The sales volume of Non-fungible Tokens (NFTs) has exploded in the 3rd Quarter compared to the growth of the market in Q1 and Q2. This explosive growth in sale of crypto assets is up almost seven-fold in the space of 3 months.
Looking at the data from DappRadar, it can be clearly seen how the word explosive is taking new shape in the tech market. The record breaking month of August showed that the sales volumes almost quadrupled from July which measured $1.35 Billion USD to over $5 Billion USD in August.
The sales volume for 2021 has fluctuated for the most part as most investors were expecting. However, the sharp uptake of sales in Q3 has far surpassed anything any institution could predict. The total sales volume for NFTs in Q3 surpassed $10.7 Billion USD. Looking at this number alone might not communicate the mind boggling growth that NFTs overall have experienced in the last 3 years. Comparing year-on-year growth for 2021 with that of 2020, the overall growth rate has been an enormous 38,060%!
NFTs are a non-physical and digital entity that utilize blockchain technology to authenticate and trace ownership of items. These digital items are limited in scope and encompass things such as videos, music, pictures and even virtual land (or items) in a game. It seems as if there are no limits to what digital NFTs can be.
Many investors believe that the increase in NFT sales values in the last quarter has largely been driven by the price of cryptocurrencies especially amidst their latest surge. Bitcoin and Ethereum have been marching upwards nearing their peak prices seen last year. This is shown in the 2 graphs below:
In these two charts, it can clearly be seen that Bitcoin is still the main driver in crypto affairs as the general trends that are present in Figure 3 are evident in Figure 2. Both BIT and ETH recovered to their previous records on the 21st of October.
Although NFTs use the same blockchain technology that crypto uses and it is true because of that most buyers pay for NFTs with crypto – especially ETH. However, there are many reasons for the recent increase in sales volumes of NFTs that go beyond just the swinging prices of BIT & ETH. Being able to justify the sales volume by the above currencies doesn’t hold true any more as the marketplace has become much more complex.
For instance, many NFTs can be bought on online platforms that specialize in verifying NFTs. These include places such as OpenSea. OpenSea saw the largest volume of sales in Q3 compared to any other source. They processed an astounding $3.4 Billion USD in August alone and $3 Billion USD in September. See Figure 4. This is just one marketplace that accounted for over half of the sales in Q3. One could even liken OpenSea to the BIT of NFT marketplaces.
It has been interesting to note that although OpenSea has been the largest marketplace, traditional selling houses such as auction houses have also come on board with the NFT trend and included them in their offerings. These include old school houses like Christie’s which hold the title for the most expensive NFT ever to be sold so far. This was of course the mosaic Everydays: The First 5,000 Days by the artist Mike Winkelmann.
The selling of NFTs in this manner in traditional houses instead of online means that the transactions cannot be recorded by the blockchain. However, the ownership records can still be created as the traditional houses hold the access to the digital items. When these traditional houses sell NFTs, they are sold as “off-chain”. Meaning that traditional payment is used in the purchasing in place of crypto. This has added to the validity of NFTs in the marketplace in recent months. Whereas 6 months ago, NFT art was still seen as very niche compared to physical art. Showing just how tremendous the recent growth has been.
Traditional Market Data
What has also been extremely interesting to note about the last 2 months’ growth has how the NFT market has shown that it is independent of traditional marketplace conditions. In terms of world stocks, Q3 was the first quarter, since Covid began its toll in early 2020, that losses have been experienced – as reported by Reuters.
If we take into account that in Q3 of this year Chinese markets have seen over $1 Trillion USD wiped out due to regulatory introductions by the central banks. These losses were further exacerbated by the sudden and increasing costs of energy over the country. The NFT market was especially resilient in the face of the Chinese crackdown on all things cryptocurrency – banning them outright. When the announcement was made, the crypto market was barely affected by it.
Increasing Popularity and Complexity
Originally NFTs started off as popular profile pictures of heavily pixelated figures, but that has changed drastically over the last year. Brands have started to emerge on the market that were made more popular by celebrities also joining in on the NFT craze. These included people such as Shaquille O’Neal and Snoop Dogg. Their joining in increased the overall social outlook of NFTs. This is one of the main reasons for the separation and independence of NFTs compared to the physical markets.
The biggest new brands to emerge were CryptoPunks and Bored Apes Yacht Club who have been able to achieve consistently high prices in the market and also have the value of their work increase over the last few months. Their value being especially validated by the money processing firm Visa purchasing CryptoPunk #7610 for $150,000 USD. Visa then made a statement basically saying that NFTs were part of the future for payment methods in a digitally led future.
Another interesting application and introduction of NFTs was in that of games. Several games have been developed that make use of blockchain technology. Which no allows players to hold actual value in the digital items that they own the game. Thus, adding value to the time spent in the game. To put into perspective how valuable this application is to the NFT market, consider this. In Q3 of this year, items in these blockchain based games have generated over $2.3 Billion USD. This in essence accounts for just over 20% of the total volume of NFTs in this period. Showing the validity and wide-spread use of the combination of games and crypto.
The Realities of NFTs
The recent growth and validity of NFTs and the marketplaces in which transactions have occurred have been great. However, that is not the only aspect to consider in Q3. To have wholistic approach in understanding the results, one must understand that there are actually very few users in the NFT marketplace compared to that of crypto.
According to the site NonFungible.com, which tracks and traces NFTs using the blockchain foundation, there are only around 265, 926 wallets which are active. This indicates a good number of users that are actively participating in the market. In considering the active number of wallets, one must also realize that a portion of NFT users that don’t have wallets could account for up to $2 Billion USD. This is due to the fact of the physical space of auctioning off NFTs in a traditional selling house like Christie’s.
Looking at the recent growth in this third quarter, it can be seen that this has been the best time for NFTs to date. The amount of sales volumes has reached records while still increasing the validity of the digital items. This has been unlike the populist and short-lived trends of cryptos over the years which make amazing gains to only have their value fall within a short period of time.
Even though NFTs are based on the very same blockchain that ETH is made of, the volatility that has been associated with ETH has not had such a strong effect as some financial experts and critics expected. In the recent dip last month where ETH fell over 13.28% in value, the NFT market cap only fell 0.54%. Showing that NFTs have started the process for becoming independent from crypto even though sharing the same technological foundation. The major difference being that the technology is been used for more than just payment. Rather the blockchain is being used to prove the authenticity of digital assets.
Looking at the greater adaptation of NFTs by an increasing variety of users has led to greater growth in Q3. However, one should still expect volatility in the near future as there has been a substantiated trend in recent times for populist bolstered trends – think Elon Musk and DogeCoin. The best way of seeing if this NFT growth is sustainable, will be to see it grow in a similar way in Q4.