Similar to what happened with NFTs in 2021, the ICO bubble accelerated with higher highs in markets.
If you were one of the few people who realized we were in the midst of a non-fungible token (NFT) bubble last year, then congratulate yourself.
You managed to do what most people could not do: a great analysis of the long-term macro trend of the crypto market and summarize 1 + 1. This is because it is not the first time that we have navigated uncharted waters and ended up disappointed. Remember the ICO (Initial Coin Offering) bubble in 2017/18?
What’s Different This Time?
Well, it’s not the first time we’ve had a boom and bust cycle in the cryptocurrency market. Looking back at the ICO bubble in 2017/18, everyone hailed this new fundraising instrument as superior to boring Initial Public Offerings (IPOs), conducted in fiat currencies. Now, five years later, we know that this hype has cost dearly.
Similar to what happened with NFTs in 2021, the ICO bubble was accelerated by higher highs in the markets and seemingly endless showers of new investor capital inflowing, pushing the price higher.
A never-seen-before macro trend pushed the price of Bitcoin to $18,000, and $1,100 for Ethereum. An expansionary monetary policy, with an interest rate of almost 0% in the two main world economies, the United States and Europe, opened the way for risky investments, including crypto and, in particular, NFT.
In December 2018, prices began to slowly decline, aside from the fact that there was no particular external factor that we could blame for the drop. No central bank was raising interest rates, no Putin declaring war on Ukraine, and no COVID-19 responsible for excessive money printing.
What Has Changed?
After DeFi peaked in the summer of 2020, NFTs were the next big thing, starting with the sale of Beeple’s Everydays. The NFT auctioned by Christie’s sold for a record price of $69 million, sparking a worldwide frenzy.
In the following months, weekly dollar NFT sales volume fell significantly from a peak of $6 billion to approximately $100 million.
It was a market downturn that resulted in declining prices for NFT collections and lower sales volume.
The crypto market capitalization peaked in November 2021, only to see higher NFT sales volume from January to April 2022, respectively.
After crypto lender Celsius filed for Chapter 9 insolvency, the entire space seemed to be reeling and trying to find a solution to what is about to happen. With prices falling, highly collateralized companies found themselves liquidated sooner rather than later. 3AC, Nuri, and Voyager are a few companies to name.
Fundamentals are Critical, as with All Investing
As with all crypto investments, the fundamentals of NFTs give us an idea of the upside potential. According to a study by DappRadar, unique wallets in Q3 2022 grew 36% compared to Q3 2021.
In addition, the technology is developing rapidly. With three different NFT standards: ERC-721, ERC-1155, and ERC-4907, the technology offers us a wide range of uses.
On the one hand, companies are working on innovative solutions to real-world problems, as well as trying to educate and recruit new users. On the other hand, artists are given the tools to interact with their community, as well as finally get what belongs to them, which mostly results in higher gross profits from sales. This is just the beginning
By Audy Castaneda
