The State of Non-Fungible Tokens (NFTs)
The Wall Street Journal in an August 25, 2022, story stated “NFT ownership is complicated” which is the perfect summary on the state of NFTs. While the Journal article points out NFT sales and prices have dropped substantially; counterintuitively artists, start-up and established organizations like GameStop, the NFL and MLB are producing a dazzling array of NFTs.
In 2021, NFT sales hit $40 billion for the year according to Chainalysis. In January 2022, NFT sales were approximately $4.8 billion for the month, but by July 2022, the NFT market hit bottom with sales plummeting to $647 million for the month.
So, what happened? It’s pretty straightforward, the number of unique buyers from July, was 532,378 resulting in 5.6 million transactions. By comparison in Jan. 2022, unique buyers stood at 1.07 million and corresponded to 9.36 million transactions. Buyers left the NFT market by about 50%.
Does this mean an end to the NFTs? Probably not, more likely it’s just a valuation reset which happens from time to time in even the most mature financial marketplaces. NFTs are currently mirroring the equity markets. The stock market’s first six months of 2022 were the worst in more than 40 years, officially entering a bear market on June 13.
What’s unique about NFTs is that they are an innovative product and are now starting to be marketed and sold in an innovative way. Companies are bringing NFTs to life in physical spaces, opening stores and pop-up experiences to draw in existing and new customers. NFT’s are being displayed in a theater-like experience where the NFTs are shown on a large screen and consumers can make purchases on the spot with the help of a salesperson explaining the individual benefits of the NFT.
In addition, several companies have been extremely successful with pop-up NFT shops. Doodles, a Web3 company with a collection of 10,000 NFTs, created several pop-up shops in 2022. Recently, the company’s South by Southwest pop-up show hosted 6,000 customers and more than 2,500 bought merchandise according to the company.
Web3 communities have largely existed in online spaces only, so stores and pop-ups can help bring the human connection back while simultaneously helping to educate new and existing customers. Based on these interactive buying experiences and the vastness of NFT collections there is something for every buyer.
One of the sectors of the economy that has been most affected by NFT sales is the Music Industry. The internet with companies like Napster, iTunes, Spotify, and Soundcloud have made music almost free to everyone. Musicians used to have record sales, and even though the middleman took most of the profits, musicians often made way more than they do now. Now many musicians are starting to sell the ownership of their songs as NFTs, making money when people buy it and in royalty’s each time it is sold. Some of the most popular musicians using NFT are Snoop Dog, Steve Aoki, and 3LAU.
What’s also interesting is the overall NFT market growth compared to the traditional art market. For example, NFT sales in 2021 amounted to ⅔ of the 2021 aggregate sales of $65.1 billion for art and antiques sales by dealers and auction houses (Art Basel). When thinking about NFT sales versus traditional art and antique sales it’s amazing the progress the NFT marketplace has experienced in just 4 years compared to the several hundred years of dealers and auction houses have had to grow their market.
As a result it is likely buyers will return to the NFT market as the general health of the economy improves and the NFT market will continue its upward growth trajectory.
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