Statistics from Statista project that the NFT market is set to achieve a valuation of US$3.2 billion by 2027, surging from its 2023 value of US$1.6 billion. This growth represents a compound annual growth rate (CAGR) of 18.55%.
The NFT market experienced a substantial decline following its peak in the spring of 2022. The key question now is regarding its future prospects. Let’s delve into what lies ahead for NFTs.
In recent months, the non-fungible token (NFT) market has witnessed a significant downturn, with minimum prices plummeting below 30 ether — an 83% drop from the peak in 2022. This decline raises uncertainty about the future trajectory of NFTs.
The inception of the Ethereum ERC-721 token marked the beginning of a remarkable price bubble for NFTs. Sales of colossal magnitude, such as Beeple’s NFT fetching US$61 million and Damien Hirst’s ‘The Currency’ collection raking in US$89 million, initially suggested that the NFT boom would be everlasting.
Between August 2021 and April 2022, weekly trading volumes frequently ranged between US$750 million and US$1.5 billion. However, the average token sale price has markedly declined by 92% from 2022 to 2023, dropping from US$3,894 to US$293, as reported by Chainalysis.
The significant market drop raises questions about the reasons behind it and its implications for the future of NFTs. Interestingly, as the NFT market experienced a decline, the price of Bitcoin, on the other hand, surged. This raises the question of whether there exists a correlation between the performance of crypto and NFT markets.
Is there a discernible connection between blockchain-based assets?
According to Alun Evans, the CEO of Freeverse, the strength of the crypto market reflects a “perceived weakness in regular financial markets.” He emphasizes that cryptocurrencies are viewed more as commodities than traditional currencies, as evidenced by Bitcoin’s regulation in most jurisdictions.
While Bitcoin’s surge might not directly relate to the dip in NFTs, Toby Rush, CEO and Co-founder of Redeem, holds a contrasting view. He argues that Bitcoin and NFTs have witnessed a simultaneous strengthening.
He asserts, “Beyond being an example of continued initiative and development in the NFT space, this also reflects the enduring interest among consumers to engage with new NFT innovations despite the overall decline in the NFT market.”
The NFT market, despite its current decline, appears to be headed for a robust future. Reframing NFTs as more than mere investments or tradable assets suggests that the NFT market’s future remains promising despite the current downturn.
As per Statista’s data, the NFT market is projected to reach US$3.2 billion by 2027, soaring from US$1.6 billion in 2023, with a compound annual growth rate (CAGR) of 18.55%.
This positive outlook is reinforced by the anticipation that the number of NFT users will reach 19.31 million by 2027, with an expected user penetration rate of 0.2% by the same year.
In light of these projections, the future of NFTs looks optimistic. As perceptions of NFTs evolve, the current market dip is likely to alleviate in the foreseeable future.
Comprehending the Essence of NFTs
Alun Evans from Freeverse isn’t overly concerned about the NFT market downturn. He contends that investments should not be, and ideally should not have been, the primary use case for NFTs. He emphasizes that the true value of blockchain and web3 technology lies not in artificial scarcity, but in the ownership and evolution of digital assets based on their usage by the owner.
He elaborates, “This introduces liquidity into areas that were previously impossible — such as assets in video games or loyalty programs for large brands.”
Considering this perspective, perhaps the market price drop for NFTs is more of an adjustment in understanding their optimal use cases. After all, the ERC-721 token was introduced as recently as 2017.
The Future Role of NFTs
For Alun Evans, viewing NFTs primarily as an investment is merely a prelude to their broader purpose. He suggests, “While NFTs can be traded, similar to all tradable assets like gold, oil, or art, they can serve temporarily as investments or stores of value.”
He further emphasizes that this should not be the predominant use case going forward. The potential of asset tokenization is to generate liquidity in previously inaccessible domains. The value of NFTs should be contingent on their utility — how and where they can be used — rather than their scarcity.
According to Evans, NFT technology holds more practical and valuable applications beyond the initial hype and speculation that characterized its early phase. He sees the emergence of the next generation of NFTs, referred to as “dynamic” NFTs, offering a promising future for the technology.
In contrast to NFTs that derive value from scarcity or speculation, dynamic NFTs enable active engagement with the underlying brand or offering. This encourages owners of dynamic NFTs to interact, share, or trade them, thereby enhancing long-term user retention and presenting significant opportunities for the games industry and brands in general.
The potential of NFTs extends far beyond investments and trading. This viewpoint is concurred by Toby Rush from Redeem. He underscores the importance of recognizing that NFTs need not be confined to their initial use case, much like how static, read-only websites didn’t define the internet.
He elaborates, “For instance, NFT-powered tickets can act as cryptographic proof of ownership and authenticity, facilitating entry to live music concerts, sporting events, and more. These tokens can grant users exclusive benefits based on their interactions with the brand, purchases at an event, or other unique aspects of their experience.”
In summary, utility reigns supreme, and harnessing the intrinsic utility of NFTs in innovative ways for the end user is crucial for an NFT renaissance. Offering enhanced utility unlocks new revenue streams for businesses and provides a convenient entry point for new users into the Web3 space.
Do NFTs Have a Role in the Metaverse?
Considering the emphasis on utility for future NFT use cases, let’s explore the potential role of NFTs in the metaverse. Crypto and other blockchain-based products and assets are anticipated to have a substantial impact on this virtual future. What role can NFTs play in the metaverse?
Alun Evans believes that NFTs can play a significant role. He states, “The metaverse is an extension of our digital experiences, where we have the freedom to present ourselves in whichever way we choose. This is where the importance of our digital possessions becomes evident.”
He asserts that if we can move beyond the primary use case of NFTs as investments, what remains as the main benefit of the technology is ownership. NFTs serve as an excellent means to showcase ownership of digital items, both within the metaverse and beyond.
Toby Rush agrees, stating that NFTs are “one of the cornerstones of what blockchain enables.” He envisions that NFTs, with their potential to evolve, will continue to be pivotal in the emerging Web3 ecosystem.
He adds, “The various implementations of NFTs show no signs of slowing down. Token-gated events are on the rise, allowing only
holders of specific NFTs to gain access to real or metaversal events.”
Furthermore, the “phygital” movement, which blends physical luxury goods with digital equivalents, is gaining traction. While this trend may be progressing more slowly in the West, consumers in Asia are particularly receptive to such promotions. For example, a recent metaverse event hosted by the K-Pop group BlackPink reportedly attracted 46 million users.
Toby Rush attributes this success to the fact that Web3 is less stigmatized in Asia compared to the West. Asian consumers are more open and excited about the benefits of this new technology. Given that Asia often leads the West in digital trends, this indicates that we are still in the early stages of discovering the full potential of what NFTs can offer in the ever-evolving landscape of digital assets and experiences.