Has the NFT market peaked? Depends on who you ask

Unless over $5 billion in NFT transactions clock in this last week of March — an unlikely feat — the month is going to end on a concerning slide for the non-fungible token market.

That’s how much is needed to get close to the monthly totals in January and February, which are increasingly looking like a peak in the emerging NFT market.

The average weekly total of NFT transactions so far in March is the lowest since July of last year, the month before the market really took off, and is off 49% and 54% from the weekly averages in January and February, respectively, according to data from blockchain analytics firm, Chainalysis.

Depending on who you ask, the sector is either witnessing a rebound or in the midst of a reckoning. Could it be both?

“I imagine a lot of people jumped in after the large price increases last year and may not have seen the profit they expected,” John Thetford, a 31-year old retail investor who got into NFTs last year, told Yahoo Finance.

To be sure, total transactions this year could outpace last year’s $43 billion even if monthly totals remain in line with March. That’s largely because investors spent $20.4 billion, nearly half as much as all of 2021, in the first two months of 2022.

But staying put at March levels is a far cry from the go-go days that started in August of last year. Other metrics show a similar slowdown.

Since the market’s peak on January 31, more than half of its unique active buyers and sellers have left, according to the NFT data aggregator, Nonfungible. Where there were 21,296 NFT sellers at the end of the first month of 2022, only 7,210 remain. The absence of buyers is even worse, down from 28,207 to 7,894.

What gives?

Pedro Herrara, a senior blockchain analyst with DappRadar told Yahoo Finance, the same risk-off sentiment due to tightening monetary policy and geopolitical uncertainty must have spooked NFT buyers at some level.

“We could attribute drops to people looking to capitalize on NFT gains during these uncertain times," Herrara said over email, "and move their holdings to ‘safer,’ more liquid digital assets like BTC, ETH, and stablecoins.”

Bitcoin and ether are both up between 13% to 14% over the past seven days.

Trading volumes faded across major NFT marketplaces such as Open Sea, LooksRare, and Magic Eden during the first half of the month, but have improved during the last two weeks, according to charts from Richard Chen and Glenn Hull via Dune Analytics.

Open Sea, which dominates NFT trading by volume, saw a significant drop in volumes following the weekend of February 19 when attackers stole $1.7 million in NFTs from customers through an email phishing campaign. However, in the latter half of March, numbers perked back up.

Digital collectibles, especially profile picture NFTs, are holding out best. After the segment hit a 2022 bottom on March 6, the daily average sales price has rebounded to $6,296 as of Friday, a 68% rise.

Chief among the winners seeing the most volume during this consolidation are projects like Azuki, the Bored Ape Yacht Club (BAYC), World of Women, and Doodles, four high value collections selling at a minimum price of over $40,000.

“Not all NFTs are created equal and will succeed,” DappRadar’s Herrara said. “It’s no longer enough to launch a visually attractive $10,000 avatar project. Teams need to develop comprehensive roadmaps and build in utility at every stage of a project."

The most obvious benefactor of the development strategy is BAYC, according to Herrara. After hitting a relative bottom on March 7 at 68 ETH, the minimum cost to own a Bored Ape sat at 103 ETH as of Friday — but still 15 ETH off its peak, according to NFTPriceFloor.com.

During the same time, BAYC creator Yuga Labs has acquired the IP of two of the other most popular NFT collections. It gave 10,000 units of the new BAYC cryptocurrency, ApeCoin, to its NFT owners ($133,000 for each NFT based on the price of $APE Friday morning on Coinmarketcap). It closed a $450 million seed round that earned it a post-money valuation worth $4 billion. And finally, it released a trailer detailing plans of building its own NFT-fueled metaverse over the coming years.

“Roars are greater than floors,” Ashura, co-founder of Lazy Lions, another NFT avatar project which has fared better and has a roadmap-to-island-metaverse plan akin to BAYC, told Yahoo Finance. ‘Meaning we put our main focus on building a trusted, blue-chip name in the space for many years to come and not on the day-to-day micro floor price fluctuations.”

Far more affordable than many other top collections by daily trading volume, Ashur pointed to “validation and cultural relevance” as the drivers of Lazy Lions’ success in the attention-based market, citing partnerships with larger name brands like Coinbase, the Sacramento Kings, and Puma.

With building in mind, Ashur emphasized the importance of preparing not for down slides but future market openings like the launch of Coinbase’s NFT platform and the confirmation from Meta’s Mark Zuckerberg that NFTs will come to Instagram.

Jason Bailey, a creator and longtime NFT collector who publicly called for a NFT market pullback in 2022, said he’s not surprised by the decline. In fact, he sees a silver lining.

“Past bear markets gave the community the opportunity to focus and build without the frenzy,” Bailey told Yahoo Finance. I'd argue the market grew too fast last year and a pullback could be helpful for the longer-term health of the market.”

David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.

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