The hype surrounding non-fungible tokens (NFTs) created an endless number of new projects in 2022. After the various collapses in the industry, many of these digital images no longer found buyers. The majority of NFT collections are now experiencing their first bear market - what comes next?
From the peak in August 2021, with nearly $2.8 billion in monthly trading volume, the NFT markets have settled at a weekly traded value of $100 to $150 million. Around 60% of that is accounted for by Ethereum-based NFTs, followed by a 15% dominance of the new Bitcoin ordinals. Solana, Polygon, and several other blockchain platforms share the rest. The picture of a bear market is clearly emerging.
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NFT volume remains steady despite declining user numbers
While the newly launched Metaverse collection by the Bored Ape founders generated hundreds of millions of dollars per day in early May, that volume disappeared as quickly as it came. The NFT markets entered their first bear market. Although the number of individual wallets has remained steady throughout 2022, there was a decline in April 2023. Out of the average 300,000 wallets, there are now only 135,000 active NFT traders per week.
The surge in NFT volume in early 2023 can be attributed to the introduction of the trading platform Blur. With a sophisticated incentivization campaign using its own BLUR token, the marketplace aggregator surpassed the market leader OpenSea at the beginning of the year. The platform promises 10x faster "sweeps" (acquisition of the cheapest editions of a collection) compared to its competitor Gem, as well as cost savings on transaction fees. However, the main driver for the strong volume is undoubtedly the promise of rewards in the form of BLUR for active platform users.
"Blue Chips" remain dominant
Since the last market update in June 2022, the order of the blue-chip collections has not changed significantly. The Bored Ape Yacht Club (BAYC) still holds the top spot in the markets, closely followed by CryptoPunks, which share the same ownership. However, the market leaders have also experienced some price corrections. The floor price of Bored Apes dropped from 144 to 43 Ether (ETH) since May 2022, which corresponds to approximately an 80% decline in USD terms. The "Punks" went through a similar correction.
Three Yuga Labs projects (highlighted in red) have held their positions in the top ranks. Yuga Labs acquired CryptoPunks in March, and they continue to rank second as usual. The total sales of NFT pioneers traded since 2017 were only surpassed by the Bored Apes a few months ago, solidifying the collection's position as the undisputed number one.
Bitcoin ordinals contribute to additional NFT activity
An unexpected event in Bitcoin's history in January of this year led to a new and ongoing demand for Bitcoin block space. Inscriptions directly on the Bitcoin blockchain enable the creation of digital artifacts called ordinals, a new type of NFT. These digital images on the mother of all blockchains have been rapidly gaining popularity for several months, propelling Bitcoin to the second-most active NFT platform in terms of trading volume.
It is worth noting that ordinals exert ongoing pressure on network fees. Despite a gradual flattening of transaction fees, the costs for transfers on Bitcoin remain at elevated levels. Driven by enthusiasm for the use case of the oldest blockchain, the average block size of Bitcoin even reached a new all-time high (2MB).
