The NFT Bubble Is Unraveling
Following a fraud-ridden bonanza, the air is finally coming out of the "digital art" bubble
During perhaps the worst start to a year for risky investment assets, the international art outlet Art Basel has launched a detailed report entitled The Art Market 2022. The report explores how sales in traditional art, which according to a U.S Congress report remains the ‘largest unregulated market in the United States,’ had recovered to pre-Covid levels, rising from $50.1 billion in 2020 to $65.1 billion last year.
Yet this recovery was overshadowed by a rampant 36,900% increase in sales in the emerging marketplace of ‘digital art’, a fancy description for NFTs, or non-fungible tokens, which Investopedia describes as ‘assets on a blockchain with unique identification codes and metadata that distinguish them from each other.’
It’s likely by now that most people have heard of NFTs. It has become an obsession of establishment media, with the latest entry coming from veteran New York Times journalist Kevin Roose, who published a 14,000-word, long-form piece entitled ‘The Latecomer’s Guide to Crypto’. Unfortunately, the piece was not (as claimed) a ‘sober, dispassionate explanation of what crypto actually is‘, and resulted in a heavily edited rejoinder from a number of prominent crypto-skeptics.
The reality is that Roose has joined a long line of other journalists — either due to conflicts of interest or a techno-optimist urge to paint all emerging tech as the inevitable future — who have ignored the dark truth about NFTs and crypto more generally. Since the original idea behind crypto was to evade institutions and the rules imposed on them by what the Cypherpunks — the cyber-libertarian group credited with inventing cryptocurrency — believed were oppressive governments, there is a huge space for fraudulent behavior. It’s no surprise, then, that the NFT space itself is now ripe with deception and fraud. As one of a few crypto-skeptic articles pointed out, the NFT ecosystem has become a “a complete disaster”:
Consider some of the conclusions of a landmark October study published in Nature analyzing 6.1 million trades encompassing 4.7 million NFTs since 2017: the top ten percent of traders account for nearly 90 percent of all transactions, this group trades 97 percent of all NFTs at least once, and the greatest predictor of any NFT’s value isn’t its appearance but its previous price points. None of this sounds like a functional market so much as a mad grab for profit.
Worse, since the start of this year, the NFT bubble has slowly been deflating. As Fortune reported earlier this month, which is still holding true today, the average sale price of an NFT hovers near $2,000 compared to over $6,800 at the start of this January. That’s roughly a 44% drop in price, according to data from the NFT tracking service, NonFungible.
Despite this, the biggest crypto influencers continue to peddle euphoric proclamations akin to what you’d usually witness at the top of highly speculative bubbles. Just take RealVision CEO Raoul Pal, who described crypto as bigger than the internet, or VCs, who are envisioning NFTs as part of subprime-mortgage style “CDOs” — a pool of combined mortgage assets sold as an investment.
These wild declarations, however, are cloaking the true extent of the financial losses most NFT participants have likely endured. And since the latest bubble hasn’t fully burst yet, further pain lies ahead.
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