NFT market learning to recognize value over hype, say experts

After about a year of inflated sales and obscene valuations, the market for non-fungible tokens (NFTs) is starting to mature, experts say. On April 13, an auction for an NFT of the first tweet ever, which was sold for $2.9 million by Twitter co-founder Jack Dorsey in March last year, closed at a high bid of $277 — a massive drop from its original price.

This, according to experts, is a sign that NFT buyers are increasingly learning to value these digital assets correctly, instead of simply going after internet hype. 

“Most NFT creators fall for the hype without understanding how to create value,” said Sidharth Sogani, founder and chief executive of CREBACO, a crypto analysis firm. “They are too focused on the price,” he added. “There have been more than 6,000 NFT projects. There have been so many NFT offerings and people have invested large amounts, but they have managed to sell less than 10-15% of generic NFTs. They just flip it to increase prices,” he noted.

Sogani isn’t the only one who has noted this trend either. Tosehndra Sharma, founder and chief executive officer of a firm called NFTically, which offers software-as-a-service for businesses to set up their own NFT marketplaces, rejoiced that the “real value is showing in the market” now.

According to blockchain analysis firm Chainalysis, 110 NFT wash traders made close to $8.9 million in profits last year. Such activities will be difficult going forward, as the market learns to recognize true value.

“The hype period is gone. Going forward, no investment will happen based on hype,” Sharma said, noting that investments in NFT startups will also shrink because of this. 

The hype around NFTs has helped startups raise millions in funds. According to investment tracking firm Venture Intelligence, VCs invested $520 million in web3 startups in 31 deals in 2021. In 2022, they have already invested $522 million in 20 deals so far, $450 million of which was in homegrown blockchain firm Polygon, which is recognized to be a key player in blockchain infrastructure worldwide.

Though the jury is still out on the number of NFTs owners in India, it is believed to be growing given the large user base of cryptos in the country and the hype generated by cricket and Bollywood NFTs. For instance, last November the auction of an NFT collection of veteran Bollywood actor Amitabh Bachchan’s father’s poems and movie posters fetched $9,66,000 (approx Rs 73 crore).

To be sure, startups are aware of this change in the market too. For instance, large firms like MakeMyTrip and MG Motors sold NFTs over the past four months using fiat currencies instead of cryptocurrencies. They did so using a platform called nGageN created by homegrown blockchain firm KoineArth.

Alternatively, crypto exchange WazirX’s NFT marketplace announced in February that it will allow creators to post collections instead of singular NFTs. The company calls these “nano-NFTs” and the idea is to allow creators to build a community around their artworks, music etc. instead of selling one NFT at a time.

Sandesh B. Suvarna, vice president, WazirX NFT Marketplace, noted that globally NFT 10K projects, like Cryptopunks and Bored Ape Yacht Club (BAYC) have been the most successful. But such projects usually require creators to spend on creating their own infrastructure, and the nano-NFT initiative hopes to provide that infra to creators.

10K projects are those where the creators launch a whole host of NFTs and build a community around them. Such projects have been able to partner with brands for NFT-related marketing activities too, like BAYC’s partnership with footwear brand Adidas last year. BAYC and Cryptopunks, both of which consist of a line of digital avatars, rank amongst the valuable NFT projects in the world, according to data from blockchain tracking firm DappRadar.

Not everyone is convinced that the market is changing just yet though. Prashant Garg, partner, technology consultant at EY, said that while prices of more NFTs will crash, it might be too early to call this a trend just yet.

“What has happened here is that the perceived value of an NFT hasn't turned out to be true. What this may do is that NFT enthusiasts will be cautious as they invest in assets with low utility and perceived value such as cool cat or Bored Ape Yacht Club,” added Garg.

With input from Prasid Banerjee