Eight months ago, this column asked if we were entering an NFT downturn. The answer, it turns out, was a giant yes.
That NFT hype is behind us is something we could tell without even looking at any data. But we do love data, and backing up our hunches, so we’re going to take a closer look at some of the very same charts we examined earlier this year.
The universe of non-fungible tokens is fragmented by definition since they can be minted and sold by anyone across a number of blockchains and marketplaces. But there’s actually a reasonably good proxy to evaluate how the market is doing: trading volume on OpenSea, one of the main NFT marketplaces, and a startup that was valued at more than $10 billion earlier this year.
The Exchange explores startups, markets and money.
Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.
We need to add a caveat here: OpenSea was perhaps more central to the NFT market when we started using it as a reference than it is today. In the meantime, new players have emerged, and not all of them share OpenSea’s Ethereum-based roots.
For instance, there’s Joepegs, an NFT marketplace on the Avalanche blockchain that recently raised a $5 million seed round from the Avalanche Foundation and FTX Ventures (whose funds they “transferred out of FTX prior to recent bankruptcy events,” the Joepegs team said in a statement.)
More importantly, Coinbase finally launched its long-anticipated NFT marketplace. But it was off to a lackluster start, and data from analytics platform Dune shows that trading volume on CoinbaseNFT is only a small fraction of OpenSea’s tally (or LooksRare’s, for that matter) over the same period.
In other words, OpenSea is no longer the only fish in the pond. But if we want to look at how things are trending for NFTs, looking at its monthly totals is still a useful starting point.
So what does OpenSea’s trading volume look like these days? Are other data points trending differently? Let’s explore.
OpenSea’s difficult 2022
We asked if the NFT market was slowing in March of this year. In tech terms, that’s a while back. In crypto timelines, that’s a decade ago. Still, compared to where we are today, March’s numbers appear in the rear-view mirror like a lost golden era.
Per Dune, here’s the value of NFTs traded on OpenSea on the Ethereum blockchain since then, per month, in U.S. dollars, rounded:
- March: $2.48 billion
- April: $3.49 billion
- May: $2.60 billion
- June: $695 million
- July: $529 million
- August: $502 million
- September: $349 million
- October: $319 million
- November (partial data): $138 million
Recall that Ethereum-based NFT transactions on OpenSea peaked at $4.86 billion in January of this year. The comedown has been more than real — it’s been brutal. Even more, the successive declines in recent months appear sticky; the early-year gyration in month-to-month volume changes has been replaced with a steady downturn.
Given that OpenSea makes its rent by charging a fraction of each sale for use of its platform and technology, as volume falls, so do its trailing revenues. OpenSea has proven that it can generate huge revenues when activity in its market is hot. But it is sensitive to changes in that market, meaning that its valuation, which once made sense, now appears somewhat outsized.
What about Coinbase and the rest?
Looking at the NFT market apart from the Ethereum blockchain on OpenSea means we have a number of lenses through which to peer. What we want to see is whether there are any counter-trend data points that we should consider. Put more simply: Is our OpenSea-led viewpoint accurate, or are other exchanges seeing data go in the other direction?
Starting at the earnings level, NFTs got a scarce mention in Coinbase’s Q3 earnings letter and its constituent analyst call. This should not surprise, given what Dune data indicates regarding the Coinbase NFT project. Sales are small (four figures per day, five weekly, seven figures all-time) compared to other Coinbase revenue sources. Per the charting, we can see the data is on the decline from a low base.
Coinbase has never generated its bread-and-butter from the NFT market, so the somewhat modest start to its non-fungible sales is not existential for the company. Still, folks might have expected more.
Other datasets looking at the NFT market more comprehensively tell a similar story. One Dune dashboard collecting sales data from a number of platforms (OpenSea, NFTX, LooksRare, SuperRare, Foundation, Rarible, LarvaLabs) shows similar trends. (Dune, we’d do well to recall, raised a massive Series B earlier this year.) Sales are falling over time, active buyers and sellers are sinking, and total transaction counts are also slipping.
Looking at other chains, OpenSea data for NFTs sold on the Solana and Polygon chains offer little to contrast our understanding of the larger market for non-fungible tokens.
On the other side of the coin, the best piece of NFT news comes from an unexpected place: Reddit. During a panel discussion at TechCrunch Disrupt, chief product officer Pali Bhat said that over 3 million Redditors have used Reddit’s Vault blockchain wallet, with 2.5 million of these wallets being used to buy NFT avatars.
Redditors have created millions of crypto wallets to buy NFT avatars
The Reddit example underscores that there is still some juice in the NFT market. Things are still being minted, bought, and sold. But it is just as clear that the NFT market needs a catalyzing event to break its current malaise.
So what?
NFTs were heralded as a crypto-native and unique use case for the blockchain. The model was said to be applicable in places as broad as digital avatars and single-copy art all the way to real-life concert tickets and video game items. Given how broad the use cases for NFTs were — and, therefore, how useful blockchains themselves would prove over time — the failure of the model to keep up its momentum is a net negative for all of crypto.
What could shake up the dynamic? We’ve tinkered with the question before, but the answer may be deceptively simple. What was going on when the NFT market was hot? Crypto prices were going up. Perhaps NFT sales — and therefore consumer interest? — are simply a second-order effect of the value of crypto tokens. A bit like how venture capital investment is a second-order result of the value of tech stocks, NFTs may gyrate based on the overall directional wealth of crypto holders.
If so, all we need to rejuvenate the NFT market is another boom in the value of ether, bitcoin and the rest. That’s no small demand, but also one that feels modestly bullish. Let’s see what happens through the rest of the year and if any of the major NFT exchanges are able to raise more capital. The price at which they are able to do so (or not) will tell us what we need to know about the health of their businesses — and how much optimism they can gin up among the investing classes.
Comment