017 was truly a year of hype around crypto and blockchains. By 8th January 2018, the world’s cryptocurrencies total value was worth just over $828 billion, a stark contrast to the mere $17 billion the year before. Bitcoin had also been riding high, reaching just under the $20,000 threshold in late 2017. Meanwhile, 2017 saw the initial coin offering (ICO) boom. A play on initial public offerings, ICOs are a way for startups to raise funds through distributing coins with the promise that they will have a value upon launch. This soon gained popularity and created a frenzied secondary market and in turn drove up the price of Ether, the cryptocurrency of the Ethereum blockchain.
But this all came to the fore in 2018 with US Securities and Exchange Commision (SEC) taking control of the situation amidst the flock of scammers in the market promoting ‘pump and dump’ schemes’. In addition to this, the crypto space saw one of the largest hacks in its history with the Coincheck cryptocurrency exchange losing around $500 million worth of assets. And suddenly the bubble appeared to have burst with prices tumbling down, including Bitcoin ‘plunging’ by 80%. By the end of 2018, the total world’s cryptocurrencies were worth around $130 billion, marking a 79% decrease, and this was later coined as a ‘crypto-winter’.
The Forthcoming Winter
So why does this brief bit of crypto history matter? As the graph below suggests, we are also heading for a ‘crypto-winter’ with a marked 69% decrease in the cryptocurrency market cap. Many factors have affected this downtown, from what David Morris calls the ‘Crypto’s Great Unwind’, to more broader externalities such as the pandemic, the Ukrainian - Russian war, inflation which means that many investors are turning away from risky assets such as cryptocurrencies.
The NFT market has felt a similar decline, below, we can see the general picture of the current state of the NFT market overall. Whilst this data does not include transfers, it indicates a downward turn in the overall NFT market.
Should we be worried? Whilst a decline is never a good sign in terms of sales, there is some solace in this down period. Firstly, with the frenzy over, scammers and others who were in the space to ‘get rich quick’ are unlikely to stick around. This will leave a quieter space filled with those that are genuinely interested in exploring the application of web3 into the wider cultural economy. Secondly, there is less pressure to conform to the market patterns and instead offers more time to experiment with different approaches that might otherwise be too risky to launch in a saturated market. Indeed, many of the well known names of the NFT ecosystem emerged from the 2018 crypto winter including platforms such as KnownOrigin (April 2018), SuperRare (April 2018), Rarible (October 2019).
Moreover, whilst the initial picture might look unpromising for NFT space, taking a more granular look at the data provides a slightly different (and even slightly hopeful) overview. For example, Nansen’s recent report indicates that many investors are ‘flying to safety’ as opposed to jumping out of the NFT space altogether. In speaking with the Arts Newspaper, Louise Choe from Nansen notes that many buyers appear to be shifting from higher risk NFTs such as ‘1/1s’ to more established collections which are considered a safer investment. In other words, buyers are not necessarily disappearing but changing their purchasing behavior and choosing to purchase from well-known collections as opposed to blue chip NFTs.
Likewise, the recent Art+Tech report highlighted that purchasing behavior isn’t always affected by price. Their findings noted how over 75% of their respondents didn’t care about the potential to make a profit on the NFTs, which suggests that they are purchasing for other reasons including for the aesthetic or the utility. In addition, they found that 76% plan on buying more NFTs in 2022. Whilst a small sample, these findings offer some hope for the future of the Art-based NFT market and suggest that the downturn might not affect this field of NFTs as much as the other sectors.
The Key Takeaway
In summary, what can we say about the incoming crypto winter? Whilst the next few months might be tough, this isn’t the first time crypto have faced this kind of uncertainty. Similarly, many cultural institutions’ pockets will be squeezed with the incoming recession and further inflation. Therefore, now is not the time to give up on new potential sources of income.