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NFT Market Downturn: A Comprehensive Analysis and Future Implications

Published on: Jul 17, 2023
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In Brief

Dive into the causes and impacts of the recent NFT market downturn. Discover its effects on collectors, creators, and the future of NFTs.

NFT Market Downturn: A Comprehensive Analysis and Future Implications

The NFT market has been on a decline since the hype of 2021, which has collectors licking their wounds and many creators struggling to sell their tokenized work.

We’ll take a deep dive into the NFT market downturn in this article, looking at how the market functions, the main recent events in the NFT landscape, some case studies of NFT projects affected by the current market, and lastly, take a look into the possible future of the NFT market.

Understanding NFT Markets

Non-fungible tokens (NFTs) are digital representations of unique digital or physical items created and stored on a blockchain.

NFTs are never similar and cannot be replicated, with each NFT having its own unique identifier, making them “non-fungible” tokens (as opposed to fungible tokens like digital currencies).

The first NFTs were minted by Kevin McCoy in 2014. These NFTs were video clips by Kevin’s wife, Jennifer, and were created on the Namecoin blockchain. Since then, NFTs have become one of the main innovations in Web3, gaining popularity and value as more NFTs were minted and traded.

While the first NFTs were videos, they usually represent a number of things, from music, art, books, legal contracts, tickets to games, title deeds, and more.

Regardless of what they are, NFTs need to be minted and stored in a secure wallet like Trust Wallet. You can also use Trust Wallet to access NFT marketplaces through the Trust Wallet dApp Browser.


By using an NFT wallet like the Trust Wallet Chrome Extension or mobile wallet you can make sure that your NFTs are safe and secure.

How the NFT Market Functions

When NFTs gained public attention in 2017 on the Ethereum blockchain thanks to the crypto collectibles game, CryptoKitties, few thought that they would gain popularity and even become highly-valued crypto assets in the industry. However, in 2021, we saw a boom in the NFT market.

During the 2021 boom, there was a rise in the price of NFTs, with some NFTs like the Merge by a digital artist called Pak and The First 5000 Days by Beeple being sold for $91.8 Million and $69.3 Million, respectively. These remain the most expensive NFTs sold to date.

While these high-level sales were going on, creators of NFTs were excited about the new possibilities and began minting more NFTs and selling them on marketplaces like OpenSea, Nifty, Superrare, and more.

Companies also started buying into the concept, with NFTs finding utility in gaming and the Web3 space, while other companies like the NBA also put up their own NFT collections.

Generally, the NFT market functioned and still functions on the same basis as a lot of other markets, with people creating NFTs and others buying them on marketplaces. The buyers of NFTs can then choose to store their NFTs using wallets like Trust Wallet or resell them at a higher value.

While reselling NFTs at a higher value is what most people who invested in digital assets hoped for, there are numerous other factors that have influenced the NFT market, specifically the valuation of NFTs.

Some of these factors include:

Regardless of the factors, many investors use different methods of valuation to determine the value of NFTs in the market. These methods include the market approach, income approach, discounted cash flow model, cost approach, and more.

Next, we’ll take a look at the recent events that have been rocking the NFT market landscape and how they have affected the value of NFTs.

Recent Events in the NFT Market Landscape

2021 was by far the most profitable year in the NFT industry.

However, the sudden rise in prices and massive interest in NFTs (combined with extensive wash trading) created a bubble with unrealistic prices for NFTs with little to no real value. The hype stopped in early 2022, and the bubble popped, resulting in steep losses for collectors who held onto their JPEGs and other NFTs throughout 2022 and 2023.

For instance, a recent tweet claimed that a Bored Ape Yacht Club NFT held by Justin Beiber had dropped in pricing by 95% from an initial purchase price of $1.3 million to a current price of $59,090.

This drop has been reflected in the Bored Ape collection’s pricing, which was recently valued at a floor price of 27.5 ETH, the lowest price the collection has had in the last 20 months. While other people in the industry have stated that this tweet was misinformed and that Justin had not yet sold his Bored Ape, it also showed that there is a noticeable downturn in the NFT market and also pointed at issues in valuing NFTs.

This downturn is not limited to the Bored Ape collections but also to other collections, such as Azuki, which we will discuss in the next section. Meanwhile, let’s look at some of the things that have been faulted so far for the downturn in the NFT market.

Wash Trading

The most notorious factor that has been brought up as the cause of the decline in the NFT market is wash trading.

Wash trading occurs when people buy their own NFT to inflate its market value and give a false impression of how much an NFT actually is. This type of trading was cited in a 2022 study by Dunes Analytics, where they mentioned that up to 80% of NFT trading that year was actually wash trading, and 45% of all NFT trades were wash trades.

Wash trades lead to false price action, pushing up prices of NFTs that should have never really sold for that much in the first place.

Utility Value

While NFTs have been seen as great innovations in Web3, their practical use and utility have been questionable. This is because most of the highly-priced NFTs have been limited to artwork and music, with few being utilities like NFTs in gaming.

The gap in how NFTs can be integrated into day-to-day life, like being used in contracts to represent real-life assets, has left a gap in how NFTs will have continuity going forward since, with limited utility comes limited value.

