Hot market for NFTs cools as digital art boom fades

“NFTs saw explosive growth in 2021, but this growth has not been consistent and has leveled off so far in 2022,” Chainalysis wrote in its report.

So far in 2022, NFT collectors or traders have spent more than $ US37 billion across various marketplaces.

While some enormous NFT sales have dominated headlines, Chainalysis data shows the vast majority of NFT transactions are under $ 10,000 in various cryptocurrencies.

Larger transactions that generally signify a “collector” is purchasing as opposed to a speculative trader, jumped during 2021 but since September have remained flat.

“This suggests that, for the time being, the addition of new retail NFT investors is keeping pace with the addition of bigger NFT investors,” the report reads.

“However, if we think in terms of transaction value rather than number of transfers, we see that NFT collectors make up a majority of activity.

“Institutional investors are nipping at their heels, and even make up the majority of activity in certain weeks when extremely large purchases have been made.”

During October last year, institutional transfers made their mark, with purchases of several high-value NFTs in the Mutant Ape Yacht Club collection recorded.

Following that, institutional-sized transfers now make up 33 per cent of all NFT trading activity.

Australians have participated in the frenzied market activity, with several young people telling The Australian Financial Review they were using the volatile markets as a way to save money for a house.

However, the NFT markets also attracted a wide variety of frauds and online scams. One of the most common scams involves “wash trading”, where someone buys and sells their own NFTs to themselves in order to create “hype” to try to drive up the value.

While “wash trading” is common, a separate Chainalysis report found it isn’t very profitable on the whole.

In fact, of all the “wash trading” that happened in 2021, the lion’s share of profits – around $ US8.9 million – went to just 110 accounts. The vast majority of other wash traders actually lost a total of $ US417,000.

While there are still headline-grabbing sales of some NFTs, there have been signals the hyped-up market was cooling for some time.

Recently, an NFT of Twitter co-founder Jack Dorsey’s first tweet, which sold for $ US2.9 million in March 2021, attracted a high bid of $ US14,000.

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