Non-fungible tokens (NFTs), tradable digital certificates that verify ownership of digital assets using blockchain technology, have dominated headlines in the last several months. The media mania hit a high with the $69 million sale of Beeple’s Everydays:The First 5000 Days. A few months after Beeple’s historic sale at Christie’s auction house, the crypo-art bubble has officially burst.
NFTs Take a Tumble
Beeple himself predicted the decline of NFTs in a March 2021 interview with CoinDesk, a media outlet for blockchain and cryptocurrency news . “I think it’s a bubble,” he said. “If it’s not a bubble now, I do believe it probably will be a bubble at some point, because there’s just so many people rushing into this space.” Concerned about Ethereum’s volatility, he cashed out his earnings into hard U.S. dollars . That wise move protected his stash from the effects of this year’s May 19 sell-off, which wiped $1.2 trillion in value from the crypto market. According to marketplace tracker Nonfungible.com , average prices for NFTs dropped nearly 70% from its February peak to around $1,400. As a result of the crash, and possibly because of environmental concerns, user activity has also plummeted.
History Repeats Itself
It should not come as a surprise that non-fungible tokens are sliding downwards to a trough; They exhibit the highs and lows of any speculative market, which have followed predictable paths for centuries. In February 1637, a speculative frenzy in the Netherlands was fueled by the sale of one tulip bulb for 6,700 guilders, netting the seller enough to purchase a small mansion. A “tulip mania” ensued, followed by a crash later that month which wiped out up to 95 percent of bulb prices. Centuries later, the dotcom bubble followed a similar pattern, as have dozens of other fads, crazes and speculations. It was just a matter of time before NFT investments were dragged down by the gravity of certainty.
Interestingly, there is an even deeper connection between the 16th century tulip mania and the demise of crypto art: both occurred during epidemics, which forced people to spend inordinate amounts of time indoors. Tulip mania coincided with a bubonic plague outbreak in the Netherlands , while the current Covid-19 pandemic likely had much to do with the NFT phenomenon as well as GameStop and dogecoin.
What’s the Future?
While history can tell us a lot about the expected peaks and troughs of speculative markets, it also offers a caution about dismissing new technology. Not so long ago, two obscure bicycle repairmen who had never been to college were ridiculed by notable scientists about the impossibility of their invention, until they flew their “impossible” invention—the airplane-- at Kitty Hawk . Internet trading was also dismissed as a passing fad after the dotcom bubble, only for Amazon to emerge from the rubble as a virtual powerhouse. It definitely isn’t all doom-and-gloom in the NFT-verse either; While crypto art is certainly taking a tumble, other virtual artifacts like digital real estate are holding their ground; Currently, NFTs linked to digital real estate are outselling crypto-art linked NFTs.
Chris Wilmer, a University of Pittsburgh academic who co-edits a blockchain research journal states in a Bloomberg article  that “There will be manias and irrational exuberance, but cryptocurrency is clearly here to stay with us for the long term and NFTs probably are too”. Only time will tell whether the market has long-term potential. While investors are more likely be to more judicious about their purchases going forward, NFTs, including crypto art, are likely here to stay; As long as artists continue to mint new NFTs and buyers still purchase them, the market will eventually stabilize as much as any speculative market can. .
Image: Joate3, CC BY-SA 4.0, via Wikimedia Commons