Let the macro institution Real Vision tell you, has the NFT bear market arrived?

Original Title: "Have we entered an NFT bear market? And if 'yes,' what can we do about it?"

Author: Mr.Fox

Compiled by: Kxp, Rhythm BlockBeats

Editor's Note: In the recent market crash, the NFT secondary market, which has always been disconnected from the crypto secondary market, also experienced severe fluctuations, with mainstream NFTs like Bored Apes and Azuki seeing declines of over 20%. Coupled with the decline in PFP popularity, there hasn't been a project to attract players for a long time, leading to the spread of the view that "NFTs have entered a bear market." In this email from Real Vision, the macro institution shares its perspective on the current NFT market, which Rhythm BlockBeats has translated below, hoping to provide assistance to readers.

Have we entered an NFT bear market? If so, how should we respond? Let's get straight to the point.

The following chart is a snapshot of NFT trading volume on Dune Analytics over the past few months:

Since mid-February, NFT sales have been on a rapid decline. This is not significantly related to the war that began on February 24, as sales actually increased at that time.

In the past week, several major NFTs, including Bored Ape Yacht Club, CloneX, Doodles, Azuki, NFT Worlds, World of Women, and Cool Cats, have seen their floor prices drop by 20-35%.

So, what exactly caused this bear market?

Hypothesis 1: Exaggerated Tax Loss Harvesting Released Pressure

Compared to December 2021, NFT trading volume has shown a significant rebound since January 2022. Many believe that this surge in trading volume is primarily due to the alleviation of selling pressure caused by tax loss harvesting. (Note: U.S. IRS policy)

Theoretically, NFT market participants hope to close out their losing positions to enjoy tax benefits in the next year's report. This situation contributed to the market slump in the late fourth quarter of 2021; although various market activities continued in an orderly manner, prices faced a downturn.

Entering 2022, selling pressure eased, and the NFT market as a whole began to recover.

However, are people buying NFTs again because they are no longer worried about tax issues, or because they fear others will resume purchases without considering taxes?

While we cannot answer this question yet, it may provide some insight into our initial query: if we are in a bear market, what is the reason?

I think the answer may be that the increase in NFT trading volume in January was not a sustained rise, but merely a temporary peak.

Therefore, perhaps the NFT market is not in a bear market but has simply returned to normal after a period of growth.

Hypothesis 2: The Market Peak May Have Arrived

In contrast to the previous hypothesis, this theory holds a pessimistic view of the NFT market.

If you have ever learned about emerging technologies, you have likely seen the following chart during the decline of NFT prices.

This chart illustrates the emerging technology maturity cycle curve created by Gartner, which includes NFTs and decentralized identity in its 2021 version. This cycle is generally used to showcase the usage of emerging technologies. While some people frequently use this chart to predict market trends, I would not draw conclusions from it. In my view, we should explore the possibility that the NFT market has reached its peak after a year of growth.

Let’s analyze the first two stages of this chart and what they mean for the NFT market.

A. The Triggering Phase of Technology Birth—Digital Identity and Mainstream Utility

Some believe that the NFT bull market began as early as January 2021 with the popularity of NBA Top Shot.

Some made a lot of money on NBA Top Shot, but when Dapper Labs decided to continuously increase the supply of "Moments," prices fell sharply. For the largest holders, the asset's value dropped by over 75% from its historical peak in their portfolios.

Unfortunately, smaller NBA Top Shot holders chose to exit the NFT market, partly because they had no money to invest in other NFTs and partly due to a loss of confidence, not wanting to continue in the NFT market.

Those who held more NBA Top Shot assets also suffered some losses, but they had already made enough to continue investing in other NFTs. These individuals shifted their focus to other NFT projects, such as CryptoPunks and later Bored Apes.

Next, we will explore the second part of the first stage of the NFT technology maturity cycle. If Top Shot was the first mainstream use case, then Bored Ape Yacht Club is the first project to use NFTs as a suggestion for digital identity among community members.

The popularity of Bored Apes can be attributed to two main factors:

1. As we just mentioned, this club was the first to allow NFTs to serve not only as anonymous digital identities but also as membership NFTs. Therefore, while Bored Apes may seem very cool to many, the exclusive privileges they offer are the real reason people like them.

2. The popularization of metaverse knowledge has led people to believe that Bored Apes (and other NFT avatars) can represent their appearance in the virtual world, further driving the market.

Soon, this notion transformed into: "In the future, a billion people will spend their days in the metaverse, so everyone needs an NFT digital avatar. Therefore, whoever can launch a good NFT project quickly will see their value soar in the future."

This explains why a large number of cartoon animal images and profile pictures emerged in the NFT market last summer, but it is clear that we do not need to discuss why prices became so high afterward.

The only question is: what will happen if no metaverse platform (Decentraland, The Sandbox, Somnium Space, etc.) can provide us with a metaverse experience that meets expectations?

Given this, the question becomes whether these digital avatars that surged in popularity last year should maintain such price levels before a fully functional metaverse is built. Building a fully functional metaverse will take at least 6 to 7 years.

Thus, we enter the second stage of the technology maturity cycle.

B. The Peak of Overinflated Expectations—Overpriced

The more people expect their NFTs to thrive in the metaverse, the more likely those expectations are to be infinitely amplified, ultimately becoming unrealistic. Aside from market prices, no one can accurately predict how much people will spend to wear Bored Apes in the metaverse.

But what happens if people cannot wear Bored Apes in the metaverse? The answer is: people will engage in speculation and conjecture.

As a result, prices may reach excessively high levels.

Now that we understand the position of NFTs and digital avatars in the technology maturity cycle, I believe you have a clearer understanding of the reasons behind the NFT bear market.

Hypothesis 3: The NFT Market Lacks Technological Innovation

The third and final theory regarding the recent decline in NFT trading is that the NFT market has lacked technological innovation since the bull market began.

The NFT market has made little progress in underlying blockchain technology, limiting its development prospects. This is also why many NFTs feel repetitive. Over the past year, the NFT market has only experienced a few technological innovations.

The most recent innovation is credited to Azuki, which introduced a new token standard (ERC-721A) that significantly reduced gas fees incurred during the minting process of NFTs.

Aside from profile page images, we could even apply this concept to all NFTs. Digital artworks have not fully utilized the certification and traceability features of NFTs (perhaps they do not need to), and music NFTs have made no tangible progress over the past year. Worse still, NFTs have no promising applications in other fields.

In a period of technological stagnation, new ideas struggle to iterate and develop, and the downturn in the NFT market may also be one of the reasons for this situation.

These are the three most likely theories we currently see in the NFT market, and the actual reasons for this decline may be a combination of these three.

So, if we are indeed in a sustained downward trend, how should we respond?

The development of NFTs is still in its infancy. I see many people advocating for buying in at this time, but I do not think this is a good strategy, as we cannot be certain whether today's NFTs will hold value in 1, 5, or 10 years.

Instead, I would prefer to spend more time learning. Many will leave this field, which will greatly reduce the noise in current public discussions.

This way, those who remain will be the participants who can offer valuable insights, and we will learn more from them. Additionally, the downturn in the NFT economy gives us time to reflect. Previously, the NFT market was advancing too rapidly, so the current stabilization period should be what people expect to see, as we can finally delve into the technology, use cases, and theories of NFTs.

If you spend as much time as possible learning during the NFT downturn, you will be well-positioned for success when the bull market returns.

We will continue to explore the unknown.