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Has the NFT digital art tide turned?

The NFT digital art market has long been suspected to be tied intrinsically to the fortunes of cryptocurrencies, but with both markets being very young, it was hard to be certain; correlation doesn’t always mean causation. Crypto markets began their bull run after a dramatic crash in spring 2020, and though there was a lift in NFT sales at the time, things didn’t really boom until early 2021. A year later, crypto markets peaked and then began dropping, and NFT sales followed shortly afterwards.

August 2021 saw almost $5 billion of NFT sales, with an average sale price of over $1,000, within two months that had halved, and by Spring 2022 little has improved, and much of the excited buzz around NFTs has dissipated as crypto markets start crashing even lower. There are still billions of dollars worth of sales every month; far more than most months through 2021, but NFT art buyers and holders are already starting to rethink their buying strategies, particularly as the NFT market has flooded with poor quality, get-rich-quick projects.

There are still diamonds in the rough, projects with perceived quality such as Bored Ape Yacht Club and Cryptopunks are still full of buzz and seeing respectable sales and value increases, but many other projects are seeing lack of interest and decline. Much like cryptocurrency, there are many advocates who won’t sell or trade their NFTs because they believe in the long term value and potential, but this creates a market where little of quality is available to buy, and few buyers want to take the chance right now.

Enter the NFT art yield market, and the world of DeFi; decentralised finance

As decentralised cryptocurrencies have risen, so have a number of decentralised finance products, ideal for those who want to monetise their crypto holdings without actively day trading. Yield farming is one of the most popular and straightforward products in this field, where a crypto asset can, basically, be lent out in return for interest or other rewards, similar to a P2P loan. As NFTs have boomed in value and popularity, it has also become possible to do the same thing; DeFi organisations can make money from your NFT which they will share with you.

Of course, like most things in the crypto world, there’s plenty of risk involved in these new financial instruments, which rarely fall under any kind of regulation. The market has yet to go through a full cycle; crypto may yet be a brief bubble that never returns, and holders of currencies of NFTs would probably do best to sell at the highest price they can. Believers in the crypto and NFT digital art space would argue that the really big prices are yet to come in a future cycle, as crypto gains mass adoption; if they’re right, sitting on the assets and using yield farming is a good plan, so long as the yield farm doesn’t collapse or disappear overnight with their assets.

NFTs can also be utilised to raise a loan, just like mortgaging a house or taking a loan with your car as collateral, for NFT collectors with large sums tied up in their collection, this can also be a tempting proposition; have the money available to spend, trust in the growing value of the NFT to take care of the interest costs. Whilst there are very obvious large risks with this, such as dramatic declines in NFT value leaving you with a vast loan you can’t pay off, NFT loans have also seen a mini-boom in popularity.

But is the NFT art market in terminal decline? Or just a dip?

Perhaps the eternal question of the cryptocurrency market, and now a key question in the NFT art market as well, and it exposes one of the flaws with the entire concept of art NFTs. The value of real world art like oil paintings could suddenly collapse, leaving owners of high value paintings with an expensive nothing, but at least it’s a beautiful and unique, one of a kind item you can hang on your wall. With NFTs you have a JPG or GIF which anyone in the world can take a copy of from the Internet, for free.

Believers in the future of NFTs don’t care, they buy completely into the concept of value in the NFT as the designated digital “original” artwork, but the majority of people in the world fail to see that value in quite the same way, whilst almost anyone can see the value in the original Mona Lisa. Things are worth whatever people will pay for them, but if most people can’t see the value in NFT digital art, it is unlikely to attain much value in future, their peak may already be past, caused by a moment of intense speculative buying and Covid lockdown boredom.

Cryptocurrency itself does have a clear value and purpose, and it’s fair to speculate it could be the future of money once the kinks are ironed out, but whether Governments around the world choose to let that happen is another matter, and we may see Botcoin and others also fade away buried in regulations and legislation that favours the digital dollar or pound. Only time will tell if time is up for NFT art…

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