On April 13, an auction for an NFT of the very first tweet, which was sold for $2.9 million by Twitter co-founder Jack Dorsey in March last year, brought in just 277 dollars as its highest bid, a massive drop from its original price.
This, experts say, is a sign that NFT buyers are increasingly learning how to properly value these digital assets, instead of just tackling the internet hype.
“Most NFT creators fall for the hype without understanding how to create value,” said Sidharth Sogani, Founder and CEO of CREBACO, a crypto analytics firm. “They are too focused on price,” he added.
“There have been over 6,000 NFT projects. There have been so many NFT offers and people have invested large sums, but they have managed to sell less than 10-15% of the generic NFTs. They just flip it to raise prices,” he noted.
Sogani is not alone in spotting this trend. Tosehndra Sharma, founder and CEO of NFTically, which offers software as a service for businesses to build their own NFT marketplaces, said “the real value is now showing in the marketplace.”
According to blockchain analytics firm Chainalysis, 110 NFT wash traders collectively made almost $8.9 million in profits last year. Such activities will be difficult as the market learns to recognize true value. Chainalysis defines “wash trading” as a transaction where the seller is present on both sides of the trade in an attempt to create a misleading picture of an asset’s value and liquidity.
“The period of hype is over. Going forward, no investments will be made based on the hype,” Sharma said, noting that investments in NFT startups will also decrease as a result.
The hype around NFTs has helped startups raise millions. According to investment tracking firm Venture Intelligence, VCs have invested $520 million in Web3 startups in 31 deals in 2021. In 2022, they have already invested $522 million in 20 deals so far.
Although the jury is still out on the number of NFT owners in India, it is believed to be on the rise, given the large crypto user base in the country and the hype generated by cricket. and Bollywood NFTs. For example, last November’s auction of an NFT collection of poems and movie posters by veteran Bollywood actor Amitabh Bachchan’s father fetched $9,66,000 (approximately ₹73 crore).
Certainly, startups are also aware of this change in the market. For example, major companies such as MakeMyTrip and MG Motor India have sold NFTs over the past four months using fiat currencies instead of cryptocurrencies. They did this using a platform called nGageN created by local blockchain company KoineArth.
Alternatively, crypto exchange WazirX’s NFT marketplace began allowing creators to post collections instead of singular NFTs, since March. The company calls these “nano-NFTs” and the idea is to allow creators to build a community around their artwork, music, etc., instead of selling one NFT at a time.
Sandesh B. Suvarna, Vice President, WazirX NFT Marketplace, noted that globally, 10K NFT projects such as Cryptopunks and Bored Ape Yacht Club (BAYC) have been the most successful, but such projects typically require that creators spend to build their own infrastructure, and the nano-NFT initiative hopes to provide that infrastructure to creators.
So-called 10K projects are where creators launch a whole series of NFTs and build a community around them. Such projects have also been able to partner with brands for NFT-related marketing activities, such as BAYC’s partnership with footwear brand Adidas last year. BAYC and Cryptopunks, which both consist of a line of digital avatars, rank among the most valuable NFT projects in the world, according to data from blockchain tracking firm DappRadar. Not everyone is convinced that the market is changing. Prashant Garg, partner and technology consultant at EY, said it might be too early to call it a trend just yet.
“What has happened here is that the perceived value of an NFT has not turned out to be true. What this may do is that NFT enthusiasts will be cautious as they invest in assets of low utility and low perceived value such as Cool Cat or BAYC,” added Garg.
With contributions from Prasid Banerjee.