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It’s cold out there this crypto winter and the fledgling NFT sector has not been spared. The bear market of 2022 has been a harsh run-in with reality for everyone in the industry. Prices and volume on OpenSea, Magic Eden, and JPG Store have all dropped off a cliff.
The demise of many NFT projects harkens back to 2017 when the majority of cryptocurrencies met their end. Those of us out on the crypto tundra, still clutching our jpegs, are beginning to wonder: Has the bear market killed NFTs?
To have any opinion on what is likely to unfold in the future, we need to look to the past. The NFT market of today is starkly reminiscent of the Initial Coin Offering (ICO) boom of 2017. Grinding for spots on a whitelist feels exactly like buying into an ICO did back then; like gambling.
The arrival of the ICO introduced a novel way for blockchain start-ups to raise capital from retail investors. Flush with confidence and unrealized gains, hordes of eager new investors were handing over their Bitcoin (BTC) and Ether (ETH) in exchange for tickets to the moon. And why wouldn’t they? At the peak of the 2017 boom, everybody and their uncle seemed to be making easy money. All it took to change your life was getting on a winning ICO whitelist. The blockchain revolution was about to change the world and we were jostling for a place on the ground floor.
Let’s fast forward to late 2021 when greed within markets was peaking. We saw NFT “art” fulfilling the same purpose as the ICOs did before: An easy way for punters to buy into something they perceive as revolutionary. NFTs became the new frontier for high-risk speculation. A chance, once again, at parabolic profits for the most risk-on investors and those swept up in the hype.
Both ICOs and NFTs were the cutting-edge applications of blockchain tech at the peak of their respective bull cycles. If you participated in the ICO trend of 2017 you surely felt some sense of ‘déjà Vu witnessing the rise of NFTs through 2021.
We should be able to look at what happened to the ICOs of yesteryear to gauge what might happen with NFTs in the future.
We are all aware of what happened to crypto at the end of 2017. When the bear market struck, the value of most of those ICOs went to zero. It wasn’t just the pure scams that went under. Legitimate enterprises with competent teams and good intentions simply disappeared, never to be heard from again.
It looks like the majority of NFT projects out there today are destined to suffer the same fate.
These cycles of booms and busts are inherent in any new technology. The uncertainty over the fair value of a brand new asset class leads to wild swings in price. This uncertainty leaves investors without conviction and they can easily be swayed by emotions.
Basically when the market crashes the NFT players that are only interested in making a quick buck leave the space. It’s an important phase of the cycle and it helps eliminate the transient players.
This is what we are seeing right now in the NFT space. Most NFT projects will not be coming back from this.
Just like the ICO craze, today’s burgeoning NFT landscape is littered with Ponzi schemes and rug pulls that need to be washed out of the system. With that being said, however, not all businesses that launched as an ICO were killed in the crash. Those that weathered the storm were richly rewarded with market share. Ethereum launched as an ICO for $0.31 per ETH! Similarly, the technology behind NFTs is not going away.
In a world hurtling towards assimilation into the metaverse, ideas of digital ownership and verification will become ever more important. There are projects today (and some yet to be imagined) that will endure and make it through the winter. Those that do will be positioned very strongly for the next growth phase that is surely coming.
If history is anything to go by, the bear market will wipe out most of the NFT projects around today. Unless you’re the one holding worthless JPEGs, the culling should be seen as a positive development in the market as it separates the wheat from the chaff.
If NFTs do have utility within the world of technology, the bear market is the time when we will find out. Only the NFT projects that have built compelling use cases, or significant communities around their brand will endure crypto winter 2022. The ones that survive however will likely thrive and become permanent fixtures in the future of Web 3.0.
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