NFT bubble pops as market ‘filters’ out tokens with low utility or artistic value
The US Federal Reserve’s move to raise interest rates has pushed investors towards defensive stocks and away from risky financial bets like non-fungible tokens (NFTs).
As a result, investments made by a number of NFT owners are now worth much less than when they had bought them.
The NFT of the first tweet by Twitter Co-Founder Jack Dorsey on the micro-blogging site was first auctioned for $2.9 million to Sina Estavi, CEO of Malaysia-based blockchain company Bridge Oracle, in March 2021. But when Estavi put it up for auction again earlier this year, he did not receive any bid above $14,000. Estavi did not sell the NFT, The Wall Street Journal reported.
Similarly, in early April, another NFT buyer had bought Doggy #4292, a Snoop Dogg curated NFT, for about $32,000 worth of the cryptocurrency ether. The asset was up for auction later with an asking price of $25.5 million. By May 3, the NFT had received the highest bid of 0.0743 ether, or about $210.
Why are NFTs crashing?
Last week, some of the most popular NFTs witnessed a fall of 30-50 percent in US dollar terms, Business Standard reported. This was because NFTs are quoted in Ethereum, which itself witnessed a sharp fall.
The value of an NFT is derived from either utility or sentimentality, Gaurav Somwanshi, blockchain entrepreneur and CEO of EmerTech Innovations, told Business Standard. Those deriving value from sentimentality are bought with the hope of further trading, which inflates the price, Somwanshi explained.
According to Somwanshi, the market is witnessing a filtering of NFTs, in which a number of digital assets will lose their value, while some with utility or artistic value will hold their ground.
Zach Friedman, Co-Founder of crypto brokerage Secure Digital Markets, echoed the thought, saying some perk or utility makes NFTs stand out.
“The ones that continue will be utility-focused for sure,” Friedman told The Wall Street Journal.
Some of the NFT collections which have been witnessing a slide this month are Crypto Punks, Bored Ape Yacht Club, Mutant Ape Yacht Club and Azuki. Between May 8-14, the price of the Azuki collection fell 49 percent from $60,583 to $30,915. Bored Ape Yacht Club saw prices fall 28 percent from $276,697 to $199,917. Similarly, Crypto Punks fell 32 percent from $147,493 to $100,680, while Mutant Ape Yacht Club saw a 27 percent slide from $57,448 to $41,838, Business Standard reported quoting CREBACO Research.
Published By : CNBC TV18