The NFT bubble may have popped, but the sector is still primed for expansion

NFT sales and active wallets fell by more than 40% in the past month but new layer-2 infrastructure is preparing the sector for the next surge.

Nonfungible tokens (NFTs) took the world by storm in March and April of this year with an onslaught of daily headlines about record-breaking sales and big-name companies dropping their own one-of-a-kind digital art pieces dominating the mainstream media.

Fast forward a few months and the narrative has shifted to the ‘NFT bubble’ popping and doom and gloomers warning that NFT investors are on the verge of losing all of their money.

NFT market 1-year history. Source: NonFungible

The rapidly declining prices and activity on the top NFT marketplaces have prompted many to speculate on the death of the nonfungible token space despite the well-known cyclical nature of the crypto market that can spring back to life at the drop of a hat.

Active users jump ship

Active users are the lifeblood of NFT marketplaces, but the choppy nature of the cryptocurrency markets over the past two months, including the May 19 sell-off which saw $1.2 trillion in value wiped from the crypto market cap has led to a precipitous decline in user activity.

Number of active wallets on NFT marketplaces. Source: NonFungible

As seen in the chart above, the active wallets on NFT marketplaces peaked near the end of March and has since fallen by more than 40% as declining values combined with high transaction fees on the Ethereum (ETH) network kept traders out of the market.

The decline in active wallets coincided with a decline in sales across the space as rapidly falling token prices exacerbated the losses of holders and collectors who saw their valuable art pieces lose up to 90% of their value overnight.

Total number of sales on NFT marketplaces. Source: NonFungible

The decline in active users has resulted in a 60% decrease in total daily sales which fell from a high of $325 million on May 7 to its current figure at $110 million.

NFTs are down but not out

All is not lost, however, as there are many solid value propositions and use cases for NFTs that entrepreneurs and traditional businesses have noticed and embraced the sector.

The blockchain ecosystem has already put forth multiple viable options to deal with problems facing the NFT sector, such as the launch of Enjin’s Efinity and JumpNet protocols which help to lower fees and allow for interoperability across different networks.

Another popular solution Polygon, an Etheruem sidechain that allows projects to stay on Ethereum while also having access to a fast, low fee environment. In the past three months a large number of NFT-oriented and gaming projects have migrated to Polygon and as the crypto and NFT market improve, these low fee environments should help to boost activity on the network.

Top 5 NFT marketplaces. Source: DappRadar

While the current statistics may look bad when compared to the recent all-time highs when viewed from a longer time frame one can see that the average number of NFT sales rose nearly 300% between January and the end of May. This shows that there is strength in the sector despite the market plunge that began on May 12.

The NFT ecosystem may have seen a significant drop in activity and token values over the past month but it’s far too early to proclaim the death of NFTs as the world has only scratched the surface of what is possible with this nascent smart contract technology.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.

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Author: Jordan Finneseth

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