Contrary to Predictions – NFT ‘Is Not Dying’

Data collected by The Wall Street Journal suggests that the NFT market is in decline. However, active participants in the market know that this is far from the truth. 

WSJ Collects Dubious NFT Data

Contrary to what The Wall Street Journal might say, the NFT market is not 'collapsing'.

In an article published on Tuesday by The Wall Street Journal, journalist Paul Vigna claims that NFTs are 'dying'. The article begins with two bold assertions: daily NFT sales have fallen by 92 percent from their peak in September, and the number of active wallets trading NFTs has also dropped by nearly 90 percent from their highest levels in November. The statistics sound bad, but anyone who looks closely at where those numbers came from and the methodology that produced them should understand that 'it doesn't hold water'. 

According to Vigna, these numbers are from the website NonFungible.com, a self-proclaimed platform for data and analysis of the NFT market. Specifically, they appear to originate from NonFungible's NFT Q1 2022 report published on April 28. However, that report relies on a limited scope of data.

The report states that its data is drawn from transactions involving ERC-721 NFTs on Ethereum, on the Ronin sidechain used by the popular play-to-earn game Axie Infinity, and NFTs on the Flow blockchain. Given the large number of Ethereum NFTs now using enhanced contracts such as ERC-1155 and ERC-721A, NonFungible's sample includes older NFTs and excludes many newer collections. For example, Azuki, which is currently the sixth most traded NFT collection, is likely missing from the data because it uses the ERC-721A contract.

Moreover, the two Ethereum sidechains included in NonFungible's report, Ronin and Flow, both had a weak quarter. Ronin, which hosts Axie Infinity, recorded a significant drop in its player base as it struggles to rebalance its gaming economy after a recent loss of $550 million due to a hacking attack. Flow has also seen a decline in its largest NFT product, NBA Top Shot, with a drop in secondary market sales volume of over 80 percent since February 2021.

For some reason, NonFungible's data also omits NFTs on other blockchains such as Solana and Polygon. According to data from CryptoSlam, Solana processed over 21,000 NFT transactions in the last 24 hours, amounting to $7.3 million in trading volume. Polygon, although smaller, also processes trades of NFTs worth over a million dollars daily. By excluding the second and third most active blockchains for NFT trading, NonFungible's data does not accurately represent the entire sector. Therefore, claims that the data points to a declining market are misleading at best.

Highlighting Specific NFTs

As Vigna's article continues, he attempts to bolster his argument that the market is declining by citing examples of NFTs whose value has plummeted. First on his list is the NFT of Jack Dorsey, namely his first tweet on Twitter, which sold for $2.9 million in March 2021 and has since not received significant purchase offers. 

It is important to note that Dorsey's tweet was part of the first wave of NFT euphoria that hit the space shortly after Beeple's $69 million sale to Christie's. In that sense, it is not surprising that Dorsey's very specific NFT has not found another buyer. However, to say that this example represents the entire NFT space shows a staggering lack of awareness.

Just three days before Vigna's article hit the front page of The Wall Street Journal, the creator of the Bored Ape Yacht Club, Yuga Labs, conducted the largest NFT sale in history. The drop, which consisted of over 55,000 land parcels for its upcoming metaverse game Otherside, earned $310 million just in the initial sale.

Less than a week after launch, the collection surpassed $700 million in trading volume across more than 27,000 sales.

The Otherside drop is not an anomaly. During the first four months of 2022, several new collections such as Azuki, Okay Bears, Moonbirds, and VeeFriends Series 2 sold out after highly anticipated launches. Trading on secondary markets like OpenSea experienced a boom. Last month, the largest NFT marketplace recorded a trading volume of $3.4 billion.

To take just two of these collections as an example, VeeFriends Series 2 and Okay Bears together recorded nearly 20,000 sales over the past week. In his article, Vigna states that weekly NFT sales are currently around 19,000, but it is completely clear that he is wrong. 

Vigna's article also highlights an NFT from The Doggies collection curated by Snoop Dogg. Doggy #4292, one of the rarest pieces in the collection, sold for 9.69 ether in early April. Vigna states that the NFT is now up for auction with a price of over $25 million. In reality, as is a popular practice in the NFT space, the owner has listed the piece at an outrageous price, likely to encourage high bids from whales or indicating that they have no intention of selling it.

The highest current bid of 0.0743 ether that Vigna mentions likely comes from a scalping bot that routinely sends bids below the floor price to all owners in a given collection. Describing this as an 'auction bid' shows the inadequacy of the research and a disturbing lack of reporting. 

Vigna claims that the market is losing interest in NFTs, but the truth is that he does not know where to look. For those who follow the space daily, the NFT mania continues to strengthen. The vast majority of available data supports this. OpenSea, the largest NFT marketplace, now regularly generates over $10 million in daily revenue compared to averages of $6 to $7 million in November 2021. In early April, it also recorded its second-highest daily trading volume, earning $19.7 million in less than 24 hours.

Data from the blockchain analytics service Nansen paints a similar picture. Nansen's Blue Chip-10 index shows a rapid increase in the market capitalization of desirable NFT collections such as Azuki, Clone X, and Doodles. The index has recorded an 81 percent year-over-year increase and is currently trading at all-time highs.

Why Are NFTs in Demand?

The final error from The Wall Street Journal article that needs to be addressed is the so-called 'imbalance between supply and demand' in the NFT market. Vigna alludes to the supply of NFTs outpacing the number of buyers as a sign that the market is collapsing. While this may hold true for traditional stocks, he spectacularly misunderstands the value proposition of NFTs.

It is like saying that no one wants shoes anymore because thousands of ugly, low-quality sneakers sit on store shelves while Nike and Adidas are doing very well, and limited edition Yeezys are selling for multiples higher on the secondary market.

Looking through the lens of the traditional art market, the supply of produced physical artworks far exceeds the demand from art collectors, but that does not mean that the fine art market is in decline. The barrier to entry for creating NFTs is incredibly low, which is a good thing for emerging creators. But it also means that a lot of scams and bad projects are emerging. Collectively measuring the entire NFT market in terms of supply and demand is irrelevant when each collection trades on its own basis. Yuga Labs' recent Otherside drop proves this.

While other collections would struggle to sell out 55,000 NFTs for thousands of dollars each, Yuga Labs did so while still disappointing thousands of people who were not lucky enough to mint their NFT.

Surprisingly, NFTs seem to be the only crypto asset currently defying shaky macroeconomic prospects. While the FED raises rates and risk assets like cryptocurrencies and stocks fall, NFTs continue to attract money from speculators and new buyers. NFTs may experience a pullback in the future in response to further economic uncertainty. If inflation continues to erode the amount of money the average person has, it could reduce demand for 'non-essential' and luxury items like NFTs. But for now, contrary to what The Wall Street Journal might believe, the NFT market continues to thrive.