The once-sizzling market for NFTs has become a spectacular bust, as high-profile auctions increasingly flop and investors who plunked down millions for bizarre digital artworks now struggle to unload them at a tiny fraction of what they paid.
Last spring, the little-known crypto artist Beeple sold an NFT for an eye-popping $69 million. This month, he revealed he’d been working with Madonna for a year to create a trio of racy NFTs that depicted the “Material Girl” giving birth to a tree, a centipede, and butterflies.
They sold for $135,000, $346,000 and $146,000, respectively.
“It was unexpectedly low,” Nick Rose, founder and CEO of NFT platform Ethernity Chain, told The Post.
The flop wasn’t unusual, however, amid the carnage that lately has engulfed so-called NFTs, or nonfungible tokens, which are unique digital assets on the blockchain that are often used for art. Last March, Bridge Oracle CEO Sina Estavi bought an NFT of Twitter co-founder Jack Dorsey’s first tweet for $2.9 million, calling it the “Mona Lisa of the digital world.” Last month, he scrapped an auction to resell it after the highest bid came in below $14,000.
“This has been fueled by ridiculously inflated cryptocurrency prices and hysterical bidding,” Jeff Bell, CEO of LegalShield, a legal protection firm for consumers, told The Post. “This is no different than the Gold Rush or the dot-com bubble where people get ahead of themselves — everyone wants to get rich quick.”
NFTs are getting hammered partly because cryptocurrencies — the payment method of choice for NFT sellers — are tanking along with tech stocks as the Fed hikes rates amid raging inflation. Bitcoin is off 58% from its all-time high of $69,000 in November. Ethereum — the most widely used cryptocurrency on NFT platforms — is also off 60 percent.
Figures for NFTs look even worse. According to NonFungible, the number of sales are hovering around 24,000 a day this week — off from a September peak of 225,000 per day. Cash spent on NFTs has also plummeted, with sales last week totaling $205 million — nearly 90% lower than their August high of nearly $1.9 billion, according to the research firm.
“NFTs blew up when stimulus checks were coming in but they grew too fast,” Rose said. “We’re going through a cool-down with the stock market, inflation, COVID, and Ukraine.”
Still more troubling, according to some insiders: Bored Ape Yacht Club — whose cartoon likenesses of strung-out-yet snappily-dressed primates have generated an estimated $2 billion since their launch a year ago — has recently seen prices for its NFTs tank. This week, its cheapest available on the OpenSea NFT marketplace was listed at about $183,135 — down sharply from an all-time high of $429,000 that was set at the start of the month.
The drop ensued after Elon Musk changed his Twitter profile to a collage of Bored Apes he had cribbed from a Google search — taunting a recent craze in which celebrities like Justin Bieber, Paris Hilton, Jimmy Fallon and Steve Aoki have blown hundreds of thousands of dollars to claim a unique, authentic Bored Ape for themselves.
“Seems kinda fungible,” Musk tweeted.
Still, Bored Ape Yacht Club’s creator Yuga Labs claimed a recent launch of property in the metaverse did “unexpectedly” well. And earlier this year, Snoop Dogg released a collection of NFTs that went for $44 million in five days. Experts say that’s because figures like Snoop and Bored Ape have been building relationships in the niche.
“Key players like Snoop Dogg have done a lot of community building,” Rose said. “Nobody is spending millions on single items… the mania has faded,” but building a loyal following in the NFT space will sustain some creators, according to Rose.
Meanwhile, signs of broad weakness are growing. CryptoPunk #273 — from an NFT collective called CryptoPunk that has built a cult following in the space by any standard — sold for $1 million six months ago. Earlier this month, it went for $140,000. In February, Reese Witherspoon’s media firm Hello Sunshine partnered with NFT collective World of Women. The minimum buy-in for an NFT has since tumbled to $10,000 from $34,000.
Worries about fakes and outright theft haven’t helped. The Winklevoss twins — who own and operate Gemini Cryptocurrency Exchange and bought NFT platform Nifty Gateway — have lost some of their digital art cache after being sued by one user who claims he was snookered in an auction and tricked into buying a $650,000 NFT he didn’t want.
“A lot of collectors I know don’t exchange there anymore,” Rose said. “I don’t.”
A spokesperson for the Winklevoss twins didn’t respond to a request for comment.
One report suggests 50% of all NFT owners have lost access to their NFTs. One user on Discord, a popular messaging app in the crypto and NFT world, recently posted that he was leaving out of frustration it was a hotbed for NFT chatter. “NFTs are a scam in many cases,” the user said, adding that a growing number of investors are “being completely screwed by NFTs.”
The number of active NFT buyers and sellers in the second quarter has plateaued around 500,000 — that’s down from a high of nearly one million in the first quarter and around 700,000 in the fourth quarter of 2021.
Ian Rosen, partner at The Tifin Group and former CEO of StockTwits, likened the NFT craze to the obsession with cabbage patch dolls or beanie babies.
“People think, ‘Hey, I made a picture and put it on OpenSea!’” Rosen said. “But just because it exists in the digital world doesn’t make it valuable.”
Still, those in the NFT space remain optimistic.
“With nearly $8 billion traded in the first quarter of 2022, the market cannot really be considered to have collapsed. We are seeing more of a form of stabilization,” NonFungible notes in a recent report.
Critics, however, point out it can be difficult to determine what companies are choosing to measure and whether it’s accurate. For instance, so-called wash trading — when sellers buy their own NFTs using two different accounts — can make platforms look like they have more activity than they really do.
“You’re not allowed to sell a fake Rembrandt, but we don’t see that kind of control here so people are getting burned,” Bell says. “There’s issues of blatant fraud where people drive up the price of NFTs by buying their own.”
That points to a broader issue with NFTs: The burgeoning sector is still new and largely unregulated. Until it’s a more regulated space, its up to users to guard their pocketbooks.
“Mom and dad aren’t going to protect you,” Rosen cautions. “If you don’t know who the sucker at the poker table is, it’s you.”