On April 30, 2022, the minimum price for a Bored Ape Yacht Club NFT sat at a staggering 153 ETH, or about $412,000. Today, the floor price for BAYC tokens fluctuates at around 12 ETH, or about $29,000. In the course of two years, the global market volume of NFTs has plummeted from around $2 billion at its peak to $30 million today– a drastic 98.5% decrease. The NFT market has fallen with a whimper, and not a bang, as the social media hype for these digital tokens has seemingly dissipated as fast as it arose. So what happened?
From 2014 to 2017, the earliest non-fungible tokens used a variety of pre-Ethereum blockchains for the creation, known as “minting,” of these digital assets. Blockchain technology is notable for its involvement in cryptocurrency.
“So blockchain at its core, is basically computers analyzing mathematical processes… and that provides some logged output,” said computer science teacher Jake Kazlow. “The collection of that is the chain, and that provides a stored value, allowing us to track and manage that sort of thing.”
The usage of blockchains offers an avenue of more efficient and automated transactions for cryptocurrencies and NFTs, but the security of blockchains is debated.
“There is no name that’s attached to it… there is less security– an anonymity to buy… so things like black market trade will deal more in that,” said Kazlow. However, Kazlow also acknowledges the transparency NFTs bring, stating that “everything is tracked– it’s all done through digital logs.”
The high price for NFTs has less to do with the intrinsic value of blockchain technology, however.
“[An NFT’s] value is largely derived from what the market is willing to bear,” said economics teacher Matthew Munday, who holds a PhD in public policy and economics. “I think a good comparison is to compare a cryptocurrency or NFT to another financial instrument… like a stock.”
Munday makes the distinction that stocks have an underlying value that drives their supply and demand– which many of these digital assets lack.
“The underlying value [of the stock] is rooted in the idea that, in the future, your investment will produce a product… that is going to result in profits for the company, and thus, increase its overall value…. The share reflects something of real, tangible underlying value– the company itself,” said Munday. “Cryptocurrencies and NFTs have been subject to… irrational exuberance, which means they are new instruments and that people have become incredibly attached to the fact that they’ve grown in value very quickly, which can often contribute to a kind-of ‘snowball’ effect.”
Munday explains that if an NFT’s value is driven by popularity without any inherent worth, it will not have durable value in the long term, plummeting as soon as the value stagnates. And that’s exactly what happened.
These digital tokens started gaining momentum with the implementation of Ethereum blockchain NFTs. The platform provided users with a new level of coding freedom, storage access, and accessibility, seemingly unlocking the full potential of this digital concept.
From there, the value of NFTs would exponentially rise from the effect of the COVID-19 pandemic. The worldwide lockdowns fostered internet engagement on a variety of social media platforms, and after the multimillion dollar sales of certain NFTs came into the spotlight, the phenomenon of these digital tokens lingered for months. The rise in popularity for the tokens caused a rise in value and the rise in value resulted in a rise in popularity.
According to Google Trends, both the search volume and value of NFTs peaked around the same time period, between late 2021 and early 2022. As the popularity declined over the next two years, however, so did the value of NFTs depreciate. Many have attributed NFTs’ loss of popularity to its frequent criticisms.
A popular social media trend that gained prominence was the notion of “stealing” these digital assets: users would copy and save the digital data of an NFT artwork and claim ownership of the NFT. The trend mocked NFT owners and caused many to question the nature of the NFT market. Many observers went as far as labeling the entire process as a Ponzi scheme.
“[NFTs] are not fraudulent per se, but it does require that for something to appreciate in value, there has to be inherent worth or something akin to market scarcity,” said Munday. “For the [NFT] market as a whole, not everything classified as a NFT is going to have somebody out there wanting to buy it at a higher value than you did.”
NFT usage has also faced backlash in the art community.
“I would say that I liken [NFTs] to Bitcoin,” said prominent Atlanta artist and Westminster digital arts teacher Michael Reese. “I think the culture of [NFTs] and the meaning of it… outpaced our understanding to really let it grow in a mature way. I think it’s an esoteric market that has removed itself from the art world and it’s [become] its own separate thing.”
Discussing his negative experiences with NFT scams, Reese said that his inboxes were filled with “many requests to turn [his] art into NFTs– to the point where ‘NFT’ became the ‘bad word.’” Reese says that this “get-rich-quick” mindset has “tainted the whole NFT culture,” suggesting that lower quality artwork has oversaturated the NFT market for the sake of profits. He goes on to explain that the art world is not about making as much money as fast as possible, leading many artists to dissociate themselves completely from NFTs.
Despite its social media fallout and drastic market depreciation, however, the future of NFTs may not be as grim as it seems.
“We live in a time…where [technology] isn’t going backwards– it’s going to get more efficient and probably cheaper,” said Reese. “But we also live in a time… where it’s difficult to predict the next thing. I’m sure there’s a future for it, and I think it will most likely evolve. What that becomes? I don’t know.”
Edited by Chris Qin
