NFTs – short for “non-fungible tokens” – took the world by storm in 2020, growing dramatically in popularity. Collectors from all over the world wanted to grab these assets as soon as possible, paying handsome fees in the process, with some selling for more than $69 million.
With all the hype, you would think that the NFT market was going to explode and become the next big asset class. But the future isn’t as straightforward as that. While the sector is growing more than many people imagined, whether the boom will continue is an open question.
Calculating The Future Of The NFT Ecosystem
Measuring the future of the NFT ecosystem requires collecting data to assess the state of the market. Having the right data to hand allows analysts to make sensible predictions about what the future might have in store. Critical metrics include NFT sales prices, the volume of buyers and sellers, the total sales volume in USD and the number of active wallets. Using the information, analysts have been able to characterize the recent boom and forecast what the future might look like.
In the period before the boom – September to December 2020 – the number of people interested in NFTs (but who did not continue being active) was rather low – around 27,000 unique wallets. This then decreased further in the pre-boom era to 16,400 from January to February 2021.
When the boom arrived, from March to April 2021, the total figure shot up to more than 60,000. And, despite the claims by the naysayers, remains elevated in the “post-boom” era at more than 45,000 – far higher than before.
But why did this happen? Part of the story has to do with Beeple. When the global media discovered that Christies had sold the artist’s NFT for more than $69 million, news spread around the world fast. How was it even possible?
Will The Boom Last?
So far, the numbers of active wallets are holding up. Estimates suggest that there are more people actively trading NFTs today than there were in the period running up to the boom, implying that the boom hasn’t run out of steam. Recently, buyers have been snapping up EtherRocks for more than $24,000 apiece.
If NFTs were in a bubble, you would expect to see a different pattern. Bubbles tend to crash right back down to where they were before the mania began, restoring fair value. However, even though NFTs have seen a decline in activity from their peaks during spring 2021, a full-scale meltdown has not occurred. Estimates suggest that the NFT retention rate of around 25 percent of new users is enough to keep the market afloat.
The value of NFT sales is also moving in the market’s favor. Concerns about oversupply do not appear warranted. We’re seeing a decline in purchases under $50 (as a proportion of the total), and a rapid expansion in sales values over that price. The majority of NFTs now sell for more than $100 as of June 2021, compared to over 85 percent of transactions being under that value in October 2020.
Wrapping Up
This analysis indicates that the NFT boom is not over. We may have seen a bit of mania, but any bubble the critics claimed existed did not burst. The future is likely to see rising NFT prices and people typically spending hundreds of dollars per item, not tens.
