The faster they rise, the harder they fall, and non-fungible tokens (NFTs) are indicating that its cool-off time.
- NFT floor prices have entered a decline in the past couple of days.
- Sales volumes on Opensea will not match January’s trading volumes!
- An indecisive market is more useful for NFTs than a volatile one.
In spite of a downtrending market, January was a historic month for NFTs. But with crypto now rallying to the upside, NFT floors are on the decline. And it looks bad! Could this be the beginning of the end of the (second) NFT bull market?
NFT prices are on a slide
January NFT sales broke records, reaching $4.9 billion. And expectations remained high for February. However, once Bitcoin and Etherum woke up, traders’ interest in NFTs went on a downtrend, as users turned their attention to crypto assets instead (because they could rally again). Still, OpenSea sales volumes totaled over $1.4 billion in the past 10 days.
From a euphoric start of February 2022, where over 66,000 NFT traders bought and sold these digital assets, the number decreased to roughly 40,000 total users in less than ten days.
And NFT floor prices soon followed. As the ETH price rose by 6%, some NFT floor prices dipped by as much as 20%.
As we emphasized in our NFT’s Are Bear Market Proof article, there is a negative correlation between Ethereum and NFTs. That’s because while Ethereum spikes and crashes, NFTs are fairly stable, with consistent volume on a macro scale.
While not all floor prices have dipped as much as 20%, sales volumes for specific collections have taken a bigger hit than others. Ethereum Name Service (ENS) has experienced a 24 hours volume decrease of 55.49%, while Boss Beauties, the female-led NFT project, decreased by 54.84%. Not to mention Pixelmoon, which raised over $70 million at 3 ETH per NFT and decreased in volume by 60% in the past 24 hours.
Is this the tip-top?
The new digital market is yet to find a top – but it could be close. A correction is expected in every market cycle. With the imminent launch of Coinbase’s NFT platform, the possibility to include Bored Ape Yach Club (BAYC) and other NFT projects in a SuperBowl commercial is high. And Coinbase teased the audience several times about “important” projects. If that happens – that could be it!
Even Ethereum Gas prices have remained low compared to January, signaling there isn’t much demand for interacting with the NFT market. OpenSea is still the most used dApp when compared to the amount of gas used – it used 14.29% of all Ethereum gas in the past 24 hours.
Even if this might be the top, NFTs have entered the mainstream spotlight. They’re one of the fastest-growing sectors in the crypto space. The Maltese Falcoin report drafted by J.P. Morgan emphasizes how NFTs as collectibles and art should not be dismissed. In fact, they can hold substantial value over time – especially as we further embrace digitization.
With blue-chip NFTs becoming an ultimate digital ‘flex’ denoting social status, their prices can reach a point that they become inaccessible to regular users, like the latest CryptoPunks sale of $7 million. Therefore, NFTs with high market value run out of an addressable market, leading to a price capitulation that echoes across the overall NFT market.
Every market can reach a top, and regardless of how bullish you are, ‘up only’ thinking can get you REKT! Even if you are devoted to NFTs, data shows the market is slowing down, and it’s slowing down hard! When crypto moves, NFTs pull the handbrake.
We suggest putting your risk management hat on. If you’re lucky enough to be in blue-chips that you think will stand the test of time, HODL. But be warned, even the top projects are highly illiquid. A quick sell can be impossible! If you’re holding less reputable collections, don’t be fooled into the marketing hype for those lesser projects and get caught holding NFTs that are doomed to fail. But if you truly believe in an NFT project, look for a lower entry, as floor prices will continue to drop! Once you’re out of the danger zone, follow the smart money and seek exposure to assets that are next in line to rally after Bitcoin.