. According to the latest survey of dappGambl, 95% of NFT collections currently held by about 23 million people are actually worthless. Of the 73,257 NFTs they studied, the market value of 69,795 has now fallen to 0 ETH.
How is the trend of the “surviving” 5% NFTs?
The market value of the remaining 5% of NFTs that have not fallen to zero has also dropped significantly. For example, Justin Bieber bought one of the NFT avatars of “Bored Ape” for 500 ETH (the total market value at that time was about US$1.3 million) in January 2022. However, the current lowest price of the “Bored Ape” series has fallen to US$37,000, which is 97% lower than its high.
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H2: What is the reason for the value of NFT to return to zero?
Prospective application of NFT: digital collectibles
If NFT wants to maintain its value when the market sentiment is low, it must have historical significance (such as the first edition of Pokémon cards, baseball cards, etc.) or be a work of art with real artistic value. With the popularization of NFT, some traditional art markets and artists have also begun to enter the NFT market to sell their works of art. Compared with the current NFT avatars that are mostly created by AI tools, NFT works created by traditional artists are more independent and artistic. For example, Manuel Rossner, an artist who has decades of experience in creating electronic art works and is based in Berlin, Germany, sold his work “Bouncy Sculpture V” created with VR glasses in the form of NFT in an emerging electronic gallery in March 2021.
In addition to the more common electronic art works, NFTs can also be linked to physical authentic paintings and bid on the blockchain network. Flipkick is one of the websites that launched Physical Art NFTs. It adds electronic chips to physical paintings created by artists for electronic authentication and sells the works on the blockchain network. For example, “F.or Y.our R.eal E.ntertainment 2017 — A Physical NFT” created by Tripp Derrick Barnes was sold for 71 ETH (the market value was about 120,000 US dollars at the time).
Prospects of NFT applications: linkage with fashion brands
Some traditional luxury and fashion brands also see the market potential of NFTs and launch NFTs linked to physical products. For example, Louis Vuitton, with the support of new director Pharrell Williams, launched a suitcase priced at up to $39,000 in the summer that exists in both the physical and digital worlds. The entry threshold for its customers is to have an electronic wallet of up to $1 million; and Prada uses NFTs as its special admission ticket to Milan Fashion Week. The market positioning of NFT collectibles is similar to that of luxury goods: customers choose luxury watches not only to tell time, but also for their investment potential and as a symbol of identity. Therefore, the prospects of NFT are more promising in conjunction with luxury and fashion brands.
H2: Prospective applications of NFT: Soulbound NFT
As mentioned above, due to the “non-interchangeable” nature of NFT, each independent NFT is unique in the world. With the popularization of Web 3.0, the blockchain network has a closer connection with the user’s personal identity, and the concept of Soulbound NFT is gradually emerging. Soulbound NFT is defined as various NFT applications that are linked to the user’s identity and cannot be used for trading purposes or transferred to other users. You can imagine that various identity certificates and documents currently linked to your identity, such as academic qualifications and medical records, can exist on the blockchain network in the form of Soulbound NFT in the future and be used for various identity certificates and even government services. As early as 2012, Estonia has linked national identity to various government and livelihood services in the form of blockchain network-assisted authentication. The virtual currency exchange Binance has also launched Binance Account Bound in the form of soul-bound NFT for KYC purposes.
Article source: https://www.preface.ai/blog/nft-market-trends/