Reviewing the development since 2021
The year 2021 was considered the record year for the blockchain industry and especially for the NFT sector. According to Statista, the number of active wallets increased from approximately 140,000 to 1,450,000 wallets from Q1 2021 to Q1 2022. Similarly, the total trading volume of NFTs increased eightfold from USD 2 billion to USD 16.5 billion during this period. Cryptocurrencies such as Bitcoin and Ethereum also reached new all-time highs and promising forecasts were predicted for the future. The price declines later in 2022 were all the more sobering, causing heavy losses in some cases. The question therefore often arises as to where the NFT market is headed in the future and whether NFT investments still make sense at all. It is therefore worth taking a detailed look at the causes and also future trends.
It is well known that inflation, and in particular energy prices, rose rapidly in 2022. While inflation in the euro zone was still a good 4.05% in 2021, it rose to 10.62% year-on-year in October 2022. Switzerland was much less affected, with an increase from 1.2% (2021) to 3% (2022), but inflation rose visibly here as well. A significant increase in prices generally leads to a reduction in investments, which in turn also affected NFT assets. To counter inflation, several central banks also raised interest rates, making more conservative alternative investments such as bonds more attractive. The underlying cryptocurrency for many NFTs, Ethereum, in particular saw significant price corrections as a result. Since, according to the crypto exchange Binance, 65% of NFTs are based on Ethereum, the corresponding NFTs were also affected.
A narrow view of only the price trends would not make the NFT markets appear lucrative at all at the moment. However, as with all other investment decisions, fundamentals play a major role and here the picture is completely different:
As with any emerging industry, whether airlines or smartphone providers, the initial phase, where many new companies and products emerge, is followed by a form of market consolidation. While it is unclear how long this will last, it is already apparent that the big players, such as Yuga Labs (known for BAYC & MAYC) or Nike (with the acquisition of RTFKT in December 2021) continue to establish themselves, which will continue to hold market share in the future, whereas less successful companies are leaving the token market. Additionally, consolidation of market participants is taking place. For example, in March 2022, Yuga Labs acquired Larva Labs, which became known for its CryptoPunks, Meetbits & Otherside collections. NFT Art is furthermore increasingly perceived as real art and is also already exhibited in galleries in Zurich, Barcelona or Amsterdam. Here comes in addition that 6 of the 10 most renowned museums, such as the Louvre, are likewise planning to present NFTs as works of art. An example of this is the Unsupervised exhibition by artist Refik Anadol at the Museum of Modern Arts in New York, which can be visited until March 2023. In addition, new trends are also emerging, such as the tokenization of music and corresponding loyalty rewards. Here, purchasers are rewarded with special editions, covers or the rights to attend concerts for purchasing the tokens.
It can be seen that especially on the side of the larger companies, the interest in investments and market entries, e.g. by the music industry or on the part of large technology companies such as Reddit, Twitter & Meta is still present and the general acceptance is spreading more and more. Meta, for example, is working on being able to use NFTs as profile pictures for Facebook & Instagram and Linktree is also currently implementing NFTs for individualization on their websites. Expected growth rates in the solid double-digit range underpin this and leave a positive mood for the coming period. Statista expects an annual growth rate of NFT sales of approx. 27% to USD 8.4 billion by 2027 and a group of NFT traders that will grow to 65 million. It remains to be seen exactly how this development will unfold, but various positive trends are emerging, such as the implementation of digital art or the use of NFTs for music.