Did the Russian Airstrikes Pour Cold Water on the Booming NFT Market? [Next.Jjin]

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] "Has the Non-Fungible Token (NFT) market peaked?"

The Russian airstrikes on Ukraine have poured cold water on the 'uncharted territory' NFT market. Since the beginning of this month, market transactions have sharply declined and prices have plummeted. The NFT market, which rapidly grew last year mainly among young people, is now surrounded by questions about whether the bubble has burst. What exactly is happening?

Prices and Trading Volume Suddenly Plummet After Soaring

According to Bloomberg on the 14th (local time), NFT data research firm NonFungible revealed that the average transaction price of NFTs fell below $2,000 earlier this month. After reaching an all-time high of $6,900 on January 2nd, it dropped to less than one-third within two months. Looking at the average daily total transaction amount, it was $26.2 million on the 3rd, down more than 80% from $160.2 million on January 1st.

This downward trend was unpredictable as recently as January and February this year. Last year, the NFT market grew significantly, raising expectations that this expansion would continue this year. According to NonFungible, last year's NFT sales totaled $17.7 billion, an increase of more than 200 times compared to the previous year. The average NFT transaction price also rose from $49.18 in 2020 to $807.52 last year. The NFT market, which had been soaring rapidly, suddenly crashed.

[Image source=EPA Yonhap News]

The recent downturn in the NFT market was triggered by Russia's airstrikes on Ukraine. Especially since about 80% of NFT transactions are conducted using the cryptocurrency Ethereum, fluctuations in Ethereum's price have impacted the NFT market. Ethereum's price dropped more than 5% on the 24th of last month when the airstrikes began. During the week leading up to the escalating geopolitical crisis, Ethereum's price fell more than 20%. Compared to the all-time high in November last year, it has dropped over 40%.

Additionally, foreign media analyze that the U.S. Securities and Exchange Commission's (SEC) intensified regulatory investigations into NFTs have also affected the market. Recently, news emerged that the SEC is investigating NFT creators and platforms for potential securities regulation violations, causing the market to freeze. Reports that NFTs might be used as a fundraising tool similar to regular stocks have raised concerns about increased regulation, which is believed to have led to decreased trading.

Bubble Skepticism VS "More Buyers Than Sellers"

In fact, skepticism about an NFT bubble has been ongoing. Currently, NFTs are mainly used to trade digital art, videos, and game items. By assigning uniqueness to limited original content through NFTs, these digital items are sold and traded in the market, causing prices to soar explosively. Bubble skeptics argue that prices surged rapidly based on support from young people and celebrities, and some explain this as the process of bubble formation itself.

However, some argue that interpreting the recent market downturn as the bursting of the NFT bubble is premature. The NFT market still has more buyers than sellers, and major collectors continue to show sustained interest without slowing their purchasing pace. One foreign media outlet reported, "Major investors see NFTs as a crucial technology applied to the new vision of the web composed of cryptocurrencies." In fact, while NFT market transactions have decreased, famous NFT projects like the Bored Ape Yacht Club (BAYC) and CryptoPunks have seen steady increases in trading.

The NFT market is an area attracting attention from both domestic and international companies. Although a clear business structure for generating profits through NFTs has yet to be established, companies are exploring ways to utilize the technology as a means to indicate ownership of digital assets. Following last year, NFTs continue to be used as a new marketing tool this year. Since this technology is still in the review stage for many companies, it is important to closely observe how the market responds to such a 'black swan' event, whether a bubble truly exists, and if there are any business risks involved.

Editor's Note[Next.Jjin] means 'looking ahead to the real next in business' and is a section that delivers overseas news related to future businesses such as metaverse, artificial intelligence (AI), and robotics, as well as startups. We will uncover and explain both major visible issues and small but important hidden issues in an easy-to-understand manner.