An NFT, or ‘non-fungible token’ is a unique digital file that can represent things like photos or videos online. NFT ownership is stored and tracked using blockchains, the same technology that supports cryptocurrencies such as Bitcoin (BTC/USD).
NFTs differ from cryptocurrencies in that they are unique and are not interchangeable with each other. As they are one of a kind, popular NFTs can be extremely valuable and change hands for large amounts of money.
NFTs have been around since the mid-2010s, but it wasn’t until 2017 that the industry caught people’s attention. A new game called CryptoKitties was launched, in which people could buy, collect, and even breed digital cats. Fast forward to 2021 and the NFT market has evolved to include multimillion-dollar digital assets.
The rise and fall of NFTs
The first few months of 2021 was unlike any previously seen period as the NFT market smashed all previous records. The total trade volume of NFTs dipped from $310 million in March to $150 million in April, leading some to conclude that the bubble was already bursting. Some feel that the price rise is pure tech speculation with little value or utility behind the products being sold.
Trading volume is expected to increase in the near-term (by the end of 2021 and in the first three months of 2022). We see clear examples of large volatility, for example, the infographic below shows a drop in volume from $150 million in April to around $140 million in May.
This table shows equally high volatility in user search volume as with trading volume, which, perhaps could have been expected. For instance, Google shows a search popularity score of just 26 in February, going all the way up to 90 in March, then back down to around 25 in June and July.
NFT unique active wallets
This metric doesn’t have to translate to active daily users because it makes reference to unique addresses that interact with a given smart contract. In-game NFTs and the play-to-earn movement have largely driven growth in gaming activity. In Q3/2021, in-game NFT collectibles generated $2.32 billion in sales according to data cited by CoinTelegraph. This accounts for almost a quarter of the total NFT trading volume for the period. The research cited states:
In the midst of all the euphoria around Ethereum (ETH/USD) collections like CryptoPunks and Bored Ape Yacht Club (BAYC), the role that NFT in-game items played may be overlooked.”
After a drop in May and June 2021, the industry is back on track, and the numbers have been increasing steadily since then. In August this year, ETHER rose 35.10% as Ethereum burned over $500 million worth of tokens (147,759 ETH) after EIP-1559 was activated.
Solana (SOL/USD) closed August at above 100$, after rising by over 175% from the previous month. Solana almost hit $200 in September and went on to trade north of $250 in October. All of these results influenced the number of wallets, which increased in August and especially in September.
Geoff Osler, CEO and co-founder of NFT app S!NG, says as much. The NFT craze was likely driven by “pent-up demand” from assets accumulated from increasing cryptocurrency prices. At the moment, the market is stable.
Trade volume and market cap
Luke Lango, a growth-focused equities investor and analyst, wrote on September 5:
In 2020, the global NFT market did about $338 million in transaction volume. The global collectibles market – including physical trading cards, games, toys, cars, and more – is a $370 BILLION market. That’s up more than one-thousand fold. By our logic, then, the global NFT market can (and will) grow by 1,000-fold over the next 10-plus years.
Gauthier Zuppinger, chief operating officer of Nonfungible, told CNBC in an interview:
The thing is that, each time you’ll notice such a quick increase on any trend, you’ll see a relative decrease, which basically stands for a market stabilization.
CNBC also spoke to Nadya Ivanova, chief operating officer of L’Atelier, a research firm affiliated with BNP Paribas, to get her prediction:
High-profile NFTs selling for millions of dollars was a sure sign that the market was treating them as speculative assets. And by definition, markets for speculative assets are unstable and liable to dry up. The bigger question for NFTs is their long-term value, which we believe is likely significant. As augmented and virtual reality technology matures, normal people are going to spend more and more of their time — and therefore money — in virtual environments.
Gartner predicts that by 2026, non-fungible token gamification will propel an enterprise into the top 10 highest-valued companies. As early as 2022, we will see companies dabbling in the creation of NFTs for a fee according to Forbes.
Q&A with Daniel Liu: co-founder and CEO of INFLUXO
We had the opportunity to briefly speak with Daniel Liu, investor, portfolio manager, and compliance expert in the blockchain space. He is co-founder and CEO of INFLUXO and the partner of INBlockchain, one of the most influential investment groups in the Asian crypto space.
Q: How high do you think the market cap for NFTs will reach by the end of this year?
Liu: The NFT market has witnessed a volcanic growth this year when the revenue of digital collectibles reaches 2 billion us dollars per JP Morgan report. The NFT fever will not subside as top commercial branding jumps in. By the end of the year, we could expect an NFT market with over $10 Billion
Q: Can you make a prediction for where this might sit in five years time?
Liu: The generation shift from the physical world to the virtual world has accelerated NFT, as an ownership form of digital assets, has far broader applications. We’ve just seen the start of the art NFTs and NFTs in gaming. The potential for these two sections alone is remarkable.
The total market cap of the global traditional art market is valued at 50 billion US dollars in 2020. The online gaming industry generated 175 billion US dollars this year. In five years, the NFT market of digital collectibles could easily take over half of the pie, and we are facing a hundred billion market.
Q: What do you believe are the key factors influencing this market growth and why?
Liu: Reiterating the tools(like NFT wallet and marketplace) and better user interface will undoubtedly lower the threshold and drive mass adaptation. The community building of an NFT project is also critical to public education and brand awareness.
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