Bear Market Blues: The State of NFT Trends, Challenges, and Opportunities in 2023

The Non-fungible token (NFT) market has seen a sharp decline in activity since its 2021 peak, when 'NFT' at one point was among the most searched words on Google.

According to the latest report by DappRadar, the total NFT trading volume in August 2023 was $559 million, a 16% drop from the previous month. Cumulatively, NFT trading volumes this year stand at $8.9 billion, which is only a third of the volumes generated in 2021 and 2022: $24.7 billion and $25.2 billion, respectively.

However, it is worth noting that despite a decline in total volumes and sales, NFTs still account for a large share of the active Web3 space, making up 37% of unique active wallets in the DApp ecosystem.

In the next sections of this article, we will further analyze some of the major trends in the NFT space to provide a clearer picture of the current state of the NFT market.

Ethereum Continues to Dominate NFT Development

While several Layer 1 and Layer 2 blockchains have emerged in the recent past, none of them has yet challenged Ethereum’s dominance in NFT development. As per the latest data, Ethereum commands over 80% of the NFT market share, having recorded $0.84 billion in trading volume in June 2023.

But what's more intriguing is the emergence of Bitcoin as a contender in the NFT space following the launch of the BRC20 standard that has given rise to Bitcoin ordinals (to be discussed in a later section). In Q2 2023, NFT-related volumes on the Bitcoin blockchain surged to an impressive $0.34 billion, which was roughly 10.8% of the total NFT volumes.

Other blockchain platforms that also still have some traction in the NFT ecosystem include ImmutableX, Polygon, Solana, Flow, Arbitrum, and the BNB chain.

Blur Surpassed OpenSea as the Premier NFT Marketplace

One of the interesting developments in the NFT space year was Blur leapfrogging OpenSea to become the leading NFT marketplace. Launched in October 2022, Blur surpassed OpenSea in February 2023 when the project debuted its native token, $BLUR, airdropping $300 million worth of this governance token to 'loyal' NFT traders.

But Blur’s rise has not been without criticism. According to several crypto experts, Blur’s incentive model has contributed to lowering the floor price of NFT collections. The project’s NFT lending platform, 'Blend,’ has been in the spotlight for giving NFT traders access to excessive leverage, which may have triggered the cascading NFT liquidations witnessed in July 2023.

Blockchain Games NFT Collections Lead in Trading Volumes

Blockchain games remain the most active NFT category, both in terms of daily active users (DAUs) and trading volumes. The latest statistics from Dapp Radar reveal that the top 5 traded NFT collections all belong to the gaming sector.

Axie Infinity is currently the most traded NFT collection with a market capitalization of $224 million, followed by other popular NFT games, including NBA Top Shot, Mythical Beings, Gods Unchained, and NFL All Day.

NFT Floor Prices and Metaverse Land at 2-year Lows

As expected, the floor price of top NFT collections has declined compared to the highs of the bull market. The Bored Ape Yacht Club (BAYC) floor price is currently at 24.8 ETH ($40,052), according to NFT Price Floor metrics; this represents a significant drop from its peak price of 152 ETH ($429,000) in April 2022.

The Azuki NFT collection has also experienced a similar decline, further exacerbated by the launch of Azuki Elementals. This launch sparked an uproar, with critics arguing that Azuki’s latest NFT collection is basically a ‘replica’ of the artwork in its pioneer collection.

The winter has been no less forgiving to the metaverse land barons. A comparison by Coingecko reveals that land parcel prices in popular virtual worlds, such as Decentraland and The Sandbox, are much more affordable now than they were a year ago. The average price of land in Decentraland has fallen to 0.64 ETH from 5.24 ETH, while in The Sandbox, prices have decreased from 4.20 ETH to 0.43 ETH.

Investors Are Holding Back: Funding Continues to Decline

After the events that shook the crypto market last year, from Luna's collapse to FTX's insolvency, investors seem to be more cautious. The latest funding data reveals that only $297 million was invested in the blockchain gaming space in July 2023. In contrast, this segment attracted over $4.4 billion in funding in 2022.

Low Investor Sentiment - Time to invest?

Undoubtedly, the NFT market has witnessed a significant dip in investments, with investor sentiment highly bearish. Yet, historically, such periods often present the most lucrative opportunities in the larger crypto realm. Could this be the golden moment for NFTs as well?\

We sought further insights from legendary Punk6529, an NFT enthusiast and expert, on the prevailing market mood,

“NFTs are the newest, least developed part of the crypto ecosystem. It is normal in this context to have very significant market cycles, similar to early BTC. Prices and volumes for NFTs will go up and down, but nothing changes the fact that they are the only way to own non-fungible digital objects and, more generally, intangibles in a decentralized, composable manner (as opposed to a specific corporation's database). As with BTC, ETH, and DeFi, it is a big intellectual leap to understand them, and adoption will take time.”

Bitcoin Ordinals - The New NFT Phenomenon

As mentioned earlier, Bitcoin ordinals are the latest addition to the NFT ecosystem. This newly added Bitcoin protocol allows users to leverage satoshis (sats) to generate Bitcoin NFTs. By design, each Bitcoin is composed of 100 million sats, which can be uniquely identified and tracked. This enables individuals to attach additional data through a process called inscription, making it possible to create NFTs on the Bitcoin blockchain.

Bitcoin ordinals were launched in February and gained momentum in Q2, generating over $400 million in trading volume in May with a total sale count of 832,648. However, the hype seems to have subsided, with monthly volumes shrinking to less than $5 million as of mid-August 2023.

NFTs Beyond Art and Gaming

NFT innovations are also being adopted beyond the blockchain ecosystem, most notably in asset tokenization. According to projections by Boston Consulting Group (BCG), this burgeoning niche has the potential to grow into a $16 trillion market within the next decade.

In line with this, several developments are already underway. Traditional financial institutions, including tier-1 banks like Goldman Sachs, have indicated that they might soon leverage the potential of NFTs to broaden access to some of their financial products.

Also more recently, SWIFT announced that it has completed a joint blockchain interoperability test with several financial service providers, including BNY Mellon, BNP Paribas, SIX Digital Exchange, and Citi, in a bid to pave the way for the tokenization of the traditional financial ecosystem.

For a comprehensive review of how NFTs are impacting traditional industries, we have published an article on the topic with more detailed insights.

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