Markets are not always stable; this is especially true for those still emerging. NFTs have been around for around a decade, but their rise to popularity came during 2021, when the artist known as Beeple sold his collection of non-fungible tokens for $69 million.
Since then, everybody has dipped their toes at least once in the marketplaces for non-fungible tokens, even celebrities, and more financially-conservative mainstream investors. Many claim that there is something undeniably alluring about the emergence of new markets through technological innovation because they offer so many new opportunities.
Just because those markets are novel, they offer many exciting opportunities, and some manage to become filthy rich by investing in the right collection at the right time doesn’t mean that the whole market is stable.
Market stability is ultimately dependent on the behavior of those engaging with the products that are offered in the market places. In recent years the behavior of investors has become riskier and riskier.
Many experts in psychology, particularly those studying people’s behavior in economics, note that platforms for investment have always had a volatile element due to the “animal spirits” of people. This is why housing bubbles exist or why sometimes, like in 2008, massive speculation can turn into a real economic crisis.
Fortunately, the volatile NFT market won’t result in a crash of the world economy, but that doesn’t stop some vulnerable people from being in danger of risking their assets and not receiving the rewards they expect.
Since 2008, there hasn’t been a major economic crisis that has shaken investors’ confidence; many consider this the reason for people’s overconfident and sometimes irresponsible investing behavior. Furthermore, with the rise of cryptocurrencies with massive fluctuations, the culture around investing has shifted around higher risks for potentially higher rewards.
All of this could serve to explain why current crypto and NFT marketplaces tend to have many investors willing to make significant risks. Of course, other reasons could explain the volatility in NFT marketplaces in particular.
One of them is the lack of regulation altogether or the insufficient degree of regulation in many non-fungible token marketplaces. Many marketplaces, even the most popular such as OpenSea, have faced backlash because artists and consumers are being robbed and scammed by illicit schemes, or prices fluctuate widely due to wash trading.
The owners of those marketplaces are not perfectly rational observes who can always assess the damage that is being done, so the process of change can sometimes be slow. Sometimes they don’t have the motivation to regulate because even if the lack of regulation allows some to suffer, creating NFTs and trading is much more accessible, which boosts the overall revenue of the platforms.
One final reason why NFT marketplaces may be highly volatile has to do with the way many collections are prematurely launched without being finished. This means that every week you have non-fungible tokens that get hyped up, see massive spikes in the price but sometimes don’t meet the expectations of artists and investors, which means an equally colossal dip in the prices happens.
NFT Markets – Volatile But Successful For Some Investors
It was the beginning of 2022, and Corey Wilton decided to buy six selfies taken by some guy from the other side of the world he’d never met. He’d probably seen even weirder objects turned to non-fungible tokens or was amused by the creativity of the 22-year-old Indonesian guy from whom they were acquired.
The Indonesian guy in question is Sultan Gustaf Al Ghozali, who, from 2017 to 2021, diligently took a selfie every day. The project was meant to be a timelapse video to celebrate his graduation from college. The wholesome concept was not only entertaining people but, as Ghozali realized, could earn him some money.
Knowing that those were mere pictures of himself, Ghozali made the NFT collection, with each piece selling for only 0.001 ETH or around $3 for each digital token.
Lo and behold, #GhozaliNFT became trending on Twitter, and Ghozali earned around $1 million from the sale of the whole collection. When it comes to Corey Wilton, he bought 6 of the non-fungible tokens and sold them when their price reached $2,900, which was a 97 000% increase on his investment.
Wilton still holds two of the non-fungible tokens in his possession because of the personal value they have, and “in case Ghozali becomes the Indonesian Bored Ape Yacht Club.”
Another element that makes the NFT marketplaces is the sheer diversity they offer. This diversity can be seen in many aspects, one of which is the variety in the artwork. You can see everything in the world of non-fungible tokens: astonishing pieces of art, texts, memes, pixels, quirky-looking animals, etc.
It’s not only the art that is diverse but also the motives of people to participate in NFT marketplaces. Some admit that they are purely to earn a profit by chasing collections that have their prices increase just at the right time. Others are genuinely fascinated by this new technology and the opportunities it offers.
Finally, in many cases, people genuinely enjoy the art that they purchase, it may be unconventional and extravagant at times, but if they buy it, it must resonate with them as people. What’s unique to non-fungible tokens is that purchasing art does not only give you the benefit of ownership but often comes with exclusive privileges related to the collection that you are now a partial owner of.
The Future Of NFT Marketplaces
Skeptics say that non-fungible tokens are just a short-term sham that people have bought into but will soon abandon. They are not right about assessing NFTs as “useless” since the intrinsic value people find in them will never disappear. Though, one can not deny that the revenue NFT marketplaces have generated has dropped in the past month.
Data from NonFunigile.com suggests that total revenue has dropped to $35 million from the peak of $160 million it had in January. Although this change may seem significant many are concerned about the dip in trading volume.
Many NFT enthusiasts claim that this is natural for markets, especially emerging and highly volatile markets like this one, to have ups and downs. Furthermore, currently, the world is facing a vicious geopolitical crisis in Ukraine that has attracted attention elsewhere and has reduced investor confidence.
Finally, they point out that $35 million is still a sign of a healthy market, and it may seem small only because we are comparing it to the massive volume in January, which was an abnormality.
Еxperts who study NFT marketplaces believe that regardless of how high or low the volume is, NFTs will continue to be financial assets that offer higher returns than traditional financial assets. The trade-off is that they come with very high volatility.
They claim that NFTs derive their value from the “scarceness and an investor’s aesthetic preference.” The scarcity value is undoubtedly an exciting factor to consider and could explain why old collections, where owners have said that no more NFTs will be minted, often happen to be hugely popular with high prices.
The fixed number of non-fungible tokens means that fewer people can own them, this makes ownership and participation in the community related to the digital token more exclusive and in turn more valuable.
According to Adam McBridge, who published a book on NFTs titled “NFT Ape: My Journey into NFTs, Cryptos,” writes how one of the first tokens in his collection was an NFT of MoonCats.
The 25,600 NFT packed collection was created in 2017 with little to no commercial success. McBridge picked up five for free in March of 2021, and when looking at the analytics, he suddenly realized that around 17,000 had already been sold.
“And there’s only 9,000 left in like a half an hour,” He says. “Then I pulled my kid out of school, I got him up and running on his high-powered gaming PC…to grab as many as possible.”
In the end, Adam failed to collect more because he didn’t pay enough gas fees to outbid the others, but the whole experience highlights just how quickly collections can become successful in the volatile world of NFTs.
Since this day, Adam has become an NFT archeologist. According to him, “From a collector standpoint, I immediately got it because it’s like digging up an antique.”
His newly discovered passion is digging the ruins of the Ethereum blockchain and searching Google, Twitter, and Reddit to find unique and forgotten collections created when NFTs were still relatively unknown.
“They’re not making any more from 2017” He comments on the scarcity of MoonCats. The popular non-fungible token collection has been worth on average $2,846 for the past three months, which shows their consistent success even in those volatile markets.
For many looking to diversify their portfolio and enter the world of NFTs, Georg Bak’s advice, an art investment expert, may be valuable. According to him, you should seek collections that were “part of the history of evolution” and “has an amazing sense of composition, also execution of these digital tools…and a long-term vision.”
The more infused with passion and a long-term vision the projects are, the more likely they are to pass the test of time, even in markets where prices face wild fluctuations daily.
