If the NFT universe is in a bubble, will the market crash? That is a question that keeps circling in the mind of many investors. While many believe that the NFT market will crash and disappear, Gary Vaynerchuk and Michael Rubin have a different view. They believe that the crash will clear the fog, revealing the market’s path. What will happen to the NFT universe if the market crashes?
NFTs
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Gary Vee, CEO of Kraft Analytics Group, has compared the non-fungible token market to the dot-com bubble of the 1990s. Dot-coms were valued at eleven figures just before the rise of e-commerce. However, when the bubble burst, the price of a single NFT dropped to less than two dollars. The cumulative daily sales of NFTs fell from $160 million in January to just over twenty-six million on Thursday.
Currently, prices for NFTs are high and may continue to rise. But central banks are tightening monetary policy and will punish new asset classes harsher than other assets. For example, in March 2021, Christie’s sold a Beeple JPEG file for $69.3 million. The file was entitled “Everydays – The First 5000 Days.”
The price of non-fungible tokens will crash because they are unsustainable. Although many of these projects are still in the development stage, the NFT market is very speculative and will eventually crash. Like the Dutch tulip mania of 1634-37, the NFT market will crash owing to exuberance and environmental concerns. The process of mining bitcoin and ether also leaves a massive carbon footprint, so the NFT market is based on sand.
Top crypto artists are more likely to crash than others. Top crypto artists understand the mechanics and form of the cryptocurrency market. These artists were among the first to adopt the platform standards, and their NFTs have multiplied in value. They are also known as leaders in the Art community. Those NFTs from famous people or musicians do not experience multiples. Those from top crypto artists will likely have collectible moments and have value multipliers.
Crypto-eutopia
If the crypto-eutopia of today is based on non-fungible tokens (NFTs), then we can expect a massive crash in the NFT market. NFTs are a type of digital currency that can create a massive spike in interest but that eventually drops off. Think of how inflated stocks can reach a plateau of activity and then suddenly collapse, as happened in 2000. As with stocks, however, this bubble will come to an end, and the markets will be left in ruins.
While NFTs do allow people to own physical masterpieces, they do not protect them from others using their digital copies. Many wealthy investors pay millions of dollars for the physical masterpieces that they possess. However, these digital files are identical in appearance and could easily become commodities, forcing their prices to crash. Therefore, there is a chance that if the NFT market crashes, the value of NFTs will plummet.
The price of NFTs has plunged by 90 percent since May’s peak. On June 2, NFTwallets had fallen from 12,000 to just 3,900. Many headlines questioned if NFTs were dead, but they persevered through the lull. The price of NFTs is likely to crash because people are buying luxuries that do not have much utility and generate huge profits.
Whether crypto-eutopia is a false idea or a genuine asset class, it is a question that will not go away. The underlying problem is the lack of a stable monetary policy. If the NFT market crashes, it will collapse permanently, even if the price of a particular asset remains high. It is impossible to predict what will happen with the prices of these non-fungible tokens.
Copyright infringements
If you’re thinking of investing in the NFT market, there are a few important things you should know. Infringement of copyright laws could result in the NFT market crashing. Infringement can happen even if you don’t intend to use someone else’s work, but it’s still a serious concern. Infringements of copyright laws can damage the market’s value by causing extreme interest to sour.
Some NFTs grant limited copyright use rights to their owners. For example, CryptoKitties owners can make up to USD 100,000 in gross revenue every year, but other NFTs restrict commercial use. For example, Kings of Leon’s NFT contains restrictions on use of its music. These restrictions are intended to protect the rights of the creator. Ultimately, if copyright is abused, it could bring the nft market crashing.
Environmental concerns
The NFT market is relatively new, but environmentalists are sounding the alarm over rising temperatures, destruction of lands and savannas, and a rise in extreme weather events. While data on the ecological impact of the market is scarce, some artists are tackling the issue head-on. For example, digital artist Memo Akten has produced a website displaying the average carbon footprint of a NFT transaction. Meanwhile, Brussels-based artist Joanie Lemercier has turned into a climate activist after discovering the NFT market’s contribution to emissions.
As the NFT market continues to grow rapidly, the industry is being pressured to implement greener technologies and offset emissions. For example, in March, prominent digital artists sold carbon-neutral artwork to the Open Earth Foundation, which is developing blockchain technology. A new tool, called Carbon Footprint Calculator, also helped artists calculate their carbon footprints. Sotheby’s is hosting a second NFT auction dedicated to this type of currency, after a successful auction last year raised $17 million for the charity.
In addition to the financial impact on society, NFTs also pose a threat to the environment. As more people adopt the blockchain technology, energy consumption increases, which could thwart efforts to tackle climate change. One single Ethereum transaction uses 133 kilowatt hours of power, enough to power a US household for four and a half days. That’s equivalent to about 64 kilograms of carbon dioxide.
However, the NFT market has been growing in size, extending into games, collectibles, and sports. In July 2020, games accounted for 33% of NFT sales, while the metaverse made up 39% of transactions. Collectibles and sports made up the largest segment of NFT transactions in July 2020. And DJ Justin Blau has recently made over $11.6 million from his blockchain-based album.
Price volatility
As the NFT market has grown, so have the price peaks and lows. Prices of art and luxury goods declined by 40% after the global financial crisis. Now, as central banks tighten monetary policy to prevent inflation, these new asset classes are likely to be punished even harder. Because the NFT market relies on cryptocurrencies, there will be no backing for the prices. The NFT market will continue to become volatile and crash, so it’s important to exercise caution when investing in digital assets.
While there is a large amount of speculation in the NFT market, the current frenzy is speculative and could burn many investors. Many equate the current frenzy in the NFT market with the Dutch tulip mania of 1634-1637, when some bulbs fetched astronomical prices. But a price crash in the NFT market would not be so catastrophic, unless this market crashes.
The speculative nature of NFTs makes them highly volatile. As a result, investors may see their stocks plummeting rapidly, causing them to panic and sell before losing all their money. However, NFT prices have been steadily declining since February 2021. Because of this, many investors were unaware that the bottom was coming, and they panicked and sold at a fraction of the value. This caused the market to turn bearish.
Although skeptics warned that the craze was unsustainable, it still remains a viable option for retail investors. The price of NFTs is now down to just over $2,000 from $6,800 in January. In addition, the cumulative daily sales of NFTs dropped from $160 million in January to $26 million on Thursday. This volatility has been the main cause for the market crash in NFTs.