NFT Scams

NFT scams have brought about mistrust in the market, as people can be uncertain whether or not to believe the validity of an NFT drop. These scams can happen in different ways, such as rug-pulls, fake NFT projects, pump-and-dump skills, and more.

An instance of an NFT scam is where an NFT project may involve famous people to market and increase the value of an NFT collection, then once the initial sale is made, the value of the NFTs drops drastically, causing a loss to those who bought it.

Market Cycles

Just like other assets, NFTs may undergo similar market cycles that asset classes like cryptocurrencies or the stock market do, with some people saying that the current downturn in market value is just a cycle that will pass.

Lastly, 2022 saw the beginning of a crypto bear market, a time when the prices of all crypto assets, including BTC and ETH, dropped drastically. The same happened in the NFT market, with prices dropping significantly together with liquidity as interest in collecting and trading NFTs fell off the cliff.

Moreover, the struggling global economy and high inflation rates are reducing the amount crypto investors are willing to spend on high-risk assets like NFTs, which has contributed to the heavily reduced trading volumes in the NFT market this year.

Uneven Distribution of Value

Famous NFT collections have generally had higher demand and prices than other NFT collections or even individual NFT drops. This has led to a noticeable difference in value in the NFT market, where well-known NFTs are more likely to be purchased at a higher price than other NFTs. This uneven distribution can cause instability in the market, where if the big collections drop in price, the whole market is affected.

Instability and downturn in the NFT market have had apparent consequences on the pricing of major collections, as shown in the case study below.

Case Study: The Impact on Azuki and Bored Apes Collections

Azuki and the Bored Ape Collections are two of the most famous NFT collections worldwide.

Azuki is a collection of 10,000 generative NFTs minted on Ethereum. These NFTs represent different characters inspired by anime. The collection was launched in January 2022 by Chiru Labs, where it generated a revenue of $29 million and got the attention of the NFT space. Azuki is currently ranked as the second most famous NFT collection on DAppRadar in the last month at the time of writing.

The most popular NFT collection at the time of writing is the Bored Ape Yacht Club (BAYC) collection. BAYC was minted on the Ethereum blockchain by Yuga Labs in 2021, in the middle of the boom of the NFT market. The collection has a total of 10,000 NFTs, which represent apes with different algorithmic-generated features. When the collection was launched, the NFT mint was 0.08 eth, which at the time was $192 USD, they also had cheaper NFTs worth at least $70 USD, but over time, and with good marketing approaches, these prices skyrocketed.

However, with the downturn of the NFT market, both collections have been negatively impacted. This has been seen recently, with more collectors liquidating their NFTs used as collateral for loans in what has been said to be the most historic liquidation in NFT history.

In the last seven days, Azuki NFTs’ floor price dropped by 27%, from 8.9 ETH to 6.58 ETH, which occured after their most recent collection release went sour and brought the NFT market down with it.

Azuki had promised to release a new collection known as ‘Elementals,’ which featured new NFTs and characters. While this hyped up Azuki users and the NFT market, their release was unsuccessful as the new collection had many duplicate NFTs that appeared in their original collection. This caused an uproar in the Azuki community and a price drop in the general NFT market.

Azuki’s unsuccessful collection drop also affected the BAYC collection, resulting in a 15% drop in BAYC’s floor price, which dropped from 38.3 ETH to 32.5 ETH in the past seven years. BAYC’s floor price even briefly touched 27.5 ETH, the lowest it has had in the last 20 months.

Though the ‘Azuki Incident,’ as it is now known, affected BAYC’s price, there was a general trend showing that the daily number of transactions had greatly reduced in the NFT market.

The Ripple Effect on the Broader NFT Market

Recent data from Dune Analytics showed that there has been a marked decrease in daily trading volume in the market, with an over 50% decline in the month of June 2023.

This data also supports the previous observation that there was a decline in market liquidity since the height of the NFT bubble in January 2022, which has continued to trend downwards in the summer of 2023.

nft-market-downturn-1.png Source: Dune Analytics

While there have been spikes in trading activities, data suggests that NFT market liquidity may be starting to bottom out, with only die-hard NFT collectors still actively buying and selling NFTs.

The price sentiment in the NFT market remains rather bearish despite ongoing efforts by leading NFT projects to reignite interest in this unique digital asset class and the immense potential NFTs bring in terms of different use cases.

A Look into the Future: A Momentary Dip or a Lasting Trend?

The current market statistics of the NFT market show a visible dip in market prices. This downturn has some implications, both negative and positive, for the future of the industry.

On the negative, the current downtown shows that prices in the NFT market can be easily manipulated through activities like wash trading, scams, and more. This can reduce trust from users, as it paints NFTs as more risky.

The positive side of the market downturn is that it presents the opportunity for innovations and the creation of solutions to problems currently plaguing the NFT market. In many cases, bear markets are the best time for companies, and in this case, NFT creators and marketplaces, to innovate.

While the market has a downturn, NFTs still have the potential to bring utility to various industries like real estate, estate planning, gaming, the art scene, and more. The potential of NFTs does not change despite the current market conditions.

As we observe how the NFT market trends will perform over time, you can always store and manage your current NFTs or even purchase, send, and exchange NFTs using Trust Wallet.

Download the Trust Wallet Browser Extension or the mobile app to start managing your NFTs today.

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