Why are NFTs doing So Well in a Bear Market?

Key Insights:

• Nearly $8 billion worth of NFTs were traded in the first quarter of 2022.
• NFTs have been an investor favorite since last year as more hype gets built around the asset class. 
• While NFTs are doing well even in a bear market, there’s more to it than meets the eye. 

Crypto investors have raised alarms of a bear market since the crypto market cap fell below the $1.5 trillion mark. As bearish waves took over the market, top coins like bitcoin (BTC) and ether (ETH) began their rangebound movements.

On the other hand, most altcoins followed BTC’s trajectory due to the high correlation to bitcoin price. Interestingly, reports of the non-fungible token (NFT) market collapsing due to a bearish market started surfacing early in May. However, the so-called collapse of the NFT market was met with solid retaliation on crypto Twitter.

In fact, data suggested that nearly $8 billion worth of NFTs were traded in the first quarter of 2022, which was proof that the market cannot be considered to have collapsed. So, why are NFTs doing so well even in a bear market?

What are NFTs?

Non-fungible tokens or NFTs are a new category of unique digital assets and cannot be replaced by another identical asset. Unlike cryptocurrencies, which are interchangeable and divisible, each NFT is a one-of-a-kind item with its own intricate designs, behaviors, and transactions.

In the NFT space, almost anything can be tokenized – from in-game items to virtual worlds to artworks and even virtual real estate. The applications of NFTs are numerous and of late, NFTs have started to pick up in terms of social media popularity as well as retail volumes.

Over the last year, a number of ‘play-to-earn’ NFT games appeared as a number of projects emerged in quick succession, offering utility and earning opportunities via owning an NFT. Apart from blue-chip projects like BAYC and Cool Cats, it was tough for projects without established communities, partnerships, and brand recognition to retain value and interest.

Nonetheless, trading in NFTs hit $17.6 billion last year, registering an increase of 21,000% from 2020, according to a report from Nonfungible.com. Thus, as celebrities, sports stars, and musicians continued to onboard the NFT hype train, the sector continued to grow.

Exponential Growth of NFTs

Even though the overall sales volumes for most of the top NFT marketplaces were trending down in the recent quarter many market experts believed it to be a form of stabilization, in line with the last quarter of 2021.

Data highlighted that more than 2.5 million crypto wallets belonged to people holding or trading NFTs in 2021. Furthermore, Nonfungible.com’s research, showed that the number of NFT buyers rose to 2.3 million from 75,000.

However, that wasn’t it, people also got better at making money from NFTs, according to the report, with investors generating a total of $5.4 billion in profits from sales of NFTs last year. Additionally, 470 wallets managed to make profits in excess of $1 million, highlighting significant gains made from the NFT sector.

Over the last year, collectibles were the most popular category of NFTs and accounted for $8.4 billion worth of sales. On the other hand, gaming NFTs such as Axie Infinity represented the second-largest category, up by $5.2 billion in sales.

Are NFTs Bear-market Proof?

In the first quarter of this year, the general public seemed to be losing interest in NFTs as the search volume on Google saw a downtrend.

Nonetheless, NFT projects continued to look toward global brand partnerships to secure their longevity even in a potential NFT bear market. International brands such as Adidas, Coca-Cola, Nike, Louis Vuitton, Samsung, and Pepsi were now part of the NFT space which provided NFT projects the hype they needed to sail through a bear market.

That said, looking at data from Dune Analytics, OpenSea NFT transactions saw no significant dips despite the larger cryptocurrency market’s fall. Furthermore, uniques NFT buyers and sellers also maintained decent levels as the NFT markets registered a strong bounceback in April this year.

Notably, until early May 2022, NFT trade volumes averaged around $687 million per week, slightly up from an average of $620 million a week in the fourth quarter of 2021. While the value of some NFTs continued to increase, the global community could have lost interest because of speculation and a loss of interest in collectibles.

That said, as more institutions, large companies, and financial institutions enter the NFT space, the market would continue to drive by social hype and strategic partnerships. However, NFTs much like any other asset, aren’t entirely bear market proof. In fact, in the NFT space, the gaming sector showed a total loss of almost $50 million.

Therefore, it is crucial to do your own research and spot early signs in good projects that reach high volume and see users flocking to play.