A recent report pioneered by the Wall Street Journal made headlines with the claim of a market collapse in the NFT space, following a 92% decline in transaction volume from September last year. Quoting data from NFT market analysis firm Nonfungible, the report cherry-picked data; and likely with no ill will, ended up not painting the forest for the trees.
However, the same analysis firm has just released its 1Q2022 NFT market report and sure, the market has collapsed: if we consider a 4.6% decrease in QoQ (Quarter over Quarter) volume as a sign of "flatlining" or "collapsing" demand. While this writer is no philosopher, it definitely seems like both statements can't be simultaneously true. This is no quantum physics, after all.
According to Nonfungible, the NFT market did experience a downturn on qualified trading volume, dipping from 4Q2021's roughly $8.25 billion down to around $7.87 billion on the first quarter of 2022. Other NFT market metrics saw more significant contractions: the total number of NFT sales dropped by 46.96%; the numbers of active buyers and sellers too declined by 30.91% and 15.61%, respectively; and the number of active wallets declined by a still significant 25%.
Even so, there's important data to be gleaned; for one, the 5% decrease in trading volume contrasts with the significant reduction in number of NFT sales. This indicates - and Nonfungible's data backs it up - that while the number of transactions declined, the value of those transactions actually increase. According to the analysis firm, the average price of NFT sales shot up by an incredible 80%, from $587 in Q4 2021 to $1,057 in Q1 2022.
This isn't a collapse: this is the result of a market that's been evolving away from PFP (Profile Pic) collections (think Cryptopunks) with releases that reach the tens of thousands of NFTs in a single drop, to smaller, value or utility-added collections (with added costs). At the same time, there's a broad, macroeconomic picture to consider. The Russian-Ukraine war hasn't left PC hardware alone, and the Traditional Finance (TradFi) sector hasn't emerged unscathed either: today has already been one of the worst days in years.
Of course, all of the above falls flat in its face if the meaning of the word "collapse" changed. But at time of writing, and according to Merriam-Webster, it hasn't.
