Original compilation: Kxp, Rhythm BlockBeats

Original Author: Mr. Fox

Original compilation: Kxp, Rhythm BlockBeats

Editor's note: In the recent market crash, the NFT secondary market, which has always been separated from the encrypted secondary market, also experienced violent fluctuations. The mainstream NFT led by Boring Ape and Azuki all experienced a decline of more than 20%. Coupled with the decline in the popularity of PFP, the market has not seen a project that attracts players for a long time, and the view that "NFT has entered a bear market" has begun to spread. In this email from Real Vision, this macro institution shared its views on the current NFT market. Rhythm BlockBeats translated it as follows, hoping to help readers.

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

The image below is a snapshot of NFT transaction volume on Dune Analytics over the past few months:

NFT sales have been on a rapid decline since mid-February. This doesn't have much to do with the war that started on February 24th, as sales increased at that time.

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

So, what exactly caused this bear market?

Guess #1: Overstated tax loss collections relieve pressure

Compared with December 21, NFT trading volume has shown a sharp upward trend since January 22. Many believe the surge in volume was largely due to easing seller pressure from tax loss collections. (Rhythm note: The policy of the US Internal Revenue Service)

In theory, NFT market participants hope to close out their loss-making projects in order to enjoy tax benefits in the next annual report. This situation has to a certain extent caused the market depression in the latter part of the fourth quarter of 2021. Although various market activities are still proceeding in an orderly manner, prices have encountered a cold snap.

After entering 2022, the pressure on the seller has been eased, and the NFT market as a whole has begun to pick up.

However, do people buy NFT again because they no longer worry about tax issues, or are they afraid that others will resume purchases regardless of taxes?

Although we can't answer this question yet, this may also shed some light on our question at the beginning of the article, that is, 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 increase, but a temporary peak.

So maybe the NFT market is not suffering a bear market, but just returning to normal after a period of upswing.

Guess 2: The market apex may have arrived

Compared with the previous guess, this theory has a negative attitude towards the NFT market.

But if you know about emerging technologies, you must have seen the picture below when the price of NFT fell.

This chart shows the Hype Cycle for Emerging Technologies created by Gartner, and the 2021 edition of the chart also includes NFT and decentralized identities. This cycle is generally used to demonstrate the use of emerging technologies. While some people use this chart regularly to predict market trends, I won't draw conclusions from it. In my opinion, what we should be exploring is the possibility that the NFT market has peaked after a year-long upswing.

Let's analyze the first two phases of this chart and what each means in the NFT market.

A. The Facilitation Period of the Birth of Technology—Digital Identity and Mainstream Utility

Some people believe that as early as January 2021, with the popularity of NBA Top Shot, the NFT bull market has already begun.

Someone was making a lot of money on NBA Top Shot, but when Dapper Labs decided to keep increasing the supply of "Moments," the price took a serious dip. For the largest holder, the value of the asset is down more than 75% from its portfolio's all-time high.

Unfortunately, those smaller NBA Top Shot holders have opted out of the NFT market, partly because they have no money to invest in other NFTs, and partly because they have lost confidence and do not want to continue to develop in the NFT market up.

Those who hold more NBA Top Shots have also suffered some losses, but they have earned enough money to continue investing in other NFTs. These people turned their attention to other NFT projects, such as CryptoPunks and later Bored Apes.

So below 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, Boring Apes Yacht Club was the first project to use NFTs as suggested digital identities for community members.

The Boring Ape's popularity is largely due to two things:

1. As we just mentioned, the club is the first NFT project that allows NFTs, works of art, not only to serve as anonymous digital identities, but also to become club members. Therefore, although Boring Ape is indeed very cool in the eyes of many people, in fact, the exclusive privileges it brings are the real reason why people like it.

2. The popularity of Metaverse knowledge has led to a greater belief that Boring Apes (and other NFT avatars) can become what they appear in the virtual world, further driving this market.

Soon, this statement became: "There will be 1 billion people going through their day in the metaverse in the future, so everyone needs an NFT digital avatar. So, who can launch a good NFT project as soon as possible, Whoever will be able to skyrocket in the future.”

So that's why the NFT market was flooded with cartoon animal images and profile pictures last summer, but obviously we don't need to discuss why the prices have become so high after that.

The only problem is that currently none of the metaverse platforms (Decentraland, The Sandbox, Somnium Space, etc.) can bring us the expected metaverse experience.

With that in mind, the question then becomes, should these digital avatars that popped up last year stay at these price levels until the Metaverse is actually built? And it will take at least 6 to 7 years to build a fully functional Metaverse.

So we entered the second stage of the technology maturity cycle.

B. Peak of Inflated Expectations - Overpriced

The more people expect their NFTs to show their strengths in the metaverse world, the more likely this expectation will be infinitely magnified and eventually become unrealistic. Aside from market prices, no one can accurately predict how much people will pay to wear Boring Apes in the Metaverse.

But what happens if people can't wear Boring Apes in the metaverse yet? The answer is: People guess and guess.

Therefore, there is a possibility that prices may reach exorbitant levels.

Now that we have understood where NFT and digital avatars are in the technology maturity cycle, I believe you also have a clearer understanding of why NFT is in a bear market.

Guess 3: The NFT market lacks technological innovation

The third and final theory for this pullback in NFT trading is that the NFT market has been lacking in technological innovation since the beginning of the bull market.

The NFT market has not made much progress in the underlying blockchain technology, and its development prospects are therefore limited. Moreover, this is why many NFTs give people a sense of repetition. In the past year, the NFT market has experienced only a few technological innovations.

The latest innovation is thanks to Azuki, which introduced a new token standard (ERC-721A) that greatly reduces the gas fees incurred by NFTs during the minting process.

We can even apply this concept to all NFTs besides profile page pictures. Digital artwork has not been able to make good use of NFT's authentication and traceability functions (maybe it doesn't need to), and music NFT has not made any real progress in the past year. To make matters worse, NFT has no application prospects in other fields.

In a period of lack of technological innovation, it is difficult for new ideas to be iteratively developed, 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 are currently seeing in the NFT market, and the actual reason for this decline may be a combination of these three.

So, what to do if we are in a persistent downtrend?

The development of NFT is still in its infancy. I see a lot of people advocating buying at this time, but I don't think it's a good strategy, because we can't be sure whether today's NFT will still have value in 1, 5, or 10 years.

Instead, I prefer to spend more time studying. Many people will leave the field, which will greatly reduce the noise in the current public discussion.

That way, those who stay are participants with valuable perspectives, and we learn more from them. In addition, the down cycle of the NFT economy just gave us time to think. The development momentum of the NFT market has been too rapid before, so the current period of stability should be expected to be seen, because during this time we can finally understand the technology, use cases and theory of NFT in depth.

If you spend as much time learning about NFTs as possible during the NFT recession, you can be successful when the bull market returns.

We will continue to explore unknown areas.