After such a crazy year in the NFT market in 2021, is the NFT market collapsing? Based on the latest datapoint as of April 17, 2022, the NFT market has weakened considerably.
If you don't know what an NFT, it's short for non-fungible token. We wrote a deep-dive explaining what is an NFT for you to read. Like all new speculative investments, an NFT is a highly volatile asset that is hard to value based on fundamentals.
Unfortunately for NFT buyers, it looks like the NFT market is fading.
The NFT Market Is Collapsing: Here Are The Datapoints
Here are datapoint as to why the NFT market is selling off.
1) Decline in the average sale price of an NFT.
According to market tracker NonFungible, the average sale price of an NFT is now below $2,000. That's down an impressive 70% since January 2022, when the average sale price of an NFT was $6,800.
Bear markets are described as a 20% or greater decline in the stock market. Therefore, a 70% decline in the average NFT price is considered a massacre.
2) Decline in cumulative daily sales in NFTs.
Another indicator that the NFT market has collapsed is cumulative daily sales have dropped from $160 million in January to $26 million on Thursday. That is a 71% decline in volume.
3) Primary Sales Of NFTs have declined.
Primary sales of NFTs have also dipped to 3,200 in April 2022, down from nearly 26,000 per day in January 2022. Meanwhile, the secondary market sales are down from a January peak of 38,000 per day to just over 7,900. That's an 82% decline.
For reference, secondary sales hit a daily record of 103,765 in September 2021, while primary sales spiked as high as 795,000 in August 2021. Therefore, the peak of NFT madness was in 4Q2021.
4) Total NFT market capitalization has declined.
At its peak, NFTs had a total market capitalization of about $23 billion. Today, according to CoinMarketCap, the total NFT market capitalization is down about 55% to $10 billion.
Famous NFTs Have Plummeted In Value
For more datapoints showing the collapse in the NFT market, look no further than some of the most famous NFTs.
Example #1: A Bored Ape Yacht Club NFT sale sold in 1Q2021 for $224,028.62, but that represented a $67,799.54 loss for the seller. The seller bought the NFT just a couple months earlier.
Example #2: Jack Dorsey's first tweet, which sold for $2.9M in 2021, went up for sale in April 2022. The highest bidder was for only $280! That's a 99.9% decline in value. The owner is a crypto engineer who just got out of prison.
It is clear the NFT bubble has popped, much like the shitcoins in cryptocurrency land. If you want to invest in crypto and crypto-related assets, then it's probably best to stick with Bitcoin.
The NFT market could continue to go down as people realize there's no need to make an NFT when you can just save a digital image as a JPG for free. Feel free to buy NFTs with your fun money. Or maybe you want to buy an NFT collection, which is more defensive. But I wouldn't expect to make money off NFTs for a while.
Why Is The NFT Market Collapsing?
The NFT market is collapsing due to the following reasons:
1) A decline in risk appetite for risk assets. The stock market, tech stocks, and cryptocurrencies have sold off in 2022.
2) More regulation by the SEC.
3) More cases of fraud in cryptocurrencies.
4) As more people lose money on NFTs it creates a downward momentum in prices.
5) Ironically, as more people come to understand NFTs, more skepticism develops. “Why the hell would I pay anything for a digital piece of art I can look at and download for free?” There is no actual asset. The only thing unique about an NFT is the token – but not the digital object it is associated with. Not only may that digital object be copied without limit, but the right to copy it belongs to the person who created it, not the owner of the token.
6) NFTs are easily replicable and shared.
But the main reason the NFT market is collapsing is due to a decline in risk appetite for the most speculative assets. People made a lot of money since the pandemic and now want to lock in their gains.
Invest In Real Assets Instead Of NFTs
Instead of buying NFTs for speculation, I would buy real assets that produce income and provide utility. The best real asset to own is real estate. It is one of the best ways to store value.
In an inflationary environment, real estate not only benefits from capturing higher rents, but also tends to appreciate in value. This combination is a tremendous wealth builder for real estate investors over the long term.
Not only do I recommend owning your primary residence so you can get neutral real estate and inflation, you should also invest in rental properties and private real estate opportunities.
My favorite real estate investing platform is Fundrise. With over $2.5 billion in assets under management and over 210,000 investors, Fundrise is the leading, vertically integrated real estate platform today. Investors can invest in their diversified real estate funds with as little as $10.
Fundrise primarily focuses on single-family, multi-family, and build-to-rent properties in the Sunbelt. With lower valuations, higher yields, and strong demographic shifts, Fundrise investments are in the sweet spot of a positive long-term trend.
I've personally invested $810,000 in private real estate since 2016. I plan to continue investing to take advantage of positive demographic trends in the heartland of America.
For more nuanced personal finance content, join 50,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. To get my posts in your inbox as soon as they are published, sign up here.