The entire crypto industry was affected by a series of unfortunate events during 2022 and the repercussions are still visible in 2023 as well. While crypto investments are recovering steadily, the ownership of non-fungible tokens was even more seriously impacted. Once you understood that coins and tokens are corelated, but certainly different, you are on the path to acknowledging why the NFT market went and still seems to be down. More on the differences between crypto coins and crypto tokens here.
While the crypto market crash is one of the main reasons for the collapse of the NFT market, it is not the only reason that led to the decline, there are various reasons for it.
How did the Crypto crash influenced the NFTs?
The decline of cryptocurrencies is one of the main reasons for the decline in investor confidence and interest. There is a strong correlation between cryptocurrencies and non-fungible tokens which makes NFTs dependent on Crypto. Due to the falling prices of cryptocurrencies and non-fungible tokens, volatility and all these declining values have affected several large organizations which announced massive layoffs. After such events, people, evidently, got sceptical when it came to investments. Although experts mention that this could simply be an economic cycle issue as well, as all types of economy suffer recessions and the NFT market is no exception, it does not seem to recover well.
Other 2 main reasons for the NFT collapse
1. Mistrust in cyber security
One of the main reasons why non-fungible tokens have always plagued people is the general mistrust of the security of non-fungible tokens. Although NFTs are usually considered safe, some cases have raised questions about their safety. One such case occurred last year, in the midst of an already existent crypto crisis, when $100 million worth of non-fungible tokens were stolen.
An overvalued or inflated market for non-fungible tokens is also partly responsible for the decline in NFTs trading volumes. Looking at the development of the market over the past three years and by simply watching the news, it’s easy to understand that NFT interest grew based on a hype. A very good example that stands for this reason is the Bored Ape Yacht Club. NFTs in this collection were individually sold for millions of dollars. And there are several similar cases.
Current situation and predictions
The decline of the NFT market has impacted various sectors. Before this collapse, non-fungible tokens were considered an exciting new thing to invest into around the world and were especially popular with celebrities, thus greatly influencing the masses. Although the NFT industry is working to restore consumer confidence following the demise of cryptocurrencies and the FTX failure, the market downturn has severely affected investor confidence and rebuilding this kind of confidence may take time.
Aside from investors and collectors, the NFT crash has also badly influenced the prospects of NFT creators. Blockchain technology and non-fungible tokens have paved the way for artists to display their talents and work across a wide range of platforms and helped them receiving significant financial benefits and recognition. But trust in such a financial resource have taken a big hit with the collapse of the whole market.
Non-fungible tokens have retreated, but recent reports suggest the market is recovering. It’s still too early to predict whether the market will return to its former glory, which is doubtful, but experts say such setback may simply be temporary, insisting on having patience while the market recovers, shining a light on the picture of the NFT market.
Trading volume for non-fungible tokens grew 38% from January to February 2023, reaching $946 million, while Ethereum blockchain transaction volume grew 37.29% from January up to $659 million. Up to this month, NFT sales increased 42%, to reach 9.2 million units.